Family business: The next generation

About 80 percent of all businesses in Australia are run by families, so the trends that affect them are likely to come your way. They’re facing skill shortages and corporatisation, but with the potent combination of love, power, and money in the mix.

A study by RMIT University shows that $1.4 billion will change hands in the next decade, from entrepreneurial baby boomers that shunned the boss and set up their own businesses, to their successors, whoever they may be. 

The handover probably won’t be a traditional one, says Philippa Taylor, CEO of Family Business Australia (FBA), noting an increase in 'families in business', rather than a family business. The difference is the next generation may not follow in the footsteps of their parents by continuing the business, but use the asset to move in a different direction.

"There are a great number of kids who are coming into a family business but if dad is making widgets, the son doesn’t automatically start making widgets," she explains. “He will join the family business and start another business within it, almost like an incubator.”

Surprisingly, considering their number and their value, family businesses don’t receive much recognition for their contribution to the economy. Most pressing is the need for skilled and unskilled labour. “Employment and finding good people is their highest priority,” says Taylor. “A lot of them are affected by the skills shortage, particularly unskilled workers. They are battling to find unskilled labourers, so are keen on us lobbying for the immigration laws to allow more unskilled workers to do that work. I find it extraordinary that governments don’t show more concern.”

Taylor also notes that although it is generally more difficult for family businesses to attract talent, they tend to stay longer. “When you have uni grads coming into the workforce, going to work for a family business probably isn’t as sexy as going to work for PricewaterhouseCoopers. Once a family business has attracted a good person, however, they can see they are valued and they have a lot more leeway in terms of initiative,” she explains. “To say they get treated like family is a cliché, but in so many cases it’s true.”

Harry Kras runs the Family Business Resource Centre, advising family businesses on matters ranging from setting a charter to succession planning. He sees some family businesses struggling with conveying intent to outsiders. “It’s a matter of managing expectations. If I go into a family business understanding that there will be an advantage given to family members, then I know what I’m getting myself into,” he says. “But it’s hard to know that going in for a job interview—I probably won’t ask that question.”

The onus is on the family to set boundaries between the family aspects and business aspects of the company. Each family is different, says Kras, with each company deciding how it will operate on a scale with family at one end and business at the other. “How they operate and make decisions is based on where they sit on that scale. The issue that arises is, it’s a moving goalpost.”

This is where a charter or constitution can guide behaviour and manage relationships and where a clear job description helps define each family member’s role. However, says Kras, all the written aspects need a physical manifestation for the business to work at a more professional level. He cites a case where a woman would not answer to the CEO, her brother-in-law, but would instead go above his head to the chairman, her father.

“There are all sorts of informal networks. Family businesses have to think about how that works and how to keep that from impacting on the business,” says Kras. “It’s great to have a family member reporting to non-family members to clearly separate those points of authority, but it only works once the family makes a decision about which end of the family business spectrum they’re operating on.”

Making Plans

The increasing corporatisation of family business is therefore a good thing, if done well, he believes. “Sometimes it’s internal. As the business grows, it just needs to professionalise to a greater degree—better staff, better management teams. There’ll often be an imperative to operate at a more professional level to attract and keep good people,” he explains.

“At the same time, there’ll often be a resistance that comes from change and the danger that comes from losing all the inherent advantages that family businesses have by growing at a pace the family can’t keep up with.”

This is what has happened in agribusiness with a lot of family farms responding to pressure from corporate farms by expanding, without the resources to cope. “Usually a farm passes to the eldest son or is split between family members, so that’s an imperative for growth. They need to become larger organisations to be successful. But, because of the many family members living off the land, it’s difficult to be seen as a viable commercial business,” he says.