Learning from family business

family business

What is our mental image of the successful businessman or woman? Bernard Rennell, Global Head of Family Governance and Family Enterprise Succession, HSBC Private Banking looks into the ‘family business’

Often we think of an inspirational figure; someone who makes their own rules rather than bending to convention – an iconoclast, a challenger, a disruptor. This is someone who revels in taking on the established players; who is feared by existing businesses and business leaders who seem to owe their success to history.

If this is the popular view of entrepreneurs, the idea of running a family business might seem quaint and homely by comparison. But that would miss so much that is vital and valuable in family-run businesses. According to the Institute of Family Business, family businesses contribute £460 billion to the UK’s GDP with 4.7 million family-run businesses in the UK, employing 12.2 million people.

Having advised family businesses for more than two decades, I can say with confidence that the stereotype that might have held true fifty years ago for a business that was handed down from eldest son to eldest son like a pocket watch is now almost non-existent. Family businesses should instead be understood instead as the exemplar of business. In many parts of the world, the family business model is prevalent – including in high growth economies. Across mainland China, Hong Kong, Singapore and the Middle East, 56% of entrepreneurs come from a business-owning background.

The advantage of pursuing this course is clear. Businessmen and women often enjoy an innate understanding of their family business impressed on them since childhood. And they can continue to rely on the family as a network of expertise and contacts with their interests close at heart. This sort of head start is often what entrepreneurs crave – HSBC research demonstrates that at the key moment when they look to scale their business, self-starters experience significantly more headwinds than their competitors who enjoy the family’s support.

Family business is not always smooth sailing, however. There are certain inbuilt structural challenges that families can find hard to navigate. There is a common adage worldwide that speaks to family wealth dissipating after the third generation. This is mainly a result of the simple fact that from generation to generation more members of the family become involved, dispersing decision-making (with the accompanying danger of family disputes and arguments) to a point that the business and family wealth generated from the business become unmanageable.

It does not have to be this way. Family businesses that survive and thrive follow a plan. First and foremost, they think strategically not just about the business, but about the business of the family. In short, they put structures and processes in place which accommodate and manage the cross-currents of loyalty and emotional investment that a family business engenders. This involves developing decision-making processes that allow the enterprise to remain agile and focussed, even as the family grows with each generation. If managed strategically and dispassionately, there is less tension among family members and fewer feuds in the boardroom.

During each generational transfer, it is critical for the older generation to recognise that those that follow may wish to do some things differently and to encourage fresh thinking. Indeed, to capture the interest and engage younger entrepreneurial minds, we found that younger entrepreneurs emphasised the need for their business to generate social value, defining success in terms of a positive impact on society rather than just the bottom line.

While these views might raise eyebrows among some older businessmen and women who tended to only measure a business by its financial returns, businesses that thrive over time are those that can promote a dialogue between the best ideas of the past and of the future. A family business, which can accommodate young and old alike, is ideally placed to profit from the wisdom of different generations.