A bygone generation in front of RJ Balson & Son’s shop
A bygone generation in front of RJ Balson & Son’s shop, where the business has been trading since 1892 © Adam Gray/SWNS.com

Family businesses fail for many reasons. Advisers cite breakdowns in trust, inadequate preparation, or sometimes a lack of shared values. But not, as yet, veganism. This might explain the remarkable longevity of the UK’s oldest commercial dynasty, Devon butcher RJ Balson & Son — or, more accurately, 25 Sons since 1515, including one accidentally shot by his adoptive stepson and another who survived Victorian electric shock treatment.

But younger enterprises that lack such ingrained tradition often need help to avoid such threats. According to the rather appropriately named Close Brothers bank, “RJ Balson & Son is very much an outlier . . . just a third of businesses last into the second generation of a family, let alone for over half a millennium”.

Fewer still make it beyond the third generation. At this stage, only 10-15 per cent of enterprises remain in family hands, reckons Åsa Björnberg, an organisational psychologist at London Business School. Family enterprise adviser Emily Griffiths-Hamilton — herself the third generation of a Canadian dog-food-to-sports-to-media dynasty — understands why. Her book Build Your Family Bank quotes research by Roy Williams and Vic Preisser on more than 3,000 business owners which found 70 per cent of “intergenerational wealth transitions” failed because of factors within families, rather than external forces or bad advice. These factors fall into three main categories: in 60 per cent of cases, it is problems with trust or communication; in 25 per cent, it is a next generation that is simply not prepared; and in another 12 per cent, it is the absence of shared values or mission.

Communication and trust problems can arise when the younger generation feels the older one does not respond to their needs, suggests Björnberg. A younger family executive once told her: “Communication is difficult, especially across generations and borders. We live in quite different worlds.” It can result in “unexpressed expectations” of who will take over a business. In one family, she found a misapprehension went on for 20 years. “Families can be spectacularly poor at communicating,” Björnberg understates.

Preparation, and succession, may therefore never take place. “Lack of education of younger generations by families, as well as a lack of trust and openness, can mean millennials are not prepared to be handed the reins of a family business,” warns James Fleming, chief executive of multi-family office Sandaire. “Failing to prepare the next generation for wealth transfer can cause a family enterprise to lose its next figurehead.”

Values must be shared too, if children are to willingly take over an enterprise. Matthew Fleming — not related to James — head of family governance and succession at family office Stonehage Fleming, says: “No financial legacy, business or otherwise, can survive through the generations without addressing key issues around a family’s culture, values and the purpose of wealth.” Sandaire’s Fleming argues it may be getting harder: “As it’s a well-known fact that millennials are increasingly choosing to invest in impact or sustainable investments, traditional ventures made by family businesses might not align with their modern values.”

All three challenges can be addressed, though — and sooner would seem to be better, judging from the experience of wealth managers. Transparency, particularly in decision-making, is the way to engender trust, says Griffiths-Hamilton. “Providing clarity and transparency about decisions made will go a long way in helping to prepare the upcoming generation of decision makers,” she says. It can go both ways, of course, as Sandaire’s Fleming knows: “Increased transparency means today’s millennials can look into dynastic businesses, deciding whether to agree with their choices of investment.”

Education — from inside and outside the family — best ensures preparedness, says Stonehage’s Fleming: “Advisers can help with governance, engagement and educating the next generation.” Close Brothers reckons this starts with a succession and skills plan: “Identifying the future leadership of the business is not enough; training, mentoring and developing the skillset of the next generation is vital.” In this, real-life experience elsewhere can help. Hamilton-Griffiths points out that wealthy families often send their children to study abroad, which enables them to develop new ideas and bring them back.

Advice and agreements can then ensure a family’s values are upheld by its business, reckons Fleming at Sandaire. “The right adviser will be able to offer personal and unique offerings, as well as clear and independent advice to assist in aligning family values to continue a family enterprise.”

“A family business’s values and management structure can be enshrined formally as it is passed on to the next generation,” says Close Brothers. It can be written into “a family constitution”, suggests the bank. Or, as in Devon for the past 500 years, simply above the shop door.

Matthew is reading . . . 

Research by the Institute for Fiscal Studies that shows UK high earners are now so concentrated in London and south-east England that they “don’t realise quite how much higher their incomes are than average”. So they still think the grass is greener (or the pavements more golden).


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