How to put the ‘family’ back in family business

Over the next two decades in Australia, $4.5 trillion will be passed from baby boomers to the next generation and this threatens to cause friction in some of the nation’s wealthiest families.

In a slight variation on the Anna Karenina Principle, Australia’s wealthiest happy families might be all alike but every unhappy wealthy family is unhappy in its own way, according to David Smorgon.

“That’s because they can’t clearly articulate as a group who they are, what they stand for and where they are going,” he told a recent roundtable exploring strategies for successful family business transition, produced by PwC and The Australian Financial Review.  More than two-thirds of transitions of wealth or family businesses fail and the overwhelming reason is a breakdown of communication and trust in the family.

Smorgon says the second reason why these transitions fail is because families aren’t training, mentoring and coaching the next generation in business or investing.

Families need to hold regular and effective family meetings outside of the business, Smorgon advises.

He says the importance of having two meetings – one for the business and one for the family – can’t be emphasised enough. People forget that it’s the shared experiences where everyone comes together that are “the glue that keeps the family together”, not the business.

“The problem for many families is they spend 99 per cent of their time on the business and only 1 per cent on their families until something happens and, very often it’s too late. People need to remember the health of the family is not the balance sheet but the family relationships.

“Fundamentally, it’s the way we communicate with each other. Family businesses often see tension become conflict. It’s ‘I rather than we’ and that is the biggest issue with families around the nation – they are in conflict. They cannot have open, frank and trusted discussions in a friendly environment,” Mr Smorgon says.

Part of that problem is the nature of the modern blended family. Sometimes there are multiple spouses in play with in-laws in-tow plus there are the competing rivalries between siblings and cousins from the second and third generations of the business. Smorgon believes this is where families need to have a common agreement on what the future looks like.

For PwC’s Private Clients Head of Family, Business and Wealth, Stuart Morley, a solid family constitution is mandatory and it needs to clearly identify who’s included in the decision- making processes and specify how the family engages – covering everything from governance to family break-ups.

Doltone House Events Executive chairman Paul Signorelli says the constitution is the bible and the whole family as well as its lawyer and accountant were involved in the drafting process. At its heart is the need to engender respect for the family’s traditions and values.

While Signorelli says the family were involved in the drafting process, often the difficulty in drafting the constitution is deciding which members of the family should be involved. Just because a spouse or (in many cases) the family matriarch isn’t involved in the business, they’re still key influencers and understand the relationship nuances and personal traits of particular individuals better than most.

And when it comes to generational change, immediate relatives shouldn’t be guaranteed a place at the top table. Director of Brisbane-based property group, McAndrew, Scott McAndrew says the key for the second generation is “not just the dollars or the next dividend payment – you need to have a passion for the business and a passion to build the family business together for the family”.

Furthermore, his father and business principal, John McAndrew, believes the founder needs to give his family successors the necessary tools to succeed and independence to make their own decisions.

Denis Wagner, a director of Toowoomba-based construction materials and infrastructure company, Wagners, says he wasn’t overly concerned with generational change. His real desire is to provide his four sons with choices – the opportunity to either carry on the family business or pursue their own interests.

Alternatively, Tynan Motors marketing director, Madeline Tynan, said the family were always taught there was no right to be in the family business.

“When we did come into the business, we didn’t have a right to be there; we had to work hard and earn it.