Time for Govt to back Britain’s family business sector

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Time for Govt to back Britain’s family business sector

The UK Government needs to do more to support and recognise the country’s family-owned businesses, argues Sebastien Kurzel.

Family businesses are at the heart of every local community. They “punch above their weight” when it comes supporting local charities, says Stephen Hammersley, chief executive of the Community Charity Foundation.

They’re “rooted” in their communities and employ locally says family business owner Andrew Nisbet, and Fiona Graham of the Institute for Family Businesses, says the next generation has “a real sense of duty and care towards the family business, legacy, employees and community.”

But despite this, there is a growing and troubling perception that family businesses are bad for Britain. Over the last few years they’ve been accused of everything from inefficient management, low innovation and risk-aversion. But now they’re also being blamed fairly and squarely for the UK’s poor productivity.

Sadly, the Government’s Industrial Strategy inadvertently jumps on this bandwagon. In the Business Environment section of the document, it highlights the ‘long tail’ of low productivity, using a phrase coined by the Bank of England’s Chief Economist, Andy Haldane.

Haldane first used this term in a speech at the London School of Economics in March 2017. He said: “A third hypothesis [about the cause of low productivity] is the emergence of a long tail of non-frontier companies, failing to keep pace with innovation, is the result of management failings.”

Haldane continues: “These poor practices are most pronounced in sectors where competition is weak and in family-owned firms where management control rests with the eldest son.”

The study cited by Haldane was a working paper published in 2006 based on 732 medium-sized manufacturing firms in the US, France, Germany and the UK. Setting aside the fact that it is now wildly out of date, includes data from only 151 companies in the UK, and only looks at manufacturing firms, it only slates primogeniture – not all family owned and run businesses.

To quote from the report: “In our data, we find family ownership combined with professional management (i.e. where the CEO is not a family member) has a mildly positive association with good managerial practices. We find that companies who select the CEO from all family members are no worse managed than other firms.”

But of course, thanks to Andy Haldane and others, UK family businesses are now forever labelled as poorly managed, low-productivity enterprises.

As we all know, the UK has a problem with successful people – and families. Some blame the media for remorselessly pursuing those individuals who have built large businesses; others blame the internet for giving everyone a means to air their own personal grievances, envy and grudges. But whatever the reason, family business owners have become a target.

But cultural change aside, the image of the family business is generally poor in the UK when you consider how other countries view them. Take Germany as the obvious example. More than 90% of all businesses in Germany are family owned or run. In 2015, German family-controlled companies generated sales revenue of 2.9 trillion euros, and the 500 largest German family businesses created 1.06 million new jobs worldwide from 2006 to 2015.

Therefore, it can’t come as much of a surprise to know that the German people value their family businesses. According to PwC, 60% of Germans think that family businesses have the most trustworthy management when compared to corporations or start-ups; 56% believe they are family friendly, and 59% think family businesses are the most socially conscious of all types of company.

The German Government also has a distinctly different take on family businesses. For example, every year the German Foundation for Family Businesses holds a Family-Business Day. In 2017 the event was, as usual, packed full of high-ranking politicians from all parties, and Germany’s Finance Minister, Dr Wolfgang Schäuble, delivered the keynote speech for the third year in a row. I just can’t imagine that ever happening in the UK.

They’re also not shy of regulating in favour of family businesses. In 2016, Germany changed the law related in inheritance tax to make it cheaper and easier for family firms to pass on the bulk of their business intact to the next generation.

I think the UK government is missing out on a big opportunity here. Right now, two thirds of all British businesses are family owned. Targeting support directly to them in the form of access to capital, lower corporation and inheritance taxes, and reducing NICS will pay off.

But more than this, family businesses are in the zeitgeist. They are not the corporate ‘fat cats’, responsible only to shareholders. Family businesses tend to be smaller and based in local communities outside the London bubble. They are more regionally focused, easier to like and more palatable for the general public in this age of ‘greed is bad’.

In the foreword to the Industrial Strategy, Theresa May say this: “As we leave the European Union and forge a new path for ourselves, so we will build a Britain fit for the future and fulfil the mission that I set on my first day as Prime Minister: to make our United Kingdom a country that truly works for everyone.”

If Mrs May and this Government are serious about creating a new future that truly works for everyone, then it needs to start treating family businesses properly. The Government must adopt a German approach in its relationship to family businesses; hold them up as a model of all that is best about British business. Courting global corporations will only take this country so far post-Brexit.

Family businesses are the backbone of this country and it’s time the Government woke up and started giving them the support and recognition they need right now.

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  • Sebastien Kurzel
    Sebastien Kurzel
    Sebastien Kurzel is a Masters student at LSE, and previously studied geology. He is interested in the interface between energy sources, geopolitics, and UK national security.
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