Taking care of family business

Some of Britain's best-known firms are still family run. But does nepotism make economic sense

T he appointment of Rupert Murdoch's daughter, Elisabeth, as general manager at BSkyB, his satellite television operation, confirms that, for better or worse, blood is thicker than water in the Murdoch empire, just as in most family businesses.

There is nothing wrong with Elisabeth's being the apple of a proud father's eye; it seems unlikely that the canny Murdoch would promote an ineffectual child to an executive position in a company that has been fuelled by high- octane energy and cocksure risk-taking. He will be well aware of how other headline-snatching family businesses have fared recently. Was it wise for Ian and Kevin Maxwell to be brought in to trail in the dirty wake of their overbearing father, Robert? Might Olga, the elegant and energetic daughter of Lord Forte, have been better running the old boy's hotel and catering empire over the past decade than Rocco? And what about the Baring family? They looked a little foolish, to say the least, when Nick Leeson lost them control of the bank that bore their name for generations.

There is no doubt that the wrong appointment in a family company can lead to its decline, fall and takeover. Those of us who have worked for such companies and seen them bled to death by the incompetence of, typically, third-generation children know this to our cost.

In 1996, no fewer than 75 per cent of all British companies are family- owned. These families, in effect, employ half the country's workforce so their performance matters to all of us. Like any family, they are prey to squabbling, jealousies, and even tragedy; yet most continue to plant their babes on the board, in the hope that they will succeed. Some do, some don't.

"This makes sense, if imperfect sense," says Tony Bogood, director for south-east England of the Stoy Centre for Family Businesses, a club of 200 family-owned companies set up in 1992 to deal with the issue of succession that faces businessmen who are less clear than Rupert Murdoch as to what the future holds in store.

"Families are complex organisms," says Mr Bogood. "They are only rarely rational. They are mostly about emotive issues, yet business needs to be run on essentially rational lines. This raises the big question of how one generation of a business family should hand the reins to the next." It raises the further question of why families do not hand their businesses over to professional management more often than they do.

"The rational answer is because we want to retain control of the company in the long term," says Anthony Hussey, a director of Connolly Leather (the chaps who craft seat covers for Rolls-Royce) and first cousin of Tim Connolly, the company's executive chairman. "We want to keep ownership of shares within the family and where possible to bring shareholding members of the family into management.

"The emotional answer? That's different; Connolly is very much a family business. We're proud to have come so far from the 1870s when old Samuel Frederick and John Joseph Connolly set up their shoe repair shop on Euston Road. The name Connolly is almost synonymous with high-quality leather in the motor industry, and although times have been notoriously hard in this business over the past seven years, we've pulled through the recession and fought off increasingly tough competition."

"Even so," says Hussey, "there's no question that we'd bring in a son or daughter who couldn't make the running; you have to be tough with your own family no matter how much you love them."

"We have been taking on more and more professional managers from outside," says Jonathan Connolly, son of Tim. "What matters is that we get the best management; the family can retain a large degree of control, but cannot assume that it will have all the plum jobs in the future. The world is changing."

There are relatively few Sainsburys working for the giant superstore chain in 1996. The executive chairman, David Sainsbury, remains at the top of this concatenation of baked beans and soap powder, but there is no reason, and no especial need, for family members to be involved with the day-to-day running of a public company of this scale and ambition. Nevertheless, the Sainsburys are a good example of a family that likes to keep its name in big lights, not only on its mammoth stores, but on the walls, inside and outside, of art galleries.

The Brenninkmeyers, on the other hand, are famously tough on their children. No Brenninkmeyer gets to work for the family business unless he or she makes a good showing at an annual family board meeting when members of the next generation are grilled.

The Brenninkmeyer name may not be as familiar as Murdoch, Maxwell, Forte or Connolly but the staunchly Catholic Dutch family controls a familiar high-street brand: they have owned and run C&A since 1841. Low-key, yet immensely successful, the Brenninkmeyers maintain their grip on this international business by ensuring that no member of the family is given a high ranking job, or indeed, any job unless they are up to it. In the old days it was a case of a vocation with C&A or the priesthood.

Even more low-key than the Brenninkmeyers are the top-secret Mars family. The most recently published photographs of the two Mars brothers, Forrest, 64, and John, 60, who run the $13bn chocolate and pet food company, are more than 40 years old.

What we do know about the family is that old man Mars was a tyrant who bullied his sons into hard graft. At a meeting of sales reps in West Germany 30 years ago, Forrest Mars Sr ordered 29-year old John down on his knees to pray for the future success of the company for almost an hour.

At 7.30am, every morning since, John and Forrest Mars have clocked on with other Mars employees, heroes and martyrs in the cause of selling ever more Snickers, Whiskas and Pedigree Chum. To its rivals, says Forbes magazine, "Mars is the worst, the most feared enemy, totally unpredictable, capable of anything".

It is capable of anything because Forrest and John are able to make all their own decisions. Yet, as Tony Bogood points out, many family businesses fail (only 13 per cent of British family businesses survive to a third generation) largely because the families that own them are unable to make rational decisions, particularly over the issue of management succession.

"A business can easily come to grief," he says, "if doting parents insist on finding jobs for children who ought to be doing something else."

One hi-tech company in Cambridgeshire suffered recently after its owner and managing director, an incisive and dynamic woman in her early fifties, insisted on bringing her unwilling son on to the board.

"I've never been cut out for business," he says on the phone from San Francisco. "I'd always wanted to be a musician, like my father. Mum thought otherwise. She's a strong woman, much stronger than Dad. Perhaps in some Oedipal way she saw me as a substitute for Dad. I gave in at first. That was weakness on my part. I was ineffective from the start, yet Mum covered up for me even though the mistakes I made cost her company dear. I should have run to the States before I did. Now the business has been taken over and I can barely bring myself to talk to Mum."

Other well-known children of successful businessmen have made the break from strong parents before the crunch came. Sir John Betjeman, for example, the nation's teddy bear, never wanted to get involved with the running of Betjeman & Co, which made furniture and luxury goods for shops like Asprey. He wanted to be a poet. Nonsense, said Betjeman senior. Betjeman flunked Oxford, refused his father's job offer and probably broke the old boy's heart. He did, however, go on to become the best loved Poet Laureate since Tennyson. Betjeman & Co, meanwhile, vanished in a cloud of woodchips and varnish.

"There is always a problem raising the next generation of kids to take over a business," says Gerald Levan, a US author and expert in the study of family businesses (in the States, 95 per cent of businesses are family owned). "Many lack self-esteem because they know that everything they have - nice clothes, free homes, free cars, trust-funds, an inheritance - is not of their own making. This lack of self-esteem may not be obvious in the kids' outward behaviour, but scratch the surface and you'll find it there.

"The same kids will often mature slowly, lack drive and find it hard to create their own goals; they tend to languish in their parents' shadow and, as a result, are unable to handle power when it finally comes their way.

"They find it hard to make a break from home and will even choose partners to please parents or else partners who will organise the running of their lives for them. This is particularly true of young men looking, often without realising it, for a mother substitute. Most of all, they find it hard to take risks for fear that all they have may be taken from them."

In other words, this kind of child is not cut out for business and the irony is that the parents have made them that way.

"It's not always the case," says Mr Bogood. "Some privileged children will strive all the harder to prove they have the guts and gumption to succeed. The advice we always offer to family businesses is this: never take a child on board unless they have at least three years' outside experience and never if they lack the desire or aptitude to succeed.

"I was discussing the case with American colleagues recently and learnt of an architect who has insisted on bringing all three sons into his firm; none of them is qualified. He's offering them $20,000 each if they do, but they're simply not up to it, or even particularly interested. Even so, they take a good salary, driving qualified staff to distraction. He'll end up losing good, professional architects and a lot of good work with them."

Family members brought into companies without drive and a sense of professionalism are also likely to waste time and energy bickering. "A board meeting in which a senior director dismisses a good idea by a colleague may actually turn out to be the result of an argument that started in the nursery," says Mr Bogood. "Families, as we all know, can be very childish, which is why many adults choose to work with anyone except members of their own family."

There are, however, according to American and British experts, several clearly identifiable benefits to be gained by keeping businesses in the family: an overriding commitment to making the business work; an in-depth knowledge of the business and the industry it operates in, handed down over generations; technical know-how including trade secrets; flexibility in pay and pensions (a family may agree to pay its members less one year than another to help keep costs down; flexibility in hours worked (family members will cover for one another and work weekends for love rather than money); the fact that families tend to take a long-term view of investment; that they can make decisions quickly (like John and Forrest Mars); and that they can be particularly reliable as family pride encourages them to be so.

Despite these virtues, no amount of analysis or prescription will ever make a family- owned business work along entirely rational lines. Some, for all their air of wilful amateurism (Morgan, the Malvern-based maker of traditional sports cars, for example) promise to drive happily into the next century, even when Sir John Harvey-Jones in his television series says they should have failed by now; others, apparently powerful and all- conquering - Maxwell, Forte - have tripped over the laces of family shoes that are not properly tied. Randolph Hearst (Orson Welles's "Citizen Kane") refused to let the next two generations of his offspring have a hand in his vast publishing empire. Lord Hanson is busy dividing his empire in four. Lord Palumbo has been taken to court by children eager to have their slice of grandfather Rudolph's hard-earned millions.

All that is certain in family businesses is that nothing is certain. From whichever direction you look, Elisabeth Murdoch and her brothers Lachlan and James have a lot to live up to.