Pleasures and pitfalls of being born into a business

Mar 19 2008 by Karen Dent, The Journal

The problem with family businesses these days can be keeping them in the family, as Karen Dent discovers from some of the biggest corporate families in the region.

ONCE upon a time, almost every business sign in the high street bore the legend “and sons”. Twenty-first Century family firms may not always advertise their heritage quite so proudly, but they are still just as much a vital and dynamic part of the North East economy.

About 65% of the UK’s private sector firms – that’s about three million businesses – are run by families, according to the Institute for Family Business (IFB). The vast majority of these are small firms; here in the North East, about half the small businesses started life as family concerns, a report from BT Business found.

IFB director general Grant Gordon said: “It is no exaggeration to state that the family firm is the backbone of the UK economy and acts as a positive counterbalance to the more short term approach of other sectors.”

However, family firms are not confined to SMEs – Fenwick and Barker & Stonehouse are just two large and well known concerns that started out in the region and are still steered by family members.

Today, though, most family firms are in the hands of the first generation – almost eight out of 10 are controlled by their founders, with 10% run by the second generation, says the Government’s annual survey of small firms.

The IFB is holding a conference in May on the theme “engaging the next generation”, where Mark Squires, chief executive of Benfield Motors, will talk about how the Newcastle dealership chain has dealt with the issue.

The car industry is one where family-run firms have thrived in the North East. Reg Vardy may have become a plc before being bought by Pendragon and Patterson Ford is now Arnold Clark Automobiles, but Benfield Motors – which is celebrating its 50th anniversary this year – is still very much a family concern.

Mark Squires is the grandson of company founder John Squires senior. His father John Squires junior, the non-executive chairman, built up the business from a single dealership to one employing more than 1,100 people.

Mark says deciding who will take over the helm – succession planning – can cause problems if the firm fails to look ahead.

He said: “I’m the third family member in my business. My father has retired from the day-to-day running, but who is to say there would have been the succession?

“When a current generation that ran the business all their lives get to retirement age, if there has been no succession plan, the business can hit a wall.”

Although expectation can weigh heavily on younger generations, Mark says he never felt obliged to work at Benfield: “There was never any pressure upon me to join the family business. It was something I wanted to do.”

Father-of-three Anthony Marcantonio is the third generation to run the Mark Toney ice cream business in Newcastle. The company was set up in 1902 by his grandfather and namesake.

He said: “I was born into it, I didn’t really have the choice that youngsters have these days. I am quite happy doing it but I probably would have liked to work elsewhere for a couple of years to get some experience and come back to the business.

“Expectations are different nowadays. The youth of today have much more freedom of choice, but a lot of family businesses are closing down because of that.”

Selling the business is another option that arises when there is no one to take over the reins. That was the decision Ashley Winter had to take last year. Ashley had spent 30 years working for Newcastle motor firm Patterson Ford, latterly as managing director, following his father and uncle into a business that had been co-owned by the family since 1912.

He said: “It was something we knew we’d have to face because there was no obvious successor coming through,” said Ashley, who is also regional chairman of the Learning and Skills Council. “I have three children still in education and they have no interest in the motor industry.

“The opportunity came along to sell when Arnold Clark approached us. We didn’t know if we would get another opportunity. I did my worrying in the week leading up to when we made the decision. Then it was, let’s get the deal done and move on.”

Mark Squires says no decisions have yet been made on the succession issue at Benfield, but he is confident it will not present a problem. He acted to avert communication problems by introducing “family council” meetings three years ago, which gives family members a forum to discuss the business.

“As a family, we are aligned around a common vision and a common agenda. Because there is the opportunity to talk about these things, people feel they have a voice and they feel they are informed. That’s the value,” he said.

“There is a sense of pride in the company and a sense of wanting to have some say: a pride and desire to see it continue to prosper.”

Benfield is also moving with the times and brought in Nigel McMinn as managing director in 2006 – the first person outside the family to hold that role.

“In probably the majority of cases as a company grows, it’s more appropriate that you’ll want fresh blood and ideas and a different perspective,” said Mark.

Family businesses can panic when they are presented with change, such as the succession, acquiring another business or appointing a key member of staff from outside the family.

The Alchemists, a Newcastle organisation which works with fast-growing entrepreneurial firms – many of them family businesses – tries to help them overcome these often emotional issues.

Chief executive Lucy Armstrong said: “People think they are the first to go through this, but we have access to a whole range of people who have done this before. We try to help them exchange knowledge and get them to work together. They often feel quite isolated.”

And family firms that refuse to adapt to the modern world face a bleak future, according to Mark Toney’s Anthony Marcantonio.

He said: “When you get to the third generation of the business, it tends to go into decline – a lot of them haven’t changed with the times.” Firms must be alert to new opportunities and quick to grab them if they are to prosper in an ever-changing marketplace. The backbone of Mark Toney’s business is its five ice cream parlours in Newcastle and its factory supplying ice cream to the catering trade. But the firm has been selling to local Asda stores for a number of years and has just won a contract to sell ice cream to Tesco.

Anthony said: “The traditional market for small local businesses was always the small independents, and as they disappeared it makes it more difficult and you have to jump on to the bandwagon with the national retailers. There’s an opportunity now for small family businesses to deal with the national multiples.

“I couldn’t imagine 10 to 15 years ago us selling to Asda and selling to Tesco. These opportunities are here now and you’ve got to grasp them.”

Factfile

Family businesses have annual turnover of £1,000bn

They contribute more than 30% of UK GDP

They employ more than 9 million people – more than all the FTSE companies combined

77% are in first generation hands