The perils of family-run firms (and how to avoid them)

The perils of family-run firms (and how to avoid them)

Family-run firms can be a source of great pride and success for their owners. Yet, while this dynamic can often make for a more closely aligned team, it is important to consider the complexities and sensitivities that may also arise when getting into business with your loved ones.

For decades, family-owned businesses have been the backbone of the Scottish economy, accounting for approximately 84 percent of all companies north of the border and employing around 874,000 people. Some well-known examples include Walkers Shortbread, Baxters Food Group, and Scotch whisky producers William Grant & Sons.

The secret to every long-established family firm is clarity on employee responsibilities. Key areas of a business – including finance, HR, and strategy – can all be compromised by familial relationships.

Emotions and personal history have the potential to cloud judgement and lead to biased decision-making, often resulting in other staff members feeling undervalued if relatives receive preferential treatment.

To prevent such concerns, a family charter could prove valuable. This is a document that outlines aspects such as the direction of the company, who has a say in the most important decisions, and the entry requirements for the next generation to join. Although not legally binding, our family business unit can offer advice on how to develop a workable family charter, as well as how to maximise its benefits.

Typically, a family charter will provide guidelines for new family members looking to join, ensuring their position is based on their ability to do the job, rather than their surname. For instance, it could require them to have obtained a university degree, or to have gained experience from another company first.

The potential for blurred lines between personal and professional relationships is also a common concern. In a traditional workplace, it is easier to establish and maintain professional boundaries.

But when family members work together, the risk of intertwining personal and professional matters increases significantly. For example, workplace disagreements can spill over into family gatherings, straining relationships and causing tension.

A family charter that includes clear contracts of employment and comprehensive job descriptions can help. Additionally, through working practices such as setting personal objectives or using timesheets, senior management can closely monitor the performance of all staff to ensure that everyone is adhering to the same set of standards.

Conflict can be unavoidable in any working environment, but it becomes all the more challenging when family is involved. Disagreements among siblings or cousins can escalate quickly, potentially leading to long-lasting rifts that extend beyond the workplace and create difficult surroundings for other staff. Ensuring consistency and fairness within company policies, procedures and practices is critical. And you must apply them universally, regardless of family status.

Finally, careful succession planning can help to secure the longevity of a family business. While the aim is often to pass the business down through generations, assuming that family members are inherently the most suitable candidates for leadership roles can be detrimental. Competency and skill should be the primary criteria for succession.

In order to preserve harmony in both the boardroom and the living room, it is crucial to establish clear boundaries, implement professional practices, and maintain objectivity. Documenting this in a family charter allows everyone to understand their individual role in growing and nurturing the business, and will help to keep family ties aligned.

Graham Millar is an employment law partner, Gilson Gray

Read the full article on The Scotsman.

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