Family firms best placed for survival

Professor Mike Wright, director of the Centre for Management Buyout Research at Imperial College Business School, said: “With the right board of directors conflict can be overcome and risk can be better managed.

“The need to look carefully at the board of directors is important, and family businesses, according to our research, tend to do this more.”

Research from business schools at Imperial College, Leeds University and Durham University concluded that family businesses tend to prioritise appointing directors who better manage conflict, have more experience and offer wider skill sets.

These directors, as a result, are said to be able to advise more effectively on business matters and help companies stick to their main goals and objectives, which subsequently reduces the likelihood of bankruptcy.

Mr Wright said family firms are more likely to scrutinise the appointment of a suitable board of directors because they tend to have longer-term objectives. Bigger businesses, on the other hand, are often overruled by corporate governance, he said.

“In family firms different skills in directors are sought after. They are looking at longer-term skills, better contacts and more experience, which are all essential to get businesses through difficult times,” he continued.

“Family firms are often looking to hand over businesses to the next generation, so they tend to have longer-term objectives and are also more embedded in the local areas where they operate.”

The report emphasised that typical family-orientated priorities, such as preserving unity, wealth and employing family members, also contributes to a higher chance of their survival.

The research was carried out by analysing data from over 700,000 medium and large private family and non-family firms. The criteria for inclusion was businesses that have annual sales turnovers of at least £6.5m, a balance sheet total of at least £3.26m and more than 50 employees.

Mr Wright said that a comparative report that focuses on the growth of family and non-family businesses will be published at the end of the year.

Adviser view

Allan Harragan, certified and chartered financial planner for Essex-based Grangewood Financial Management, said: “I have dealt with a number of family business clients. I would agree that in many cases they bring a diverse range of business skills and, indeed, there can often be a strict demarcation between different roles in the business. Lack of conflict is often enhanced by the family relationships, but I have found that there can be a great deal of genuine discontent and resentment under the surface. Due to this certain problems are swept under the carpet and some real problems are never addressed properly because of family connections. When family working directors retire they are often left with unresolved problems from their businesses that subsequently strain family relationships.”