Business management

Family business: a key sector of the UK economy

The Institute of Family Business’s 2022 conference heard about the challenges and opportunities facing this important sector.

Over the course of the two-day event, delegates and speakers talked about:

  • how their own firms were run
  • how they could address issues such as succession and governance
  • the role thriving family businesses play in their communities and the wider economy
  • the need to communicate their successes

Family businesses are strategic

Addressing delegates at the start of the conference, IFB Chief Executive Neil Davy highlighted some of the most important aspects of family businesses.

“You genuinely put people first; you take risks and innovate, but you also take a long-term view,” he said. “Family-owned companies should be recognised as an example of responsible, sustainable business – and now, more than ever, there is the opportunity and need for the voice and the model of family businesses to take centre stage.”

Research from the IFB shows how prominent family businesses are. They account for more than half of all private sector jobs as well as around 44% of private sector turnover (The State of the Nation: The UK Family Business Sector 2019–2020). But they are also, as many delegates discussed, a somewhat humble bunch who tend not to communicate widely about their achievements.

Government support for family businesses

In a session titled ‘What’s next for business policy?’, a panel discussed how the government could support family businesses, as well as how such businesses could influence policymakers. Natascha Engel, a former Labour MP who is now Chief Executive of the think tank Policy Connect, argued that recent crises such as the pandemic had led to a short-term approach to policy in many areas. “But the government really needs to think long-term and strategically,” she said.

Catherine van Weenen, our Regional Director for the East of England, pointed out that there was a significant opportunity for family businesses to communicate their achievements with the outside world. As well as enhancing their own reputations, this could demonstrate how effective the family business model can be.

“I think there is a natural reluctance to blow your own trumpet but, in my experience, family businesses have a real desire to invest for the long term, and to leave a legacy not just for the family but also for the wider community,” she said.

Family-owned companies should be recognised as an example of responsible, sustainable business – and now, more than ever, there is the opportunity and need for the voice and the model of family businesses to take centre stage

Neil Davy
Chief Executive, IFB

The panel also discussed the government’s levelling-up agenda and stressed the importance of family businesses in delivering more even growth around the UK. Catherine pointed out: “NatWest is focused on other forms of levelling up, for example promoting female entrepreneurs and business owners – many of whom are present at this conference. [Our CEO] Alison Rose’s review in 2019 found that if women entrepreneurs were supported to the same extent as their male counterparts, it could add as much as £250bn of new value to the UK economy.”

Opportunities in ESG

In his opening keynote speech, former CEO of The Body Shop Jeremy Schwartz explained how family business leaders could drive change in their companies to meet environmental, social and governance (ESG) related goals.

“When faced with sustainability initiatives, many organisations can be paralysed by the costs involved,” he said. “If you can present a profit-and-loss business case, showing the potential revenues as well as the costs, you stand a better chance of success. And if you are stuck, consider setting unreasonable timelines: this can really cut through inertia and bureaucracy.”

In a later seminar, Caroline Haas, Head of Climate and ESG Capital Markets at NatWest Group, addressed the regulation around increasing levels of environmental reporting expected of companies. “But the pressure is not just coming from regulators: supply chains also want to see better ESG reporting and performance.”

Caroline added that environmental awareness presents significant opportunities for family businesses: “The amount of investors looking to support climate innovation technology is fantastic. The capital available sends younger generations a message about where the opportunities of the future will be.”

Resilience and risk management

The longevity of many family businesses means they have a considerable amount of wisdom to share when it comes to resilience and overcoming short-term challenges such as the Covid-19 pandemic or rising energy prices.

Another panel session at the IFB conference – titled ‘Is your board future-ready?’ – looked at how the governance structure of family businesses can be enhanced to make them more adaptable and better protected against external shocks. The panel pointed out that:

  • While many companies prioritise profits, the last few years have shown the importance of resilience.
  • To avoid the perils of groupthink, family-owned firms can benefit from perspectives from independent non-executive directors, for example.
  • Companies should look at and learn from the mistakes and difficulties faced by other businesses.

Cultivating effective leadership

In a related seminar, a panel of family business owners and governance specialists examined how the most successful firms cultivate leadership not just from senior executives but from the wider family group.

It was pointed out that the challenges of leadership in family businesses are often different from those in the corporate world: for example, a ‘command and control’ mentality is unlikely to be appropriate when dealing with close family members. Instead, leaders are better advised to take a more patient and consensual approach.

The panel agreed that bringing non-family members into senior positions can benefit the diversity of thought in the organisation. But boards should be mindful of ensuring there is the right chemistry and cultural fit.

The best family businesses create an environment in which leaders emerge naturally – whether from the younger generation or the wider family group.

Read more of our content on family business management.

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