Seville, Spain.

[dropcap style=»default, circle, box, book»]T[/dropcap]he other day I was listening to an address given by my friend and leading light in the transport sector Antonio Vazquez Olmedo, during a  conference held in Seville. He gave an excellent talk on “Succession in Family Business” and being in awe of him I suggested he wrote an article on this topic for my blog. Family companies and MicroSMEs have a lot in common as you would expect, and when we began to write, we ended up deciding on a trilogy with the following titles:

• This first one on the Key Issues and Challenges for the Management of a Family Company in which we will share with you our vision of what a family business entails.
• Later on we shall discuss theproblem of succession.
• Finally, we will explain just what is the family protocol as a formula for the improvement of the management and succession processes in this type of company.

What is a family business?

 The finest definition that we have found of a family business is the one given by Javier Fuentes in his book “From Fathers to Offspring”. A family business is that type of company  (in the most general sense) in which at least two members of the same family have the legal control of ownership to a sufficient extent as to control the company (with a majority or not), and effectively participate in the administering and running of the same with clearly defined professional targets and purposes (rather than personal ones).

The family business is a fascinating topic, both extensive and difficult to simplify, where multiple disciplines collide head on, both involving technical studies (Accountancy, Analytical, Finances, Statistics) as well as those relating to the humanities (Law, Psychology, Sociology). Thus, we must not think of family business just being extensions of the homesteads, but rather also as much larger companies. Perhaps one of the best known family run businesses is FIAT, belonging to the Agnellis, though we can also quote many more such as Levi Strauss, Zara and El Corte Inglés. In the infrastructures sector, worthy of special mention are Acciona (Entrecanales family) ortheengineering firm SENERbelonging to theSendagorta family.

Yet there is a statistic that is quite astounding:

• For every 100 family run business, only 30 are passed on from the 1^st to the 2^nd generation, and after this, only a 15% reach the third generation.  This means there is a death rate of 85% over three generations for family businesses. Certainly it is meaningful

Within the causes of the disappearance of family businesses, we find:

1. 10% is due to the fact there is no heir,
2. 
20% down to business issues,
3. with another 10% the result of a lack of equity.

4. And mainly, 60% of the time, it is due to FAMILY issues.

When Sigmund Freud was asked about the secrets to a fulfilling life, he responded with these three words “love and work”. For most of us, family and work are the two pillars upon which our lives stand. For this reason, organisations that combine these two pillars come with an overwhelming emotional load coupled with powerful vital energies.

Within the complex relationship between family and work, the family provides the family business with:

▪     Its knowledge

▪     Its vision

▪     Its values

▪     A defined strategy

▪     Financial backing, allowing for investment, etc.

And the company provides the family with:

▪     An image

▪     Contacts

▪     Wealth

▪     Up-to-date information

▪     Professional opportunities

So what are the current challenges facing the family company?

The are five family challenges which are:

▪     Succession, as we have already mentioned, many family businesses do not go beyond the third generation.

▪     Professionalisation, as with any company, families must capable of functioning effectively and efficiently.

▪     The Family Unit, all must push in the same direction, as the company is owned by all of them.

▪     The incorporation of new family members, these must be properly trained and ready to assume their responsibilities.

▪     Leadership assumed by all parties.

The five main problems facing companies are:

▪     Competition (“in the market or for the market” )

▪     Strategic Planning (towards where we want to go)

▪     Company Organisation

▪     The incorporation of technology in an ever-changing world.

▪     And, Financing.

Finally, the main issues faced by family run businesses are:

▪     Seek out capital in order to grow without diluting family control, an especially difficult task in times of recession.

▪     Solve problems resulting from the economic needs of the family and those of the company.

▪     A long-term planning strategy to solve problems arising from generational changes.

▪     Overcome resistance presented by older members to leave the company at the right time.

▪     Ensure that the heir to the family business be competent.

▪     Regulate access on the part of new generations into the company.

▪     Accept external succession should it not be possible to find a leader from the family for the next generation (this may be a temporary solution).

▪     Vanquish rivalries between siblings / cousins with regard to the acceptance of the successor.

▪     Have in placed the ability to attract and hold onto professionals from outside the family (it is not wholly advisable for the entire company to come from the same stock).

What are the keys to efficient management of a family run business?

Regarding this topic, I would like to advance some comments that will appear in forthcoming articles, though here is a taster, to quote Peter Drucker:

1. The first golden rule is that family members should not work in the company unless they are as competent, at the very least, as any other non-family member employee, and that their performances matches if not exceeds the latter. «It is cheaper to pay a lazy cousin not work that to keep them on the payroll” accordingto Drucker
2. It does not matter how many family members form top management in the company, and however efficient they may be, one of the top posts must be held by someone from the outside, that is, not a family 
3. This already occurs in the oldest “family run business”, the Mafia, as we are reminded in the film “The Godfather”, there was always the advisor (Il consogliere), the lawyer, and more often than not, they were not of Sicilian stock

On the other hand, there are three types of environment that in a family run business can give rise to multiple possibilities that require us to find a niche for them, motivation and shared targets, namely:

▪     The family environment

▪     The ownership environment

▪     The company environment

Another key aspect is to sign a family protocol, though we shall discuss that in greater depth in coming posts..

The family business has a lot in common with something I have discussed in other articles, MicroSMEs, as in the end; the problems faced are the same whether you are dealing with partners or relatives, friends or colleagues. They come with their issues, though as we have seen it is a way of developing your own projects, and why not, making money for all involved. However, we must be made explicitly clear is that they key to everything is professionalisation, only companies that are well ordered survive, even in hard times.

We now encourage you to take part by leaving a comment:Are you the owner of a family business or do you work in one? What do you consider are the key aspects for this to function?

This article has been put together by Antonio Vázquezand Julian Sastre.