Keeping a business in the family can be tricky

You can choose your friends, but you can’t choose your family. The same might be said for your business partners, but many people nonetheless choose to tie their professional and family lives together, bringing with it inevitable ups and downs.

But the Irish family business remains a dynamic and resilient sector, with a 2014 PricewaterhouseCoopers survey saying it provided more than 50 per cent of the State’s GDP and employment.

It is undoubtedly a unique business model that brings with it specific challenges and obstacles. Dr Eric Clinton, director of DCU's Family Business Centre, says conflict can arise when family values that are "emotionally driven" clash with the business values that are "rationally driven".

Some of the major factors include succession planning. While the average tenure of a chief executive in a family business is 23-24 years, only one in 10 firms will have a succession plan in place.

Clinton says this is the “hot topic” for family businesses.

“Succession for many family businesses is inevitable. It’s one of the biggest topics people want to talk about. How to do it? When to do it? Who to engage? Is it a family person? What if the family person doesn’t have the attributes?” he says.

Dr Melrona Kirrane, a lecturer in organisational psychology at the DCU Business School, says the onus on family businesses to elevate family members can often have a detrimental effect.

“The family business can’t afford to take a talent management approach, and the reason why they can’t is because of family dynamics,” she says. “While most family companies choose someone from within the firm to carry the business on, they don’t consider the successor’s capabilities, and that’s one of the main reasons for failure.”

The upshot of that is that only 30 per cent of family businesses are expected to survive the first generation. Only 15 per cent are expected to survive to the third generation, and less than 3 per cent are expected to survive until the fourth generation.

One of the ways to combat problems with succession is to put strong corporate governance structures in place. If rules are established and adhered to, the business is less likely to fall foul of some of the usual pitfalls.

What are the rules for getting involved in the business? Is it automatic because you are family? Do you have to work outside the business for a number of years? Do you need to have a particular skill-set or educational requirements?

Of course, when it comes to family, there will always be issues that arise. Clinton suggests a “family council” where issues related to the family are expressed and discussed.

“One of the things families are very often not good at is communication. We see conflicts between siblings; in-law involvement can also create conflict. Some family businesses don’t allow in-law involvement as a rule. That’s about trying to make sure there is harmony and no friction,” he says.

“We see a lot of firms that have a thriving business and it makes no sense on paper for them to be sold, but often it’s just that the family members can neither agree nor agree to disagree. It’s just not functional. Often it gets very personal, and irrationality creeps in very quickly.”

Kirrane points out another pitfall called “consensus sensitivity” which she describes as when people “want to agree the whole time and keep things harmonious”. However, that doesn’t always happen.

There are also gender-related issues. Kirrane says the data indicates that sons – and even sons-in-law – tend to be favoured over first-born daughters when it comes to succession.

“When it comes to daughters, they have a much rougher time. Only 2 per cent of daughters are likely to become presidents in family companies. One reason is the father’s desire to protect the daughter from the cut and thrust of the business world,” she says.

“Daughters also get a double message. Interestingly, women-owned family businesses are 1.7 times more productive than those run by men. They are also six times more likely to have a female chief executive.

“One of the reasons they do well is the feminine qualities of being supportive and co-operative and attentive. They’re less hierarchical and more likely to take more time over decisions and seek information and other people’s opinions.

“That can result in better management, and better business decisions being made. It also means they are better placed to deal with rivalry issues or wellbeing in the family. That’s productive as well.”

Power and competition

That is in stark contrast to the relationships between fathers and sons, which are categorised by control, power and competition.

“The son can want to establish his own identity really fast, leading to competition with the father. The son can feel pressure to outperform the father, which can lead to a lot of poorly thought-through decisions and strategies that may not be helpful,” says Kirrane

There is also the issue of the “glass ceiling” for non-family members in the company, whereby an impression exists that senior management positions will always go to family members.

Paul Keogh is currently chief operating officer with the Ballymore Group and has worked as a non-family member of a number of family businesses over the past 30 years. He says there are “a lot of plusses” to the business model, but that it “doesn’t suit everybody”.

“One of the things families don’t realise is they might meet for Sunday lunch, for example, talk about something to do with work, make decisions, and then you come in on Monday morning and the whole strategy has changed since you left the office on Friday,” Keogh says.

“The other thing that is quite common is that families don’t tend to write anything down. So if you’re a non-family member, you have to pick things up intuitively and realise a conversation has been had that you weren’t involved in. In a plc company, you would just go and find the strategy paper. There tends to be a lot more verbal interaction.”

Keogh also points to the “different mindset” of a family company, which is more concerned with long-term viability than profit-driven goals. “It’s much different to working for a stock market-listed company where the chief executive is completely obsessed with share price,” he says.

“A family business doesn’t answer to the share price and doesn’t have this quarterly review feel to it. Not everything has to be geared towards the financial reporting. They are not necessarily profit- and money-driven.”

Weighing into discussions as a non-family member of the business also brings with it its hazards.

“You have to remember that blood is thicker than water. The advice is to pick your battles,” he says.

“Don’t get involved in that grey area between what is a family dispute and what is a business dispute. If it turns out to have a family element, stay away from it. You are after all an employee and they are family. You have to be comfortable with that.”

Keogh says his advice to family businesses is to steer clear of employing in-laws and to have family members spend two or three years in a different company to get some outside experience.

“You can talk to your siblings and eventually tell them they are not working out, but it’s very hard to fire the in-laws. If you take them on, you’re stuck with them,” he says. “It’s also a good idea to get educated and to go off and spend two or three years somewhere else before you join the family business so you have a little bit of outside experience.”