By Dr Panikkos Poutziouris
Family firms predominate across the corporate landscape. There is a plethora of trans-generational family firms that have made it to the pantheon of fame: Marriots in hotels, Fords in cars, Batas in shoes, Benettons in clothing, Mars in chocolates, Gregoriou in sausages, Kean in juices, Iacovou Bros in construction, Hadjikyriakos & Sons in retailing etc…
Family business entrepreneurs have played a protagonist role in the socio-economic development of our island’s economy. Now they are stretching their entrepreneurial wings to exploit market opportunities beyond our geographic borders.
Academic research confirms that the family business model has the capacity to sustain business success and add value for all stakeholders. However, studies also reveal that only one in ten family firms will reach their third generation of family owner-managers.
In order to thrive, family firms need a multi-dimensional strategic family business development plan. This will evolve depending on the size of the business, complexity of the ownership and business structure and of course entrepreneurial appetite for sustaining family control.
In a nutshell, here is the 10 commandments for the family owner-managers seeking sustainable trans-generational business success.
(1) Define your vision and goals for the future of the business –checking compatibility with your values (e.g. control, trust about outsiders, attitudes about risk taking, growth and financing options etc)
(2) Chart a strategic business plan that is open to organic and other riskier growth strategies (acquisitions, internationalisation etc.)
(3) Build evolving management structures and communication channels. Fuelling growth needs human capital and systems. As the business outgrows the family resource base, the family chiefs, will need to embrace loyal charismatic non-family managers, and keep all family [passive and active] shareholders connected to the next stage of growth.
(4) Develop a governance scheme to deal with the business of the business. The board of directors will need to tune strategies and ensure via management systems and delegation, operational issues are dealt with effectively by executive teams.
(5) The family united needs to establish a family governance scheme to deal with the business of the family. There is scope to introduce a Family Shareholders Council representing all family members and units. This group will formulate the Family Constitution so that it will regulate the role of the family in the business. This is an agreement protocol that gives clear guidelines on contestable issues such as: entry and exit policy of relatives; rules for recruitment, reward, promotion and incentives; financial and dividend policy, rules for succession planning, conflict management etc.
(6) Developing a succession planning process will ensure smooth transition across generations. The plan will outline how succession will occur, how to nurture and train the successor and of course when the retiring chief lets go. The financial and tax implications of succession need to be considered.
(7) The financial plan will ensure the family business secures capital for survival and growth and accommodates the liquidity needs of either the retiring generation or of passive shareholders that need to cash.
(8) The tax plan is critical so that the family and business do not incur unnecessary double taxation in terms of corporate and income taxes, as well as higher transfer taxes.
(9) The entrepreneurial business plan is essential especially when the family grows faster than the business and the family tree needs to be pruned. There is scope to invest in the education of the next generation and support the neo-entrepreneurs with high risk capital as they pursue alternative entrepreneurial activities.
(10) Family Business Networking amongst family business owner-managers is essential to forge partnerships and exchange experiences about trans-generational family business continuity planning.
Finally, academia and enterprise policymakers can play a vital role in the orchestration of family business forums and enterprise support tailored to their idiosyncratic Cypriot family business culture and market experience.
This is paramount to help smaller traditional family firms survive in the new competitive order and enable business families to realise their long-term growth potential.
The writer is Rector of UCLan University, Cyprus