Why keeping it in the family makes brilliant business sense

THE prospect of working alongside one’s spouse, siblings or parents may fill some of us with dread but new research suggests that family-run business are ideally suited to surviving the downturn.

The importance of Britain’s three million family firms should not be underestimated.

They employ nine million people; contribute nearly a quarter of total UK GDP; and provide over £81bn in tax to the Exchequer.

During the stockmarket boom family-owned and run operations had been largely written off as a relic from the past.

But big business has a lot of survival lessons to learn from companies where family members call the shots.

They are less likely to go bankrupt because they are usually made up of a well functioning and diverse board of directors, according to researchers from Durham University Business School, Imperial College Business School and Leeds University Business School.

THIRD-GENERATION COMPANY: An early fleet of funeral cars belonging to Seaton Leng, of Darlington

The team also found that 80 per cent of family-owned businesses are more gender balanced, having at least one female director on the board.

A well-run board can be crucial in providing guidance to executives if they see the company drifting away from its goals and objectives.

The researchers found that the diversity of the boards of family businesses means that they are more stable. Surprisingly, the team found that this limits conflict between board members. This diversity also means that board members have a wider skill set, making them more able to address potential threats to the survival of family businesses. This is in comparison to other private firms where board turnover is higher.

Family firms, which often have to rely on internal sources for financing of projects, are more frugal in their spending.

They scrutinise business opportunities with greater intensity and take fewer business risks than private firms.

“These are key factors behind the success of family businesses,” explains Dr Louise Scholes, senior lecturer in entrepreneurial management at Durham University, who co-authoured the study.

“The composition of their boards appears to be a fundamental reason behind their success and it is something that other private firms could learn from.

“Family businesses are very careful about who they select to join their boards. The research shows that the gender mix is more diverse – having more women in the boardroom reduces conflict – and they take in a wide range of views which lends itself to better decision making.”

The study highlighted the fact that family-orientated goals such as preserving unity, wealth and providing employment for family members may also contribute to their survival.

Dr Scholes continues: “They exhibit slightly slower growth but survive longer, boast higher retained profits, and lower debt.

Perhaps there is a greater sense of responsibility for managing their family wealth than where boards are considering the impact on shareholders.”

Despite their strengths it is rare for family businesses to make it through to the fourth or fifth generation, but the North- East boasts some exemplars of longevity.

BROTHERS Richard and Stephen Tulip run Lintz Hall Farm in Burnopfield, County Durham – a poultry business that was started by their great-grandfather George Tulip during the Second World War as part of the Dig for Britain campaign.

His son, also called George saved up money while working in hatcheries in the south of England to buy his first three acres of land in Sunniside, near Gateshead.

By 1961, he bought the nearby Lintz Hall Farm and had 15,000 birds. The business is now the largest egg producer in the region, supplying supermarkets such as Tesco and Asda.

“Being in a family business means that you are all fully committed. Everyone gives their heart and soul to it,” says Richard, who quit a career as a successful nightclub DJ to join the family firm.

“But there are negatives too. It can feel like this is your whole life. You end up arguing a lot because there is a lot of passion involved.

If you fall out with a family member it can have a negative impact on the business.”

How do you handle the added pressure of keeping alive something that has been nurtured by your forefathers?

“It’s a great responsibility, but it’s something that you just have to deal with.

You can’t be afraid to put your own stamp on things and adapt to the times. We value the work that has been put in by previous generations, but ultimately the future success depends on your own decisions.”

Stockton manufacturer Pickerings Lifts, established as a pulley, block and chain maker in the year when Britain went to war in the Crimea, is still going strong as it enters its 160th year.

Seven years its junior is the building firm set up by Thomas Manners in Peel Street, Bishop Auckland, County Durham.

It now employs 60 workers and entered this year on the back of contracts worth £2.5m, with Robert, the founder’s great-grandson as managing director and his son, Simon, a director.

AV Dawson, on the banks of the River Tees, is now in its third generation of family ownership.

The firm, launched 75 years ago with a £50 investment in a horse and cart, now employs 160 staff and has become one of the UK’s leading distribution companies.

Darlington funeral directors Seaton Leng and Son, which was established in 1891 in Gladstone Street and now based in Bondgate, is jointly run by the second and third generation of the Tindale family.

• To carry out their research, the team analysed data of more than 700,000 medium and large private family and non-family firms with an annual sales turnover of at least £6.5m, a balance sheet total of at least £3.26m and at least 50 employees.

They analysed the filing accounts of private companies from 2007-2010, which contained information on a company’s directors, secretary (where one has been appointed), registered office address, shareholders and share capital.

The data was collected from Companies’ House, the national database on limited companies and the Insolvency Service from 2007-2010.

It was backed by funding from the IFB. For more information visit ifb.org.uk