Family businesses are the cornerstone of the economy in Scotland, accounting for approximately 90 per cent of private enterprises. The top 100 alone employ more than 115,000 people and generate more than £1 billion in annual profits.
There are many exceptionally strong balance sheets in the family business community, but they are not just about financial gain. They also place equal importance on socio-emotional wealth.
These non-financial goals can be about a number of things, often related to Environmental, Social and Governance (ESG) concerns, philanthropy, longterm and stable employment, legacy, and place in the local community, as well as innovation and investment for the long term rather than being under pressure to distribute profits to shareholders.
Well-run family businesses know and live their purpose and values and the very best ones have good governance in place in the form of shareholder agreements, a family constitution and, often, family councils. They frequently appoint nonexecutive directors, and larger businesses sometimes appoint non-family members as CEOs to bring strong external perspective. They can be sophisticated and well-run organisations, often with two or three generations involved in the business and a strong succession plan for the future.
Family businesses more often than not have always had ESG on their agenda; of course historically it has not been called or recognised as ESG, but rather “the way we do things around here”. They perhaps need a bit of help to recognise and identify these things, so they can benefit from a number of the tax breaks, schemes and incentives that exist now to support marketing advantage.
I was privileged enough to facilitate family business leaders’ circles every two weeks during lockdown.
The types of conversations were largely around ”how can we remain true to our values in this horrific time”. Their ability to be agile, innovative and open allowed for shared ideas on many points and pressures, along with how they were going to deal with them.
One example that stands out was the way in which the family business community used its networks to help employees find other work.
Five of the family businesses on our calls were able to place all otherwise redundant employees with other businesses in their supply chain.
It has been well documented that women prefer the environment and culture which a family business provides, and E&Y reported in 2019 that it was easier for a woman to rise to the top in a family business than in a nonfamily business. At that time, the impact of menopause on women in the workplace was not as evident, with very few if indeed any businesses having such a thing as a menopause policy.
The European Convention on Human Rights has since issued guidance, providing further consideration for organisations to have such a policy as a support.
Interestingly, but perhaps not surprisingly, there is a growing trend of women rising to the top in family businesses where a menopause policy is in place alongside a culture and value system which actively promotes and supports women.
I have worked with many family businesses through good times and more challenging times, helping to plan for the future with good governance and assisting sometimes difficult succession planning issues.
I am fortunate to work with a number of skilled colleagues with significant experience advising substantial family businesses across the UK on legal, tax and succession issues. Each individual family has its own story and balance of matters to work through.
I certainly see very exciting times ahead as family businesses continue to grapple and deal with the challenges of the relationships between the family, the business and the owners. Those that do this effectively and plan carefully for the future will be around for a very long time.
Kirsty Ross is director in the Turcan Connell business law team and part of the family business leadership team.
Partner Content in association with Turcan Connell.
