Succession issues cloud future for family firms

Almost two-thirds of family business owners say they would be prepared to sell their businesses because of difficulties in passing their firms on to children, according to new research.

A study of around 350 UK family businesses also found that only ten per cent had any form of governance structure in place to support and protect the business and the family members running it. Where families did have governance structures, the most usual were shareholder agreements, family charters, trusts and manifestos.

Of all of the businesses that were structured as limited companies, only a quarter had non-family board members and only 20 per cent had non-executive directors to provide independent insight and advice.

The research, carried out by Family Business Place – which promotes and supports British family firms – and Charles Russell Speechlys – found that family members own more than 75 per cent of shares in nearly all (87 per cent) the businesses surveyed.

Yet more than half (55 per cent) saw succession as a barrier to future success, with almost two-thirds (62 per cent) admitting they would be prepared to sell up owing to difficulties handing on the business to children or relatives.

Concerns around planning for the future included intergenerational conflict (24 per cent), succession problems and/or younger family members not wanting to join the business (29 per cent), dividend policies and remuneration of family members (ten per cent) and sibling rivalry (seven per cent).

Just over a quarter (27 per cent) of respondents cited “other” issues – including long hours, recruitment, and disputes around the overall direction or purpose of the family business –  as barriers to future success.

Report co-author Sally Ashford said on 1 December: “It’s no coincidence that family businesses are revealing both a lack of formal governance and concerns or problems with succession – the two often conspire to stunt business growth. It’s essential that family businesses put the right professional, management and governance structures in place to ensure they stay on the right track.

“Family charters, manifestos, or councils can help get family members behind a shared vision or set of objectives, smooth negotiation and avoid arguments, and keep younger family members engaged by allowing them a voice in the future of the business.”

At Palmers, we are experienced in working with family businesses and can provide expert advice to support their development and growth, on issues including succession planning, shareholder and partnership agreements and family dispute resolution. For more information, please visit our website or contact BJ Chong.