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Family businesses harmed by lack of governance

Fifty-five per cent of family businesses say succession is a barrier to future success

1 December 2014

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Sixty-two per cent of UK family businesses would consider selling their business due to difficulties in handing the company over to the next generation or relatives.

The study published today (28 November) by Business Place and Charles Russell Speechlys, suggests that this is due to the fact that 90 per cent of UK family businesses operate with no formal governance structures in place.

Sally Ashford, legal director at Charles Russell Speechlys, commented: "It's no coincidence that family businesses are revealing both a lack of formal governance and concerns or problems with succession - the two often conspire to stunt business growth. As they develop and mature - often across several generations - it's essential that family businesses put the right professional, management and governance structures in place to ensure they stay on the right track. Without them, complacency, stagnation, and even major family disputes can result.

"Family charters, manifestos, or councils can help get family members behind a shared vision or set of objectives, smooth negotiation and avoid arguments, and keep younger family members engaged by allowing them a voice in the future of the business."

The study also revealed that almost a third of respondents (29 per cent) cited problems with encouraging the next generation to join the business.

Anita Brightley-Hodges, managing director of Family Business Place, said that the onus is on the current generation to set out a defined role for their successors if they wish to excite them about the prospect of joining the family firm.

"In order to excite them about their potential career path in the family firm, there needs to be a defined role set out for them, one which they can take hold of and know they can have a real and meaningful impact on the business.

"The great thing about bringing in the next generation is they are marketing-savvy; they know how to use new technologies, social media and digital marketing platforms to showcase their 'family factor' and reach customers in a different way."

Binyamin Ali is assistant editor of Private Client Adviser

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Company, Consumer, and Contract Children Wills, Trusts & Probate