Why family-owned SMEs should always consider looking outside for the right calibre of directors

June 2023

When I set up my business some 24 years ago and having worked for Argos in marketing for the 20 years before that, my main focus was on contract corporate work. This was typically managing brand strategy, development and identity implementation, with my clients including Whitbread (then owning Costa, Premier Inn, TGI Fridays, Brewers Fayre, Beefeater and David Lloyd Leisure) and Sodexo. I felt comfortable in the space, as it was much like my last role at Argos but without the need to manage a big team of (often temperamental) people.
However and on the downside, it also carried a whole load of the same political bullshit culture that I endured at Argos, which was one of the reasons I’d left to set up on my own. Another negative was the feast and famine nature of the contracts, which, financially and once I could see it after a few years of experience, didn’t seem to make a whole lot of sense because the famines would often last for longer than the feasts.
I’d anyway got the opportunity to work with some SMEs during the same time period, and often as a result of contacts made through the large corporates I was working for, plus the various agencies I was using. I typically liked these smaller operators, and not least as I was always working with those at the top of the decision making chain, and therefore got things done more quickly – and could see the benefits of those decisions much more quickly. And since moving to Scotland some 14 years ago, I’ve largely just worked with SMEs.
Most of these smaller clients – and for obvious reasons – have been family owned and run businesses, which I also liked because there was often a greater sense of passion and commitment to achieve success. However and on the downside, over the decades I’ve always been struck by how many of these businesses limit their potential by a desire and perceived need to largely, or only, have family members in key positions and as directors. This often pans-out by the original and successful entrepreneur wanting to share their success with sons, daughters and the spouses of both, plus the desire to simply ‘keep things in the family’.
The obvious negative of this type of nepotism, is that individuals can end up in roles that they’re not entirely suited for, or, in the worst cases, simply incapable of delivering on because they don’t have the necessary level of cognitive and leadership skills relative to the business founder. In fairness I’ve also seen cases where a son or daughter is actually more competent that the original business founder, but these instances are the exception and not the rule. It’s also the case that where a family member does make the grade, it’s no confidence that they’ve also been sent out into the big wide world to a) get further education, b) perhaps time to travel, and c) get work experience outside the family business. And after that and when they did eventually joined the family business, they’ve worked their way through different departments and started at the bottom in each.
In the very worst examples I can think of, family members that have been given director roles simply because of their family status, have put the business at risk of failing. Indeed, a family-owned business I’ve worked with relatively recently and which I had serious concerns about in relation to the ability of the sons who were running it, has been bought-out by a large corporation because it could no longer secure the level of orders the founder had achieved.
Of course I fully understand the emotional reasons why a family owned SME would want only sons, daughters, son-in-laws, daughter-in-laws, nephews, nieces etc. running the show, but the fact is that such a stance does not also have an objective basis. Such businesses could keep the profits for the family members by making them shareholders only (or at least those that aren’t also able to fulfil proper director positions), and in so doing leave the way clear to employ capable experts who fully know what they’re doing. This in turn creates value for the owners because the business is more likely to prosper and therefore deliver higher sales and profits.
The nature of my consultancy offer and combined with the sort of person I am, has often allowed me to have frank discussions with business owners about their own abilities and those of offspring and other relations. Such discussions aren’t always easy, but they do need to happen if I’m to stay true to a core principle of my offer which is built around honesty and delivering maximum value.