Tips for maximizing the longevity of a family business

Mart Nõmper,
Kristel Meos,
Kristiine Ross,
Gregor Alaküla
Grant Thornton Baltic saade Kasvukursil Äripäeva raadios
Something that family businesses should consider besides earning a profit is maintaining mutual relations between family members and devoting attention early on to questions of succession if the business is to stay in the family.

Experts say family businesses are generally more successful than the average, but nothing comes easy and it all requires a great deal of effort. “Of all forms of business, a family-owned company is the most penetrating, enduring and inclusive form. The main criterion for defining a company as a family business is that at least family members are in management and the majority of the shares are owned by the family, said president of the Estonian Family Business Association and CEO of Zenith Family OÜ, Kristel Meos, speaking on the Äripäev radio programme “Kasvukursil”.

Meos said family businesses can be small shops in the neighbourhood or large corporations such as IKEA, Kone, Bonnier or BMW. “For family businesses, it’s important to achieve strong business growth and keep family members dedicated and motivated,” she said.

Keeping relations in order

Meos says family business has three pillars. First ownership; second, managing the company; and third, good family relationships. "Often, philanthropy and CSR aspects can be added to the above,” said Meos. “And certainly, besides turning a profit, one has to be aware of relationships, which give advantages in business activity and help to avoid problems,” agreed another guest, Grant Thornton Baltic’s partner and Head of Audit Services, Mart Nõmper.

A member of the board of the Family Business Association and head of sales and marketing for the Büroomaailm office supply retailer, Kristiine Ross, stressed that success for a business comes from good relations at work and on the home front. “Problems arising at work shouldn’t get in the way of harmonious functioning of the family,” she said. “Furthermore, a family business should make sure that all employees are treated equally and respectfully, no one should be favoured because they are family,” said Ross. Everyone has to fulfil their duties with the same professionalism, she said.

If any one of the family members does not want to sign on to the company’s mission and works at cross-purposes to the business, Meos recommends nipping the problem in the bud. “People can be sidelined from the business but still remain a member of the family. It’s painful but later when they have children, things can mellow through them and the family line can be re-inserted into the business,” she said.

Point the way early for descendants

To reduce potential later conflicts in a family and make it easier to pass the torch, younger members should be included in the company’s activities from an early age. “The companies that last across generations are in the long run more successful than other companies," Meos said. “The key to getting by better is to engage with younger generations of family members in a planned way, think about how the company will be passed on and keep family relationships good and cohesive.”

Ross emphasized that smooth handover is ensured by the next generation being interested in what the company is doing. To achieve this, I would encourage the leaders to give the young responsibility and freedom from an early age,” she said. Nõmper added that descendants shouldn’t be expected to think the same way – they should be allowed to try new things. “Let’s recall that Andres also wasn’t able to pass on the farm, each successive generation has more options, so kids should be involved early,” he said, referring to a famous Estonian literary protagonist from Tammsaare.

Meos recommends getting youth involved through summer internships at the family business. “Give them simple duties, naturally they can’t aspire to leadership right away, but they get the feel for how complicated a process is, they also get a sense of the topics they can handle, and want to deal with in the future, and how they see their role in the family business.”

Nõmper said it was a good idea for potential successors to assume the leadership position for a certain set time. “Usually there are several people in a single generation and a fixed term allows other members of that generation to have a chance in leadership and thereby add their value added,” he said. That will also ensure that knowledge is more evenly distributed. “Families often worry about what will happen if some misfortunate befalls the head of the company – alcoholism, gambling problem or something else.”

An external consultant can help

To plan the future and course of a company, many places in Europe use a possibility called a family charter. “Estonia has started to see more of this practice too,” said Ross. Nõmper advises using the help of external experts to draft such a document. “Families often have subjects that are in a frozen state but an external party can ask about them and put these issues back on the table without any of the family members being associated with such a move.”

If the changing of the guard isn’t successful and there are no successors to be found, there are still a few options on how to proceed. “One way is to merge with another family business,” said Nõmper. “The management, if there are no family members there, can always buy out the company,” put in Ross.

Meos said selling is definitely not a bad idea, as that would free up capital for successors to start a new life.” They can do something else, do what they desire, based on their ideas and profile,” she said.