Stephen Morrall Archives

We all know the phrase “Rags to rags in three generations”.

This cliché encapsulates the challenge for wealthy families in getting the next generation to engage with the family assets, whether they be a business, a property portfolio, an art collection or something else. Other challenges include showing them how to steward them responsibly so that they are maintained and increased for the benefit not just of the current family, but also of future generations. This should be part of the normal process of succession planning, but obstacles often get in the way, such as conflicts within the family or between generations, a reluctance to divulge information or a desire in the older generation to cling onto control.

It is a given that each family member will have his or her personal viewpoint and priorities which are a potential source of conflict with the others. What can be done to bring them together and give them a common purpose? It’s not just about making money; it’s about how to make a meaningful contribution. Three useful steps to consider would be:

Agree what the family stands for in its business, its local community and in broader society;
Agree what the family would like to give back;
Enshrine the family ethos in a visionary set of principles and objectives that everyone can support.

One of the successful US family companies is S C Johnson & Son Inc, the makers of Johnsons Wax, which has grown from local roots in Illinois to become a worldwide business. The company has been guided by certain basic principles since its foundation in 1886, essentially based on earning loyalty and goodwill amongst its staff and customers and contributing to its communities. These principles were formally stated in a comprehensive mission statement called “This we believe” which has been communicated both within and without the Johnson Group.

If the family can articulate what it stands for, it can plan how to use some of its wealth to promote philanthropic projects in which, incidentally, the next generation can become involved.

Philanthropic projects, which are detached from the family business, are being used as vehicles for encouraging communication within families and fostering discussion and collaboration between the generations. Nobody should be threatened by a good cause: the next generation can be given roles in which they will learn the skills they will need later if they join the family business; and there is undoubtedly a role for the older generation too when the time comes for them to retire from the business.

If you would like advice on articulating your family’s values and how to promote them, please speak with Stephen Morrall or your usual contact at MEUM.

Stephen.morrall@meum.group

MEUM supports Action for Children, a charity whose mission is to protect and support children and young people. It has a Family Philanthropy program through which it unites families over shared values and inspires the next generation to help vulnerable children in the UK. If this is of interest to you, you can find out more about how you can work with Action for Children by following this link: Family Philanthropy | Action For Children

The role of the board and the increasing challenges faced by directors have been much talked about these days in the light of various high profile scandals, the effects of the pandemic, changes in working patterns, the increasing burden of regulation and economic uncertainty. The board of a family company may not attract as much public attention as a listed company but it faces the same challenges as any other board and possibly even more, given the involvement of the family in the business.

Make-up of the Board

The make-up of the board is crucial. Is the entrepreneur who originally set up the business the only or controlling director? If there are more directors, are they family members? Were they selected on merit or do they sit on the board just because they are in the family or hold shares? How long have they been in office, do they have relevant skills and what are their roles?

Every company needs to review the composition of its board from time to time and ask itself, what is its role, are the right people in the right jobs, and how should their performance be measured? These topics are discussed in a new report published by the Financial Times on the changing roles and expectations of board members. The traditional metric of success is profitability, but it is not the only one. Other metrics such as company values, the quality of the leadership and awareness of ESG issues and diversity are becoming increasingly important. Directors are expected play more than just a passive role, turning up to board meetings and reacting to the board papers provided by the executives. They are now expected to understand the company’s business, the markets in which it operates, and the threats to the business be they from competitors, supply chain issues, cyber attacks or changes in regulation to name but a few. They need to ask challenging questions and think strategically.

The Board as a Team

The board needs to be formed as a team with a broad range of skills. Individual directors need to have clear briefs and be held accountable. Research shows that the more diverse a board is, the more successful it will be, so where possible, men, women and people from different backgrounds who bring different perspectives to the table should be appointed. They should be expected to challenge the status quo and ask difficult questions. As a family business grows, it is likely to become more difficult to fill positions only from the family. The point will come when the family needs to decide whether to bring in outsiders to hold executive roles including those of Chairman and CEO. Non-executive directors can be appointed for their particular expertise and experience and to act as a critical friend to the executives.

Family Values

While the family may hold all the shares and have ultimate control, as more non-family members are appointed to executive positions, the family’s day to day involvement in the business will diminish and its role will change. The family may focus on defining its values and ethos and introduce mechanisms, such as including them in a job specification or service agreement, to ensure that they will be respected. Because the family and the executives will have different priorities, tensions will arise which will have to be managed. The family will therefore need to choose the non-family directors and executives carefully and appoint people whom it trusts and respects – and who trust and respect the family and its values.

Is it time to address those difficult issues?

A growing and successful family business represents a challenge for the family. Often, tensions arise because difficult issues have been avoided for too long, such as succession, governance and control. However, if they are faced head-on and dealt with constructively, both the business and the family will benefit. The role of the board, and particularly the independent directors, is to bring a fresh perspective and facilitate the process.

If you would like advice on structuring your family company, please speak with Stephen Morrall or your usual contact at MEUM.

Please email Stephen on stephen.morrall@meum.group

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BUILDING BETTER BOARDS IN FAMILY COMPANIES