Chief executive of the Scottish Family Business Association looks to the future
In these times of economic recession and big cuts in the public sector, everyone is wondering where the jobs are going to come from. In the private sector, many business owners are concerned just to survive - although some still seem to thrive no matter what the economy is doing.
But heres something you probably dont know. Family businesses businesses owned by two or more direct relatives are the most common type of business in Scotland. 71 per cent of all Scottish businesses describe themselves as family businesses, and that includes 41 of the top 100.
Think of companies like Baxters, Tunnocks, Walkers Shortbread, Robert Wiseman Dairies. They employ half of all workers in the private sector, almost a million people, and they create 45 per cent of GDP, making them the most important part of the Scottish economy. This is where the jobs are going to have to come from if we are to pull ourselves out of economic gloom and public sector cuts.
But heres the real problem. Its not about the recession, not the cuts, hard as those surely are. Its about the family businesses.
A whopping 70 per cent of all family businesses vanish around the time when the senior generation hope to pass the business down to their children. Most of this is accounted for by the businesses going into receivership. A smaller number sell their business, often to multinational competitors who strip the good bits and close the head office, eliminating important local jobs in the process.
So why does this happen, when family businesses have a tremendous record of high performance, longevity and low debt? There is a plethora of reasons but they all share the same root cause: governance of the family factor.
Senior generations who own and lead the business find it difficult to face up to retirement, so postpone planning their own succession. The junior generation are often employed regardless of talent and attitude, so sometimes nepotism rather than merit puts them in pole position to take over the lead role in the business. Even if they are the best person for the job, because of the seniors procrastination the younger family members are not trained or taught the key skills and know-how they require to step up to the top job.
And finally, if there are two or more siblings in the junior generation, they often have very different visions for their own lives, and for the future direction of the business, so unity and consensus can easily get lost. Some or all of these factors can arise at the same time plunging the hitherto successful and stable family business into crisis, even chaos. This is when the business tends to implode, either through a hurried sale or going bust.
In 2006 a group of eight family businesses, all of which had studied this little-known but huge set of issues about family businesses, set up the Scottish Family Business Association (SFBA) as a charity in order to bring to Scotland the worlds best practices on how to prevent such crises and failures arising in the first place, or how to deal with them if they have already arisen.
They hold regular workshops to educate, teach and train family business owners and their advisors on these best practices and have helped hundreds of families learn how to make smooth transitions of ownership and leadership from one generation to the next.
In spite of all the news about the banking crisis, recession and public cuts, it is this little-known matter the ability for family businesses to make smooth and harmonious successions from one generation to the next that really determines whether all of us have the jobs, economic growth and local wealth creation we so need today.