“What’s wrong — is the company going bankrupt? Are we being sold?” For Charlie, who had joined his family’s bakery business two years after getting his MBA and earning his stripes at another company, this question from the plant manager came out of the blue. He was eager to earn his colleagues’ respect, rather than relying on his family name to provide it. So he went to great lengths to be just “one of the gang” in every possible way. This included parking in the back of the building and walking through the production plant, rather than zipping into the reserved space he’d been provided near the executive offices in the front. Most days he would stop and chat on his walk through the factory, getting to know his colleagues and learning more about the operations. But one day, after his morning walkthrough, the plant manager surprised him with the question about the company’s future. Charlie reassured him that the company was actually having a banner year. Where had that worry come from? It turns out, seven people had gone to the plant manager after seeing Charlie arrive that morning with a sour look on his face. They all wanted to know: Was something bad about to happen? The scowl had nothing to do with work, but until then it had not dawned on Charlie how closely people were watching him. Though his previous job and his MBA had been invaluable, neither had fully prepared him for the reality of managing under a microscope. When your family’s name is on the door, you will never just be one of the gang — and everything you do could be fodder for the office rumour mill. From that day on Charlie, who eventually rose to become the fourth-generation CEO of his family’s company, made a promise to himself that each morning when he walked from his car to his office, it would be with his head held high and a smile on his face, no matter what was on his mind. The family business leaders we work with have echoed Charlie’s experience. They have learned that their actions — positive and negative — are amplified because of their status as owners (or owners-to-be) of the company. Even seemingly small gestures — driving a fancy car to the office, putting photos of themselves with celebrities on Facebook, or calling themselves an “owner” in front of colleagues — can unintentionally generate ill will. But that doesn’t have to be the case. Here are some of the most common traps we’ve seen family business members fall into, and how to avoid them. Working at the company for the wrong reasons. If family members act as if they are there only to collect a paycheck, or because they have nowhere else to go, it sends a signal that all employees should push to get as much for themselves as they can. It’s better to convey that you are interested in the business. If you are passionate about the business and demonstrate your commitment through positive energy and hard work, it can energize other employees and encourage them to focus more on the common cause and less on who gets what. Expecting promotions without putting in the work. When family members start at a level that is beyond their qualifications, or are promoted much faster than deserved, other employees are more likely to focus on patronage rather than performance as they look to climb the ladder. If you’re joining the family business, start at the bottom of the pyramid and work your way to the top. This will reinforce that the company is truly a meritocracy. Working around the chain of command to get special treatment. How do you seek approval for their ideas? Do you follow the rules and work as hard as everyone else? Too often, family members take advantage of their access to senior members of the firm, seeing the rules as malleable and looking for ways around them. Instead, work through the chain of command, don’t ask for special treatment by relatives in senior positions, and abide by policies for vacation days, expenses, and office hours. This will foster a culture of accountability and reinforce the integrity of the company’s decision-making processes. Blurring the boundaries between home and work environments. Office politics in family businesses are further complicated when members bring their family dynamics into the business, opening up the possibility of employees playing family members against each other. It’s important to set clear boundaries within the workplace, such as referring to people by name rather than relationship (“Mary” rather than “Mom”) and not discussing family dramatics at the office. This helps set a professional tone. Working in your family’s business can bring enormous reward, but it also carries a lot of responsibility. As Charlie learned, if you work harder than other employees, are willing to learn from the shop floor up, and treat your privilege with modesty, you’re more likely to earn the respect of your colleagues and keep office politics in check. First Published on 6 November, 2017 in the Harvard Business Review Reproduced with permission of the author.

For those involved in the management of the family firm beware that staying true to your roots can foster inertia when innovation is most necessary. Recent research has punctured the stereotype that family firms are staid and lacking in innovation. In fact, their cultural differences can be the source of a decided innovation advantage. But those same strong values can make it harder for family firms to find a new business model when the old one suddenly becomes a roadblock to success. Loyalty to the firm is a distinguishing family asset as this intrinsic quality gives owner-managers a competitive advantage in the long-term development of the business. But when it comes to business models, loyalty for the sake of loyalty can become a liability. Too much loyalty can limit success, since it can inhibit founders of family firms from adopting innovative business models until it is too late. The Ultimate Decline Of Laura Ashley A good case in point is the textile firm founded by Laura Ashley in 1953. Born in Wales in 1925, Ashley learned how to make clothes as a child from her quilt-making grandmother. As an adult, she made headscarves, napkins, table mats and tea towels that were adored by her friends and family. Her designs recalled her grandmother’s old-fashioned quality of life, where British women tended to the home and garden in serenity. It was an ephemeral lifestyle wedded to a country-of-origin effect. Ashley realised she had invented a business model that powered her exceptional rise to success. Ashley married an enterprising fellow who gave up his job in London to supervise the production of textile products printed with his wife’s designs. They moved the operations from their tiny flat in London to a large factory in Wales, employing staff at wages well above the average local salaries. The Laura Ashley brand quickly acquired a solid reputation as a premium fashion player, labelling all products “Made in Wales.” The business took off, providing employment opportunities to the couple’s four children. From a fierce loyalty to her Welsh roots sprang a business empire that enabled Ashley and her family to run a global network of 500 shops and employ 1,000 people by 1975. But in 1985, tragedy befell the family and the firm when Ashley died unexpectedly at the age of 60. It was a period when many of the firm’s rivals were beginning to outsource their production to countries on the periphery of Europe, developing major supply chain networks in Morocco and Turkey. At the same time, the exotic but far less costly garments being sold by its rivals opened up a completely new competitive environment for the Welsh firm. Some pundits even claimed that the “Laura Ashley look” was too British and was outdated. Women in the 1980s needed more assertive clothing in line with their growing status in the workplace. Following the death of Ashley, her husband and their children struggled to find a response to the changes in the marketplace. The core of their business model, however, was left untouched. In honour of their founder, they announced to their staff that both the manufacturing and logistics operations would stay in Wales. Yet within five years, the company was in deep financial trouble and an outsider CEO was hired in 1991, followed by a string of other CEOs. The family lost control of the firm after an Asian company became the major shareholder in 1998. The company is now nothing more than a licensing entity. This sad ending to a dream-come-true journey reflects the hardships any family business could face when internal and external roadblocks suddenly appear at the same time. To avoid such a fate may not be as difficult as most observers believe, however, if owner-managers institutionalise innovation in the core of their business model. Business Model Innovation At Zara Take the example of Zara, a fashion company founded in La Coruña in northern Spain, by Amancio Ortega and his wife in 1975. After 10 years of selling inexpensive garments throughout Spain, Ortega decided to institutionalise innovation in the firm’s business model. He believed he could beat the well-known brands like Laura Ashley at their own game by reducing lead times and quickly responding to trends. While remaining loyal to the employees who worked at his original factory, Ortega was careful not to make future investments for the sole benefit of his compatriots. He decided to open plants in neighbouring Portugal, as well as in Turkey and Morocco. Ortega connected the factories with a state-of-the-art logistics network. The rest is history. A highly responsive supply chain now ships garments twice a week to Zara’s 2,100 stores located in 88 countries. Furthermore, the creative process of designing new garments based on changes in fashion trends has been sped up to the point whereby the new designs on Zara’s drawing boards reach the stores as fully finished garments within two weeks. By not being too loyal to his operational geography while at the same time institutionalising innovation throughout the supply chain, Ortega transformed Zara from a fashion discounter into the world’s largest apparel maker, managing up to 20 clothing collections per year. In contrast to Ashley who was bound to her operations in Wales, Ortega decided to transform the existing design, manufacturing and distribution processes entirely. He demonstrated the value of breaking old habits and created an entirely new business model based on continuous improvement. This article was first published on the INSEAD website here and has been reproduced with their permission.

Arbikie Estate is a family-owned working farm perched on the east coast of Angus. Here, the crop is king and they painstakingly plant, sow, tend and harvest the fields that make up Arbikie. This is a family business where they are craftsmen of the soil and an estate profoundly shaped by its environment: the red sandstone-tinted soil, the powerful sea and the turbulent weather give Arbike a character found nowhere else. And here, situated where land meets sea, sits the distillery – created from an ancient barn, it is a place with all the ingredients required to produce authentic spirits of the highest quality. The family has been farming at Arbikie for four generations. From father to son, they have gained an intuitive understanding of the land, sowing and harvesting the crops that now create Arbikie’s range of field to bottle spirits. Farming in the Stirling family goes back even further – since 1660, initially on the west coast. Their lands passed through seven generations until great uncle Bill moved to farm at Arbikie on the east coast of Angus in the 1920’s. He then passed it to the grandfather of the current owners, John Stirling who expanded the acreage before passing the lands over to Alec Stirling. Brothers John, Iain and David are the visionaries and driving force behind the Arbikie Distillery. As with all farming families, the brothers grew up working around the farm, and It is this hands-on experience that gave them a deep understanding and respect of the land. Despite pursuing careers away from farming, they have always stayed attached to the family lands – and now with the opening and growth of the Arbikie Highland Estate distillery, they have returned to drive this exciting and continually evolving venture. Join Paul Andrews as he interviews one of the Arbikie directors, Iain Stirling, in understanding more about the values, purposes and drivers behind the business, and their role as custodians of the family firm for future generations.

Chase are a family owned, British field to bottle distillery, creating luxury spirits from their farm in Herefordshire. They set up the business in 2008 to challenge the status quo in the white spirits industry. If people are interested in the terroir for their wine or the barrel ageing for their whisky, then why shouldn’t they be interested in how their white spirits have been crafted? The business has become a family affair; with Will’s older sons Harry and James working within the business. Harry manages Chase Farm and farms 300 acres of potatoes which are grown on a 5-year crop rotation and James works as their Global Brand Ambassador educating customers and consumers about their field to bottle philosophy. This short film clearly shows the family business brand and values beautifully. Find out more at www.chasedistillery.co.uk

At Riboli Family Wines, they pride themselves in maintaining their core family values while also employing innovative techniques that will keep their legacy alive for generations to come. Each Riboli family member maintains a steadfast commitment to honouring not only the premiere craftsmanship of wines, but also their dedication to environmental sustainability and to the people that make up their family business. This is a story of a family legacy built on hard work, family values and a love for the land. An American Winery of the Year Winner, check out this short film that explains all there is to know about the family behind this award winning family business.

Founded in 1905, Bridge of Weir Leather Company is a privately owned Scottish Company operating one of Europe’s largest leather production facilities. Historically, the Bridge of Weir roots can be traced back to 1758, seven generations of family involvement in leather manufacture. Throughout, they benefited from Scotland’s advantages of an indigenous skills base, prime beef herds and a plentiful supply of soft, pure water. Bridge of Weir Leather Company is the UK’s only leather manufacturer for the automotive industry, and as part of the Scottish Leather Group operates one of the largest tanneries in Europe exporting to over 60 countries around the world. Bridge of Weir has been at the forefront of innovation and quality for over a century. Where there have been major advances in motoring, furniture or travel, Bridge of Weir leather has played its part. Only the finest hides sourced from the best heritage breeds are used and generations of hand-finished craftsmanship create a unique alchemy resulting in the finest Scottish leather. Check out the film behind this family business manufacturer and see the history and heritage unfold.

Many of Germany’s predominately family-owned Mittelstand businesses are likely to come under the hammer over the next ten years presenting a boom in mergers and acquisitions in Europe’s biggest economy. But these businesses will need help to navigate the sales process, says an M&A specialist Harald Link. The post World War Two economic boom in Germany gave rise to many mid-sized family businesses as well as seeing existing businesses flourish. Many of these businesses are today dealing with succession issues and question marks over how they can continue to grow in a world economy dealing with unprecedented disruptive forces. Some will adapt through innovation driven by the next generation of owners and continue to grow as family businesses, but others will see an opportunity to sell, or at least bring in outside capital to accelerate their growth efforts. “Germany’s family businesses will look to find an internal solution to grow their businesses, but if that isn’t found and succession presents a problem then they will look to sell the company,” says Harald Link, who runs an M&A specialist consultancy in Hamburg and works with many of the country’s Mittelstand businesses. “A trade sale is the preferred option, then followed by a private equity or family office sale. The least preferred option is to go public through a listing,” says Link. The sale of the Wirtgen Group in 2017 to US company John Deere is perhaps an example of this trend. Wirtgen, a construction machinery group based in a town called Windhagen, south of the city of Cologne, is a good example of a family-owned Mittelstand business that grew rapidly after it was founded in 1961. Facing succession issues and an offer too good to refuse, second generation owners Stefan and Jürgen Wirtgen decided to move on to other opportunities and sell the business. Other businesses are likely to sell to often foreign buyers looking to gain access to German businesses like Wirtgen, which is a specialist in making high-quality road construction equipment. “Buyers from places like the US and China want these businesses technology,” says Link. Others will look to sell minority stakes to bring in outside capital and expertise in an effort to grow their businesses, but to remain in control. An example of this trend is Ottobock, a family-owned prosthetics company based in Duderstadt in the middle of the country, which sold 20% of its equity to Swedish private equity group, EQT, last summer. Private equity groups and family offices are particularly looking to do deals in Germany, says Link. “Right now a lot of music is playing in this area.” Link together with Ulrich Hemel, a prominent German entrepreneur, economist and theologian, who has worked with many of the country’s family businesses, has written a book in German entitled: Zukunftssicherung für Familienunternehmen Beteiligungen, Verkäufe, Übernahmen (Securing the future for family businesses: participations, sales, acquisitions). The book offers a guide for the country’s family businesses on how to navigate the next steps on their business journey, which could involve their sale. “The many options open to family businesses also presents them with a challenge,” says Link. “These businesses often aren’t equipped to deal with issues like selling equity to outside buyers. External consultants also use their own jargon, making decisions often difficult for these businesses. This book is designed to provide a guide specially tailored to family entrepreneurs.”

Caribbean Blinds UK Ltd are a UK manufacturer of luxury external shading systems from stylish patio awnings that provide instant shade and shelter, to innovative external blinds that offer unbeatable solar heat and light control and an award winning louvered roof Outdoor Living Pod that provides year round use of the outdoor space whatever the weather. Paul Andrews spoke to second generation Managing Director Stuart Dantzic to find out more. When was the business founded? The company was founded as a limited company in 1987 however it was formed back in 1973 as a non limited company. How did you get involved? I was always helping out in the Summer months to earn some pocket money with my roles ranging from sweeping the factory floor to doing some filing. As I got a bit older I was helping with assembly along with taking calls and answering queries. Whilst I was at college, I still worked part time in the business so I had some beer money for the end of each week but I really enjoyed being involved too. Back in 2001 when my parents said they were moving from a rented factory to purchasing a factory in Sudbury as the business was growing I was excited and I wanted to be part of the journey, and the rest, as they say ‘is history’. What did you want to be when you grew up? A lawyer. There was something about being all suited and booted and commanding an audience (jury) in a court room that was very appealing. Whilst I didn’t progress this career path, my favourite programmes and films are typically always lawyer related. What are your first memories of the family business? Aside from the nice yearly holidays which were a result of the business being a success and my parents hard work, I first remember the company when we were based in Hedingham. I remember sitting in my mums office, which was the second door on the right up the corridor and helping out on the Amstrad computer – I can’t remember what I was doing, probably typing something up for her. I do remember the distinct smell of smoke as these were the days when smoking was not prohibited inside of buildings. What values are important in your family/family business? We have to meet or exceed (ideally exceed) clients expectations, every single time and to do this we have solid values based around honesty and integrity. We don’t over promise and under deliver. We provide sound, honest, expert advice to ensure clients make an informed decision and subsequently have the right solution, first time, every time. What is the best thing about being a family business? You’re all working towards the same goal and it’s not all about money. Yes the money helps but you are building a brand, after all it’s your family name and reputation that is on the line. And the worst? I don’t think you every switch off. Even when I meet up with my brother socially, we talk about work. But this is because family businesses are passionate about what they do and are continually striving to improve. What is the best thing about your working day? There are two things, sorry I couldn’t narrow it down to one! First is seeing the site installation photos on the company intranet from our teams of completed installations – it’s great to see the end result of our products and the subsequent positive reviews. The second, and I’m sure many people will agree with me, is success and I’m using this broadly as it can be winning projects, seeing new products we’ve invested in gain traction or simply seeing a happy team when I come into the office and/or the factory – this gives me the most satisfaction. What is your proudest family business achievement? This would have to be when I set up what we refer to as the ‘projects division’ which is the direct arm of the business. This was set up due to a reduction in trade sales following the 2008 recession and targeted architects to incorporate our products into their schemes along with discerning homeowners and businesses direct. Within 5 years of setting this up it was generating more turnover than our trade supply and continues to, to this date. Winning the Suffolk Business Awards Young Business Person of the Year last year (2019) was great too as it recognised what the company has done since I took the reins, doubling turnover in such a short space of time. Is there a next generation waiting in the wings to take over? No, we’re some way off that yet, having just taken the reins ourselves. I would like to think however that the company will still be in the Dantzic family for many years to come. What do you see as the biggest challenge facing family businesses? As a family business we offer value, and I think most family businesses do. Many businesses are looking to make as much money as quick as possible and will sell at lower margins to create volume and then move onto something else, so I think the biggest challenge is competitors underselling and undervaluing products and services. What words do you associate with family businesses? This could be a long list so I will pick just three: Knowledge – family benefits from years of experience, passed through generations Passion – family businesses love what they do and this runs throughout the business Integrity – family businesses grow by their honest, ethical approach – it’s their family name after all which is their reputation and as the business is always looking to the long term, protecting this and ensuring it is known for the right reasons are paramount. Words of wisdom – What piece of advice would you pass on to someone thinking about joining the family business? Make sure (a) you are doing it because you enjoy the business and what it does and not just because your parents want you to join and (b) make sure you get involved in every single element of the business so you know how it truly functions and operates – not only will this enable you to help take the business forward but it will gain the respect of all employees. Find out more at www.cbsolarshading.co.uk or watch Stuart who shared his views as part of our Family Business Insight series here

It’s a dilemma that faces family businesses all too frequently. We saw it recently when we worked with a $4 billion global manufacturing business in Hong Kong. The company was managed by the founder, who turned it over to his son when he retired. The two men had created distribution channels, built a supply chain, entered profitable new markets–and, just as importantly, held the family together, ensuring that family members were well taken care of and that family disagreements didn’t harm the business. Now with the passing of the founder’s son, the third generation–a collection of cousins who are geographically dispersed, prone to disagreements, and lacking the experience necessary to run such a large and complex business–are trying to figure out what to do. It’s a tough situation, and the third generation decided to look outside the family to find a successor CEO. They wanted someone who could reset the strategy; someone to grow the business again; someone who could broker an agreement between the factions of the family who favour reinvesting for growth versus those who favour high dividends. They called this idealised new CEO “Mr. Wonderful.” A worldwide search turned up two leading candidates–both of them superstars. But each person turned down the job. Neither thought the business was ready for a non-family CEO. These rejections were traumatic, but they have proven to be a tremendous gift. No one could have done everything the third-generation cousins wanted. The candidates most likely to accept such a role would either be incompetent in not understanding the complexity involved (thus dooming the business to failure), or, even worse, they would see an opportunity to assume control and push the family aside. The situation this family faces is all too common. They approached the problem of succession believing that what worked successfully in the past would work for their generation. It wasn’t until outsiders began rejecting the CEO position that the family realised that even the most wonderful person could not have managed a business that had now grown so complex. Certain systems and structures had to be put in place first. This was work that only the family owners could do. Businesses don’t need to have billions of dollars in revenue before hitting this point–we see it happen to family companies of various sizes. What should you do if you find yourself in the situation of wanting to bring in an outside CEO? First you’ve got to make some changes yourselves: Step up as owners. Even if you’re used to your parents running the show, it’s time to realise that you’re the owners now, and have the right–and the responsibility–to develop your identity as owners before an outside executive can come in. Part of the problem is that as members of the next generation, many of you have experienced “learned helplessness.” When, over years or decades, you’ve been shut out of decision making, you may not know how to call the shots, whether the patriarch or matriarch is still living–or not. So your first step is often the most difficult: assume psychological ownership. Choose your ownership path. Once you’ve taken on the mantle of being owners, then you’ve all got to get on the same page about where the next CEO should drive the business. Know your agenda. Whether your goal is growth, liquidity, a turnaround, or employing more family members, your desired path dramatically affects what kind of person that you’re looking for, and the background and experience needed. The new guy can’t hit the ground running unless you reach a consensus about where you expect the business to go. Fight the CEO’s fight. Clean up the messes that would hobble the new CEO. If there are family members all over the business that don’t belong there, get them out now. The worst thing that could happen is that Aunt Mary’s son Johnnie is high up in the business, and he’s incompetent. If you leave it to the new CEO to have to remove Johnnie, the leader will lose Aunt Mary’s 15 percent of the vote on the board. That’s a new CEO’s worst nightmare. You will also need to clean up the compensation system. One way patriarchs and matriarchs dominate family business systems for so long is that they buy people off. If someone has a special compensation deal, get rid of it. Change the power structure. When you have a dominant patriarch or matriarch, the power structure typically gets overly centralised with the strong man or woman in the centre sitting on the shareholders’ council, on the board, and running the business. It is impossible to have a successful non-family member CEO succession until this power dynamic changes. Appropriate checks and balances must be put in place. At the very least, you must clearly define and delineate roles for yourselves, the board, and the executive team. One client family reinvigorated their board in order to fill the gaps and correct the blind spots that they knew their CEO had. This strengthened the new guy and convinced the patriarch that it was safe to move aside. Editor’s Note: Some names, locations, and other identifying details in this post have been changed to protect client confidentiality. First Published on 6 December, 2013 in the Harvard Business Review. Reproduced with permission of the author.

In this short video, family owned Butlers Farmhouse Cheeses wanted to celebrate the farmers behind their cheese and recognise all of their hard work. It was commissioned as part of Farm 24 back in 2017 and shows the dedication of goat farmers, Nicola and Matt. Without their commitment to raising a happy goat herd, Butlers wouldn’t have such a delicious goats cheese product. They deserve a gigantic pat on the back for the brilliant work they do and Butlers wanted to tell their story. So here it is, a day in the life of Nicola and Matt.

Succession planning is always on the family business agenda. However, it can be one of the hardest conversations to have because it involves people letting go and handing over responsibilities. As one of life’s inevitabilities, succession planning is always on the family business agenda. However, it can be one of the hardest conversations to have because it involves people letting go and handing over responsibilities. One of the most important things to remember is that ownership and management succession must be treated differently. Ownership succession is all about owning shares in the family firm whereas management succession raises questions about who should take over the helm. In this article, Natalie Wright, Head of Family Business at Mazars looks at the challenges around management succession and the family business and how to ensure the process is as smooth as possible. It’s important to exercise care right from the outset to select the management team that are fit for the future and not just today. Successful family firms are those that embrace change and innovate to remain relevant to their stakeholders. As a general rule, the sooner the process begins the better. Initially, the decision needs to be made whether the next generation of management should be a member of the family. If not what would be the impact on the underlying values and positioning of the family. A broad timetable also needs to be put in place, taking into account a period of transition. Ideally there will be a date to work towards that clearly states the change in leadership to all stakeholders. Each family is different, but whilst transition is a process and not always an easy one, it can, however, be broken down into a number of key steps. 1.Agree a timetable 2.Identify the skills required 3.Select the candidates 4.Provide necessary training and education 5.Select a successor 6.Engage with staff/management 7.Define performance indicators 8.Set clear governance guidelines 9.Monitor progress 10.Start again Once the timetable has been set and the business has identified the key skills required and any training needs, then the selection of candidates can begin. If you want to be keep management within the family, current leaders need to identify candidates from the next generation. This means choosing from their own children and potentially nieces and nephews, so the emotional dynamic of this selection process shouldn’t be under-estimated. In this case, independent input can be a great help. However, if non-family candidates are the preferred option then clear roles, responsibilities and incentive schemes need to be decided and put on the table to attract the right people for the roles. An advantage of having family members succeed management is that they most likely been involved in the business for a long time. In many cases though, family firms encourage their next generation to work elsewhere before returning to roles in the family firm, but problems can arise if they decide not to come back as they see their future outside the family business. Often open and honest conversations aren’t held until the succession process is formally put on the table, which can be too late. Inevitably, change at the top can lead to a period of uncertainty both internally with staff and management and externally with business partners. After the transition it is a good idea to put in place PR and relationship plans to smooth over any issues and to introduce the new leader to key customers, suppliers and contacts. It’s also important to make sure a clear set of rules for operation and interaction between the board and the family have been set. Family relationships are not always in sync with the needs of the business and these areas need to be managed appropriately. Planning helps, as does conversation, and it is always useful to get an external perspective too because many other family firms have been through similar processes and can provide a valuable source of ideas, examples and insights to ensure a successful transition. Once the transition has been implemented, regular reviews are needed and essentially the process starts all over again! Management succession is a key area for family firms to plan for and address. With people living longer, the gap between generations is increasing and the needs of businesses today are changing rapidly. With situations where the next generation is not mature enough to take on the challenges of the business there may be need to look outside the family for leaders and planning for different scenarios can help the business to plan for the future and address different scenarios too.

Morten Bennedsen, INSEAD Professor of Economics and Political Science shares some lessons from the UK’s oldest privately owned bank, which has been in the same family for more than 300 years. In family businesses, family assets are the unique and often intangible contributions that only families can bring to their firms and are essential to their identities. Long-lived family firms always need to identify and develop those unique family assets that have been sustained and enhanced by each generation of the family. These assets can take many different forms, such as the name of the firm, its reputation, the history of the family and the business, the mission and its unique business philosophy, the values that drive the family in their business dealings, and the rich network of business and political ties developed over multiple generations. A key feature of family firms – and a requirement for their sustainability – is that their contributions are linked to strategy-making. If assets are not present at the operational level, they cannot be efficiently leveraged to create a clear vision for the future. In addition, the unique assets that families deliver can enhance the identity and brand awareness of their firms in the eyes of next generation family members who may be interested in joining the family firm. Non-family employees are also motivated by the spirt of working for a firm that has a strong sense of identity and traditions. However, as these firms develop and grow over time, family assets can be lost on the growing number of family members and stakeholders, especially if no long-term planning of this special type of asset management has been initiated by the founders or developed by second- or third-generation owner-managers. More than anything, owner-managers should engage in a continuous process of re-defining their family assets in order to profitably include them at the level of firm strategy and vision. To develop long-term planning, owner-managers can focus on three key variables: Identify the critical family assets and how these can be exploited in the current business environment. Understand the extent to which family assets are transferable to the next generation, to outside managers or to new owners. Organise the leadership and management of the firm in such a way that family assets add value to the business strategy. A Rock-Solid Legacy One firm that exemplifies how these variables can work in practice is C. Hoare & Co, the oldest private bank in the United Kingdom (founded in 1672). From the day Sir Richard Hoare opened the unlimited-liability bank, depositors were attracted by the bank’s stability in a climate of uncertainty. Hundreds of similarly family-owned banks managed to survive until the turn of the 20th century, when larger limited-liability banks absorbed most of the smaller, unlimited-liability banks. Currently, eleventh generation Alexander S. Hoare is one of the bank’s eight partners. Alexander said the ambition of the Hoare family has always been to carry on doing what it does best, which is to act like ordinary employees in all areas of the bank, including credit, finance and investment. Hence, Alexander said the family have never had any desire to entertain buyout offers from more powerful companies. Family Members Are Staff Members At any given point in time, about 12 family members ranging in age from 20 to 80 are employed by the bank, but only a few of them are promoted to the level of the boardroom. At different times family members may act as employees, directors and owners. Usually, however, family members are ordinary members of staff. As the bank has provided services to many of its customers’ families for centuries, the family has never felt the need to advertise for more clients. Nevertheless the bank’s customer base has broadened over time, ranging from owners of landed estates to entrepreneurs and professional individuals, partnerships, owner-managed businesses, family offices and charities. With such a wide variety of customers, C. Hoare & Co. has developed a range of services that has evolved to keep up with changing needs: loans, foreign exchange and treasury services, wealth management, financial planning, investments, tax services and trust administration. Recently, the Hoare family moved towards professionalising the bank’s senior leadership. The current CEO is David Green, a non-family professional, who joined the firm in 2003. The current chairman of C. Hoare & Co is also a non-family professional, Sir Nicholas Macpherson. However, shares in the bank are all owned by the eight partners of the firm who are family members. With approximately 2,000 Hoare cousins in the extended family, the bank does not distribute dividends to all of them. Dividends are only distributed to the eight partners, and the dividend has not changed since 1928. As an unlimited-liability company, each of the eight partners carries unlimited liability for the bank’s business activities. “This influences our behaviour,” said Alexander. “It forces the eight partners to manage and mitigate any risks the bank could have.” By staying focused, families can optimise and enlarge the long-term value of their assets. Moreover, family control is most valuable when the family assets are strong. This article was first published on the INSEAD website and has been reproduced with their permission.