Personal Luxuries

Good business relations

‘Set up, build up and sell up’ may be the mantra for many entrepreneurs, but what of those who want to keep their family businesses in the family? Jonathan Margolis reports.

June 11 2010
Jonathan Margolis

It’s not a rational feeling, but for me, if an enterprise happens to be not only family operated, but British too, I warm to it doubly. Across the world, brands that can boast both family-ness and British-ness carry an implicit extra guarantee of quality, integrity and continuity. Yet here’s an odd thing: today, to found a family business in Britain is regarded as almost wilfully eccentric and retro, like wearing a bowler hat or owning a poodle. The modern motivation for starting a business is to grow it and sell as fast as possible. So it’s OK for, say, a funeral director in his dotage to be seen ascending a ladder and proudly painting “& Son” after his name on the shop front; but for any modern business it would seem quite peculiar, a tad narcissistic and too old school by half.

Research published in 2008 by the Department for Business Innovation and Skills has shown that 69 per cent of family businesses are first generation; and, according to a survey of family businesses conducted in 2007/2008 by PricewaterhouseCoopers, which found that nearly half of the respondents had no succession plan in place, many are unlikely to pass on to the next generation.

Yet, against all the odds, there are new companies, and highly successful ones, currently run by their founder and forging into the mid-21st century with every intention of remaining as family businesses.

When Ivor Tiefenbrun, the son of a Polish immigrant, founded the Royal Warrant-holding Glasgow hi-fi manufacturing business Linn in 1972, he was disinclined to let his children imagine that one day it would all be theirs. Tiefenbrun’s second son, Gilad, asked straight out at the age of 11 whether he, his brother and sister would take over the business. All his friends, Gilad explained, thought it was incredibly cool to have a hi-fi factory. The answer from Tiefenbrun Snr, now 64 and easing towards semi-retirement as executive chairman, took Gilad aback. “I always loved the place and was incredibly proud that it was my dad’s business,” he says. “So it was quite shocking when he said, no, I wouldn’t automatically be coming into the business. I think I knew I would come here eventually, though,” he adds, “and I think my dad said the right thing.” With his father’s words still ringing in his ears, Gilad continued to love the business, working on the factory shop floor in school holidays when aged just 13.

“The children were hurt,” Tiefenbrun Snr admits, “but my view was that they couldn’t know what they wanted to do yet, and they had to make up their own minds. I didn’t want them to feel that it was a soft option – or that it was something expected of them. I actually didn’t like family businesses at that point; there was too much of a whiff of nepotism.”

Tiefenbrun explains that in the 1960s he was encouraged by his own father to go into his engineering business in Glasgow but, after trying it, didn’t want to; his brother, however, did so successfully. Of Ivor’s children, eldest son Natan is a senior manager at the London Stock Exchange, daughter Sara is a TV director now working in Melbourne and, before returning to Scotland, Gilad had a successful career with mobile-phone-software company Symbian.

While Gilad was pursuing his career and starting a family in London, his father was unwell and starting to think about the business’s future. In 2003 Gilad returned to Linn, partly to bring up his children in Scotland, and worked in research and development, then as engineering director. But he was still young and his father’s resistance to automatically putting him in charge prevailed. “I had to get to a position where our processes and values were embedded with somebody else running the business,” says Ivor. “I actually had two succession attempts. The first one was to divide the business up into various areas, giving the leading players responsibility. It didn’t work well enough. We lost our competitive edge and as I got iller, the business suffered more.

“I then attempted to make the person who seemed best suited to run the business the managing director, but that didn’t work out and by 2007 the business was in crisis. I was healthier and came back in, but by then I felt Gilad was in position to become managing director, supported by a board of well-informed, independent non-execs – and things just got better and better.”

Linn has had a major revival in its fortunes and put into action Gilad’s own quite revolutionary pet project – making Linn the first hi-fi company to abandon CD players and move entirely to digital music. During the failed succession attempts, Gilad took an executive MBA at Harvard Business School, where he was influenced to start the change from a family board to a professional board of non-execs. “Professor John A Davis there has written a lot on family business planning and that’s what he recommends – to take the emotion out of it and create an organised succession.

“One of the reasons the second succession attempt failed was that the managing director tried to keep Ivor out of the business. A professional board is a way to keep the founder involved to concentrate on top-level strategy, but not worried about the day-to-day running.

“Ivor, as the owner and founder, has the right to have a say in the long-term direction of the company – or at least to check that the management of the team is adhering to the core values of the business that he built. Also, I didn’t want to be alone; it was tough enough becoming the managing director of a multimillion-pound business without feeling like you’ve got the weight of the world on your shoulders.

“And, yes,” he concludes, “I think I’ll do the same with my kids as my dad did with me. I wouldn’t rule it out; if their river is flowing in the company’s direction, then fine, but I don’t believe in diverting it for them.”

Linn, then, has passed to the second generation by a gradual, trial-and-error process. In the case of another newly minted family business, the upmarket Gloucestershire vacation housing development Lower Mill Estate, a similar result is unfolding via a different course.

“I didn’t buy Lower Mill with a view to it being a family business,” says 50-year-old Jeremy Paxton, “as the children were then 11, six and newborn. But I did set up the business based around my family. I had a typical corporate history of building businesses and selling them – I created a series of sports and leisure magazines – but had decided that I wanted to breathe a bit and be free of partners. I wanted to follow something of a path less trodden, one involving architecture and ecology, to be able to take off all the school holidays and go home at two in the afternoon if someone was sick.”

So today, the Lower Mill morning business meeting consists of Jeremy, founder, owner and operator; his 27-year-old son Red, sales and marketing director; and 22-year-old daughter Ruby, the director heading up its luxury short breaks. And it often takes place in Paxton’s helicopter, which he flies in to Lower Mill most days from nearby Henley, where the family is based.

“We have these three-way business chats on the intercom, all wearing headphones, at seven in the morning. Other times I’ll drive in with my sister and we’ll talk through ideas,” Red explains. “We’re very close as a family. And Ruby and I feed off each other really well. There’s stuff I can tell Ruby to help her to bring her side of the business forward and she can help me with bits on my side. So we do really work well as a team.”

“There’s no fear of discussing and challenging any idea,” explains Jeremy. “I like argument without argument – agreeable argument. A family business is like a marriage. It doesn’t work because you always get on, but because you can sort out not getting on.”

Although Ruby joined the company straight from university, where she studied business and marketing, Red Paxton went off at 16 and made his own way as an entrepreneur, first in the music business and then in entertainment; ventures he has now profitably sold. And both are keen to bring in their 17-year-old brother, Rory, one day; “He’s the brightest one of us all,” says Red.

“About three years ago,” Paxton Snr continues, “there was a defining moment when I became progressively uncomfortable with the way the business was being run and felt I needed to step back in. I felt that with some employees who had been with me since the beginning I had the foundation stone of a family business. The culture of a family business is not created by all having the same surname – it is more a case of how much you care about the good people around you.

“And at this point I thought my two older kids were ready – as did they, more importantly. Ruby was bored at university, and had all the instincts of a businesswoman raring to go. They’d both grown up at my knee, so knew the place and how I worked. I really needed a team that bought into the vision of Lower Mill, a team that were proud of the brand and whom I could trust. One of the problems we face as a nation now is actually the lack of pride of ownership – and short-term-ism.”

So at just 22, Ruby has already taken Lower Mill’s holiday rental business into six-figure profit, while her older brother is also making strides, building his own initiatives, as well as taking the classic “new broom” role in evolving the brand’s image.

“I’ve grown up here, watching what dad’s built. It has made me feel really proud and very excited to be a part of it, because it’s got great potential,” says Ms Paxton. “I started thinking about coming into the business while I was at uni. I’ve got quite a strong work ethic – working since I was 15, and being round Dad – and I was wanting more and more to have my ideas about how Lower Mill should develop taken into account. I just wanted to get working and making a difference. When I had five hours of lectures a week and the rest was free time, I just thought, ‘Why am I doing this when I could have a real input into something that’s important to me?’ ”

But what would happen in a family business if every member of the potential second generation had their own life and career in different fields, and different places – but were all agreed, nonetheless, that it was both viable and desirable to keep the firm in the family? It would seem an insoluble problem. But the Campbell family, formerly of Knutsford near Manchester, has constructed an ingenious solution – partly, perhaps, through the father being a formidable business academic and partly through guidance and counsel from the family business division of Coutts Bank.

PasTest, the Campbell enterprise, is thriving back in Knutsford as a family business in the medical education industry with a £4m turnover, despite its founders, Freydis and Nigel Campbell, being retired in the Scottish Highlands and their sons, Hugh and Gillon, both in their 30s, living in London and having their own successful businesses, in corporate finance and branding respectively.

PasTest produces study aids for doctors facing exams and was founded as a true cottage industry by Freydis Campbell and her Harvard Business School-trained husband Nigel in 1970, when he was working for the Norcross Group, and before they had children.

PasTest’s succession plan, created by Nigel, is praised by Coutts’ head of UK family business, Juliette Johnson, as the perfect model for such a situation. A non-family CEO, Philip Curzon – a former Royal Artillery Major sent to Insead business school and Harvard by PasTest after he was recruited – now runs the business and owns 10 per cent. A non-family chairman owns three per cent. Hugh and Gillon Campbell own 10 per cent each, are on the board as non-execs and spend a couple of days a month each contributing their particular skill sets to developing the business. And while the senior Campbells retain majority ownership, and are active in maintaining the culture and values of the business, they are transferring their holdings bit by bit to the boys.

“There’s a tax disadvantage to the way our parents have done this, and the lawyers and accountants don’t like it, but the advantage is that we have the energy, drive and skills to make more of the business,” explains Gillon Campbell, 34, who trained at Procter & Gamble after studying management and economics at the University of St Andrews. “This means that our asset, our legacy, will ultimately be greater. Your smaller share, which you will have in five years’ time, will be worth more than a bigger share today.

“Before I came onto the board in 2007, I was quite disengaged from PasTest. Then I would have said, ‘Why don’t we just sell it?’ But I’m certainly not of that opinion now. At my age, I wouldn’t be on the board of any company other than my own. So the family business gives me a unique insight at a different level in business, and opportunities to give my opinion, make decisions and work with the board on things that I might not otherwise be exposed to.”

Hugh Campbell, 37, a former Citibank trainee who spent three years at Goldman Sachs, explains that he and his brother were never pushed into the family business. “It was a major part of our life at evenings and weekends, and filling envelopes at crunch times. But it was never said that, ‘one day all this will be yours’. It was just, ‘Look, we have this asset, it’s going to be here, so why don’t you guys go off and do what you’re going to do and then maybe at some point in the future you might want to get involved.’”

Nigel Campbell, now 69, explains that he and Freydis decided that it was important for the young men to have a period working together in the business as the family directors, without their parents, to discover whether they really wanted to be equal shareholders in the long term. “Sibling rivalry is well known as a problem for family businesses,” he says, “so Juliette gave the boys some initial help with the issue of working together and they seem to have decided they like it, and they’re happy to be 50-50 shareholders into the future.”

“Nigel realised early on how much strife there can be in families if there is rivalry, or if just one sibling wants the business and the other isn’t interested,” confirms Freydis. “We didn’t realise it even had the potential to be a family business back then, because we didn’t know it was going to be so successful. But Nigel put the whole thing on a professional footing astonishingly early anyway, and that’s what paid off so well and has made everything go as smoothly as it has.

“It has,” she concludes, “worked out as the best of all worlds for all of us – the longstanding employees included. It really still is a family business.”