Enterprising Families kindly invited Emma to talk to Tsitsi Mutendi of African Family Firms on the topic of Generational Transition in the Family Governance process. You can listen to the podcast here: https://bit.ly/3qE4YU0
I think the short answer is ‘Yes’.
So, is there a big difference between loss of identity and identity theft? I do not know a great deal about identity theft, I do know a lot about loss of identity. In both cases identity is taken from the individual, the big difference seems to be although there is undoubtably an emotional element felt in identity theft, it does not reach the depth or reach the level experienced in loss of identity. If you experience identity theft the first thing to do is contact the UK fraud prevention service and you should consider subscribing to the CIFAS Protection Registration Service. All very practical steps you can take to protecting yourself and ensuring that you mitigate the damage that can be done.
Where do you go and what do you do when you feel you have lost your identity without your credit card being stolen and your identity used to defraud? A loss of identity is not a practical event or a moment in time.
Over the last thirty or so years I have worked with many men and women in positions of power and authority in their family owned and run business. The pattern is very familiar and seems to follow a well- worn path. We have often talked about the three- circle model used in the field of family business and how the three ‘systems’ of Family, Ownership and Business overlap and how often the contrasting needs and wants of each system cause conflict. When a family member joins the family business, usually in the second generation, it is as a family member and whilst there may never be a formal discussion around expectations, it is not unusual for a family member joining the business to have an expectation of becoming a manager at some point in the future. For many family members joining the family business, this is often a process of osmosis, it simply just happens. And whilst the individual understands the business and probably understands it from inside, out, there is often less exposure to the outside world and the wider business community. There is often little or no formal business education and the only role model is ‘Dad’. Eventually at some point there is a natural progression to a management position in the business and then to a director position. If the business goes to the third generation and many do, we see changes in the management structure starting to take place, but the family members in the business will often be in the top positions. It is not unusual to see three generations of the same family either working in the business, with others attached to the business through relationships or ownership, when the business gets into the third generation. From a management or directorial position family members inevitably start to think about ownership and eventually, often in the second generation an individual family member can find themselves in the top spot of Managing Director and having a shareholding stake in the business. It is difficult for the title and the ownership to be stolen as in identity theft, it is however, not difficult to lose identity in the process of transition and change.
There are no practical steps to be taken when there is a loss of identity, it creeps up and one day you wake up and think, ‘what’s happened’?
You cannot register your emotions and feelings with an outside organisation, and you cannot simply put a stop on the fraud.
When an individual family member is in the position of top dog for an extended period, the feeling of emotional ownership of the undertaking is firmly embedded and giving this up, is no easy ask. Being in the top job plays to the ego and meets the need for adulation that often goes with the need for recognition and praise. Being the centre of attention and being acknowledged as the most important person in the business are key components for some family business MDs. There are numerous psychological profiles of the entrepreneur and many family business owners and directors fit these profiles and in some cases I have heard the behaviour described as sociopathic. This may be harsh, but I can see why this view could prevail. So, when the baton passes, is it a case of stolen identity, which seems to me to be a very practical, proactive process perpetrated from outside or do we experience loss of identity, which seems to me to be far more subtle process and whilst influenced from the outside by maybe the bank or an investor, it is usually perpetrated from inside and usually by other family members.
I came across a great story of a father and son in business together. The father was in his seventies and the son in his fifties. The father was the MD and came into the office every day. They had offices next to one another. The question of succession and the link to the inevitable retirement of the father was never discussed. The father did not take holiday until in his seventy fifth year he decided to take a couple of weeks off. Whilst he was away the son had the wall between the two offices moved to make his office bigger. His father came back from holiday and did not say a word, just simply carried on. The same thing happened the next year and the following year, the father was now seventy- eight. The next year when the father returned from holiday, his desk was in the corridor outside of the one office. It was then the father said
‘is there something we should talk about’?
The ability to self- deny is astonishing. It was only when the bailiffs walked into my office and picked up my desk; (that I was sat at) did it dawn on me it was all over. We seem to have an amazing ability to block out that which we do not want to see or hear. And when you wake up and realise that what you had is no longer there it is hard to come to terms with the loss and I can tell you from bitter experience it is that sense of ‘who I thought I was’ to ’who I am now’ that is the hardest journey of all. I was lucky, I had a wife with no pretensions to being anything other than who she was and despite all the heights we reached, Pauline never really changed, it was me with the pretensions of grandeur. I also had two daughters who ‘told it as it was’. I vividly remember the night I told them our business was bust and we would most likely lose everything. Lesley shrugged and Jenny, with big tears running down her cheeks, said
‘does that mean we will lose the BMW dad’?
For a couple of months after the event of liquidation and yes, the BMW did go, I ended up driving an old Morris Montego and was told quite categorically, to ‘park round the corner’ when I picked Jenny up from school. I have always seen myself as a BMW man and I am happy to say we drive a beautiful BMW today, even if it is thirteen years old!
I can say with hand on heart I know what loss of identity means. Events that trigger the journey to that loss of identity can happen quickly, the realisation of the loss is more pernicious. It eats away at you; it wakes you at night and it will not go away. It is all consuming and destructive and it leads to isolation and self- pity. It can also lead to drug addiction, mainly alcohol to drown out the voices and help cope with the feelings of loss for a life that once was. I had one father describe his son taking over as the MD, as having his business ‘stolen’ from him. It was not true, but that was how he felt.
So, back to the beginning, can we cope with a loss of identity when the very thing that has defined who we think we are has been taken away. I can only say without my family and my friends I would not be here. I did find myself one morning, on the Clifton Suspension Bridge. I had no recollection of driving there, of parking up or of walking on the bridge. I am sure there was an intention to jump, the feelings of loss and failure were so acute I could think of nothing else. I phoned Pauline to say goodbye and thank you, I cannot remember doing it. The next half an hour or so was a blur, all I can remember is my great friend and business colleague at that time, Ian saying,
‘John, we all love you’.
He had turned up from nowhere, I was later to learn it was as a result of frantic call from Pauline. I came back from the brink of taking my life thanks to the love and care of my family and my friends. My case may be extreme, but I have a suspicion that whilst it may have been extreme in that I got to the Suspension Bridge, my case is not that unusual. Many owners and directors face the same loss of identity when the time comes to hand over the reins or they get taken away. It takes time, understanding, care and compassion to rediscover that once people loved you and cared about you, because of who you were and not what you were. It did not matter to Pauline, Lesley and Jenny that I was MD of a business. I was John and Dad and the lifestyle was nice to have, but not at the expense of who I was.
The one observation made by both my daughters has remained with me until this day.
‘Dad, you are much nicer now than you were when you had the business’. Maybe, just maybe they were right.
If you are family in business out there reading this and you are the older incumbent generation, recognise the signs, acknowledge that succession is not an option, you will have to hand it over, even if you are carried out in a box. Plan your succession and do it with good grace and dignity, help the next generation to protect and look after your legacy, if that is what you want. If you are the up and coming generation, recognise that you too will be old one day, have compassion and care for your folks, understand and help them come to terms with a loss of identity and in the words of the song ‘Teach your Children’, by Crosby Stills & Nash.
‘Know they love you’
Academic research published in the wake of the banking crisis provides a timely and encouraging reminder of the resilience of the family business model.
A Covid-19 related recession is pretty much a certainty for the UK, according to the commentators. Multiple business failures are predicted. But which businesses are best equipped to survive Covid 19? Leading research produced by Bath Spa academic Antonio Revilla and his colleagues suggests that this could well be family managed firms.
This research, produced following the 2008 banking crisis, showed that family businesses with family dominated management teams were significantly less likely to have failed than businesses with predominantly non-family management. For example, the researchers found that a firm with a Top Management Team (TMT) comprising 75% of family managers was 22% more likely to have survived than a firm with only 25% of family managers.
Okay, so this might have been the most read paper from the leading family business academic journal in the year it was published, but how applicable are the findings to the UK?
The research was based on a survey of about 400 Spanish mid to high tech manufacturing businesses, on average 33 years old and employing 300 people. Whilst academics are usually cautious about the ability to extrapolate between cultures, as practitioners, we see a lot of the positive indicators identified in the research and discussed below as equally relevant to family firms in the UK.
How lessons learned from the banking troubles can be applied to the Covid crisis is another matter. Regiments of keyboard warriors, are confined to barracks during the Coranavirus wars, using language like ‘uncharted territory’ and seeing a severe recession as inevitable, whilst speculating about whether this is likely to be V, U, W or the dreaded L shaped. We are clearly in for a hard time. Lockdown is also disproportionately affecting those sectors of the economy that can be seen as family business rich, such as hospitality. With falls in demand for office space, if working from home becomes the ‘new normal’, and pressure on retail businesses, even the family business safe havens of property investment will not be immune.
Nevertheless, many of the reasons identified by Dr Revilla and his colleagues for the relative resilience of the Spanish family managed firms studied are likely to hold good for family businesses in the UK today. These include:
The researchers also found that size and age of family business was also an added strength: the muscle memory formed by weathering other crises, helps in overcoming later challenges.
Ultimately the researchers identified family cohesion as the over-riding determinant of survivability.
To some extent the above might read like a reminder of a standard exposition of the strengths of the family business model, of the sort often heard at family business conferences.
Turning to the specific findings of Dr Revilla’s research.
More ‘skin in the game’
The first of which was that survivability of a family business was directly related to the number of family managers engaged in it. The more family managers, the greater the resilience. The inference drawn by the researchers being that family managers have more to lose from the failure of their family firm, not only loss of income but also greater difficulty getting replacement jobs, loss of wealth tied up in the business, possible claims from banks and other secured creditors alongside loss of identity and prestige. A fairly compelling list of why family managers would try that much harder and why family cohesion could be stronger in family managed firms. In short more skin in the game.
Dr. Revilla’s research adds to the often-ambiguous research about which combination of family and non-family management and ownership produces the best financial outcome by suggesting that, when facing an existential crisis, family managed firms are more likely to be natural survivors.
Survival and Entrepreneurial Orientation
But perhaps the second key finding from this research is the most interesting. This is that this natural advantage is eroded with more entrepreneurially orientated family businesses. At first this seems counter intuitive. At least to me. But not to Dr Revilla and his colleagues who predicted that this would be the case. Conventional business logic would seem to dictate that it would be the most adaptable businesses that survive a crisis. Adapt or die surely? Not adapt and die.
However, the researchers identified an over-riding family business phenomenon. This was that entrepreneurial orientation (the dimensions studied being innovation, risk taking and proactiveness) would be likely to require other major changes, such as the introduction of non-family managers and rejecting tried and tested business practices, including those cherished by senior generation family members.
This is entirely consistent with views of other leading commentators. Gersick and his colleagues identified major changes in the life cycles of the three systems comprising the family business (business, ownership and family) as being points of high tension and vulnerability for a family firm (see Generation to Generation: Life Cycles of the Family Business). And so the argument goes on to suggest that the consequence of increased tension could well be a loss of family cohesion and accordingly reduced resilience in a crisis.
Again this rings true. As consultants, we often hear comments such as, ‘this doesn’t feel like my business anymore’, ‘nobody tells me what’s going on’, ‘they have got it wrong’, when ‘they’ might be any combination of the next generation, family business insiders or non-family managers.
Whereas firms with family-centric management are likely to have a unity of interest, family businesses undergoing change are correspondingly more likely to be categorised by disunity. There could be differences between the senior generation holding ownership control, with the next generation in charge of management or between wider family shareholders and a small number of ‘insider’ family managers. Proposed innovation and business change might, at best not be fully understood. At worst the changes might be bitterly resented. Family cohesion has evaporated. Investment decisions in this climate become near to impossible.
So what are the practical implications for family business members of all this, especially for those involved in family businesses undergoing change?
We would suggest the following:-
The conclusion? That for the reasons outlined above ‘stable’ and family managed family firms are most likely to be natural survivors of the Covid 19 economic crisis. So, the ultimate challenge, for those other family businesses presently experiencing tensions of change, is to successfully manage those tensions so as to bolster family cohesion and to become ‘unnatural survivors’.
There is no getting away from it, we live in uncertain times. With uncertainty comes fear and fear can be a very destructive force indeed. When people are scared and the stakes are high, they are more likely to fight.
The relationship between crisis and litigation
Certainly, in the context of an economic crisis, the statistics support this with the 2019 Litigation Trends Survey finding that 64% of respondents agreed with the statement that economic downturns tend to increase litigation volume. A 2016 article in Above the Law, states clearly that, “When the economy is bad, there are more [court] cases filed. [A study has] found this relationship to be robust and consistent over time.” Of course, the current pandemic is much more than an economic crisis. The very fabric of society is being shaken to its core, with life as we know it on hold and hundreds of thousands across the globe losing their lives.
This article explores of some of the behaviours we have seen in family businesses in times of crisis. The nature of our work means that, more often than not, we are working with the family business system at a time when it is experiencing either a significant expansion or contraction and of course during ownership and management transition. These periods bring numerous areas of conflict. During expansion we witness families debating appetite for borrowing, the risks of becoming beholden to lenders, the future direction of the business and disagreements about the use of shareholder funds, dividends and reinvestment, amongst others. We also witness constructive support, the sharing of ideas, excitement and hope for a successful financial future for the family and the business. During contraction we often witness blame and recrimination and threats about escalating matters. We see a lot of conflict between owners and management of the business. During contraction we also witness periods of positive introspection, particularly around the future shape and feel of the business and a positive and focussed revisiting of purpose.
How does the current economic uncertainty impact family businesses?
Whilst some families experience an improvement in relationships during times of crisis, as is explored in my colleague Nicholas Smith’s recent article the Paradox of Peace, we at the FBC have observed that in times of crisis, other families act in an increasingly hostile way towards one another.
To be clear, what we have not seen, at least so far, are clients actually going to Court. However, we would argue that, the path towards litigation starts small. Behaviours change, positions become ever more entrenched, the quality of communication gradually declines. Before families know it, it becomes impossible to envisage returning to an era of collaboration, communication and compromise.
In times of economic contraction, as family owners begin to understand the extent and immediacy of the impact that the crisis they are facing will have on matters such as dividend yield, we see family members start to ask questions like, ‘what are my rights?’, ‘what am I entitled to’, ‘can “they” do this’? We also see, what were previously issues tabled to be discussed constructively by family members at future family meetings, being escalated to the level of a threat levelled at the board or other family members.
Why does this happen?
Fear, of the unknown, or of financial hardship can result in family owners wishing to protect their own personal position. The scope for considering the perspective of the business, or in some cases, the wider family, narrows. In other words, individual family owners take neither a ‘business first’, nor a ‘family first’ approach. Instead, they take a ‘me first’ approach. The irony of course, is that such attitudes if left unchecked, may result in an erosion of family relationships and business wealth, which far outweigh any immediate financial or emotional shocks experienced by an individual family member.
We believe that these shifts have the potential to derail whatever family harmony does exist and at worst, set the family on a path towards litigation, at a time when, to survive emotionally and financially, families need to pull together more than ever.
Given the enormity of the current crisis, we at the FBC are asking whether the behaviours outlined in this article and in the Paradox of Peace are being further exaggerated, exacerbated and accelerated. Only time will tell.
What can you do?
If you have experienced the above in the past few weeks, what can you do to veer your business owning family back on course? Here are some ideas from the FBC team:
Perhaps you find yourself in a position of leadership or influence at this time, for example, you are the Chair of the Family Council. Perhaps you have no formal title, but people come to you for advice, because of your seniority or experience. In these circumstances how can you use your position to positively impact the family? You may wish to consider the following in addition to the above:
Getting back on track
In our experience, consideration of some or all of the above have enabled families to pause, reflect and to choose the path of communication, collaboration and compromise over heightened hostility. A choice that, whilst it can be difficult and require some soul searching at the time, will stand those involved in good stead to weather the storm that may lie ahead.
The Family Business Consultancy has been awarded the Preferred Partner Status from the Institute for Family Business
The Institute for Family Business (the IFB) recognise the important role that advisers play in providing support to family businesses.
This support is invaluable in helping family businesses to prepare for the future whilst addressing the challenges of today.
They understand how important it is for families to work with advisers they can trust, and who understand the unique dynamics that come with family businesses.
As a trusted organisation, families often approach the IFB for advice on who they should talk to when they need advice on family business issues.
They have already helped numerous families and advisers build long term relationships, and this is a service which families are increasingly seeking from the IFB.
To make this easier the IFB operate a Preferred Partner Programme.
We are delighted to announce that The Family Business Consultancy has been awarded Preferred Partner status with the IFB.
In order for us to do this we have gone through a strict due diligence process that not only looks to ensure that we are who we say we are and do what we say we do, but also involves speaking to some of the families that we have worked with.
We are very happy to have accepted onto the Preferred Partner Programme and look forward to helping more families navigate the complexities that come from being in business together.
You can find out more about how The Family Business Consultancy can help your family business here.
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