Family businesses in the UK employ more people than any other organisational type
The Institute of Family Business and Tomorrow’s Company have this month published a report (the Report) on good stewardship practice in family businesses. The Report, titled “Family Business Stewardship”, can be read here.
Stewardship of four types of capital: Family, people, financial and social
The Report explores “the idea that what makes the best family businesses different in their pursuit of success” can be looked at through their stewardship of four types of capital:
- “Family Capital – an attachment to their businesses that goes beyond a mere financial relationship. There is a personal identification between the owners and the business. The family becomes a powerful means of transmitting vision and values across generations creating a legacy of purpose and values. As a result the business can have a clear identity and personality.
- People Capital – the strength of knowledge, skills, behaviours, energy, loyalty and commitment which exist within the non-family members of a family business. The people who work in a family business often appear to feel a stronger identification with it, a sense of belonging which can be reinforced by relationships which can outlast a single generation.
- Financial Capital – prudence combined with a sense of financial responsibility towards future generations. This can be manifested in dividend restraint or ambitious investment timescales rarely envisaged by other forms of business. Another benefit is a greater freedom of the owners and boards to define success in their own terms.
- Social Capital – the trust and reciprocity embedded in relationships through which is grown a deep and enduring link between the business and all those around it, to the mutual advantage of all concerned.”
The Report suggests that “a focus on [these] four principles can result in stronger stewardship of the family business and open the way to better overall performance in financial and other terms”.
Examples of stewardship in successful family businesses and an agenda for businesses
Each of these four types of capital is discussed in the Report using examples drawn from prominent family businesses, including Sand Aire, C&J Clark, SC Johnson, Samworth Brothers, Linney Group, Timpson, W.L. Gore and Associates, William Grant, Arco and Grosvenor.
The Report concludes with a set of questions to help family businesses consider the extent to which they act as stewards of their businesses and identify areas for improvement. Those questions are based around four stages that follow the life course of a family business:
- Setting the course: attention to clarity of purpose, roles and relationships
- “Good stewards set a course so that all those involved with the company know its purpose and their part in achieving this end…this will mean that boards work out carefully what they believe their mandate to be.”
- Driving performance: attention to performance and improvement
- “…emphasises the need for ‘uncomfortable conversations’ which continually stimulate improved performance and capability. Without good stewardship, companies can become too lazy and slow to change and fall behind their competitors.”
- Sensing and shaping the landscape: attention to the wider world
- “…the way the company anticipates, influences and deals with changes in its external environment.”
- Planting for the future: coherence over time
- “…the need for consistency between short-term actions and long-term success.”
The questions associated with each of these stages form an agenda that should help boards, investors and outside observers judge the effectiveness of stewardship in a particular company.
*In 2008, UK family businesses employed more than any other organisational type, with 9.5 million people working in family businesses, compared with 7.5 million in FTSE companies and 2.8 million in private-equity owned firms.
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