Family businesses, a crucial segment of the economy, face challenges along with other sectors and obstacles unique to their operation.
How many candles can fit on a birthday cake? Vague recollections of great aunty Ethel’s 80th birthday suggest that at least four score can encrust a festively decorated dessert.
But what pastry could host the plethora of candles needed if anniversary numbers ballooned beyond 180?
There’s only one family business in Western Australia, in fact, one in Australia that’s concerned with this maturing dilemma.
“We just celebrated our 181st birthday this August,” executive director of Sadleirs Transport Group Steve Samson said.
Mr Samson said Lionel Samson and Son, the umbrella company that owns the Sadleirs Transport Group among other interests, was founded when his great-great grandfather Lionel Samson hopped off the boat in Fremantle from England in 1829 to establish a career as a merchant trading in beer, wine and spirits.
Expanding during the Kalgoorlie gold rush, the company later acquired customs agents and general carriers RC Sadleir in 1939 and in 1999 purchased fine wine maker Plantagenet Wines.
Considering the diverse business has remained wholly owned by original descendants of Mr Samson’s great-great grandfather, Mr Samson said his company celebrated its mantle as the oldest continuously-run family business in Australia last month.
Although he avoided having to decorate what would’ve been a gargantuan birthday cake to commemorate Lionel’s pioneering efforts.
“We didn’t have a cake but we did have a toast with some great Plantagenet wine,” he said.
Among the nation’s oldest companies is Australian Agricultural Company, established in 1824, claiming to be the oldest continuously operating company in Australia despite being floated in 2001.
Westpac Banking Corporation, previously known as the Bank of New South Wales, listed in 1970 after first opening its doors on April 8, 1817.
Australia’s relatively short history pushes it down the global list of oldest family businesses.
Count Andreas Faber-Castell addressed the Family Business Australia (FBA) WA symposium in May, detailing his family’s eighth-generation business, operating since 1761 when Kaspar Faber made his first pencils in Stein, Germany.
And Japanese records from Osaka showed the family-run Kongu Gumi construction company was founded in 578. It wound up in 2007 as the oldest company in the world after 1,429 years of operation.
Decisions, decisions
Lionel Samson and Son’s diverse operation, which also includes industrial packaging and flexitanks, illustrates some of the complexities involved in deciding how to operate a contemporary family business in Australia.
In terms of managing such a diverse company, Mr Samson and his fellow shareholders-cum-directors (a mixture of relatives and experienced business people) sit across approximately 10 different boards evaluating various options when deciding future courses of action.
Like any public or private company, family-run companies must make important strategic and operational decisions concerning the structure and direction of their business, revisiting earlier decisions when presented with emerging opportunities or threats.
But as significant issues that are particularly pertinent to family-run outfits arise with the growth of the business, the more complicated decision-making becomes.
Issues of communication and governance, while not uncommon among other private and public companies, were especially delicate when bottom lines became interwoven with blood lines.
And considering the economic clout of family business, ironing out these issues is of paramount importance.
“It can’t be underestimated, two thirds of business is family business,” Mr Samson, who is also FBA WA chairman, said.
“It’s $4.3 trillion worth of market share in Australia, and no-one really gets it except us – we live and breathe it everyday.”
WD Moore & Co managing director Geoff Moore, a fourth ‘generationer’ who joined the company in 1969, called for greater acknowledgement of family business, as opposed to small business, by the government.
“Family business is not just small business, it encompasses every size of business,” Mr Moore said.
“So there’s probably not one formula that works across the board.”
It's a sentiment echoed by all those attending a recent WA Business News boardroom forum when discussing the interrelated issues of organisational structure, governance and communication within a family busines.
Simply put, there’s not one answer for all.
Different strokes
International accounting group MGI’s Australian Family and Private Business Survey 2010, released last month by RMIT University after surveying 5000 companies, revealed that almost 40 per cent believed the most serious issues confronting family business were communication between family members and relinquishing leadership control.
The survey also suggested about 65 per cent felt the ultimate challenge in family business was dealing with the addition of business-based relationships on top of pre-existing family-based relationships.
Coogee Chemicals chairman Gordon Martin said it was critical for a first generation family business such as his own to develop an open, questioning culture in order to succeed.
“You really have to encourage questioning and debate without fear of retribution or else, subconsciously, management says, ‘Yes sir, no sir’,” Mr Martin said. “They don’t say, ‘You’re a silly old bugger’.
“There’s a genuine risk of that, certainly in what is an early stage family business where you’ve got a few successes on the board, somehow they believe you always make the right decision, which is crap.”
Mr Samson believed that segregation between the business and the family was warranted, to a certain degree, in tandem with establishing good communication.
“Family relationships get in the way of good business sometimes,” he explained.
“He’s my cousin, and he’s not doing a good job but I won’t say anything because I don’t want to upset that relationship – that’s where you have a structure in place to allow good business.
“By adopting best practice you’re actually protecting family relationships.
“If you fail the price is incredibly high as you stay as a shareholder and you stay as a family member but you have this failure that’s surrounding you.”
Mr Samson and Galvin Engineering managing director – finance/marketing Chris Galvin both described how they’ve developed a family charter and a family council based on good governance for their vastly different organisations.
Galvin Engineering’s family charter includes rules around family members not joining the company until they’ve worked elsewhere for three years, then if they do join they are paid at market rates, managed by non-family members and can be hired and fired like everyone else.
Mr Galvin explained that his 80-year-old commercial plumbing company, which he runs in partnership with older brother Paul, recently established a more structured communication method as a result of implementing the family charter and council.
“Now we’re starting to tackle the board side of things: keeping our eyes open for strong independent chairs and non-executive directors,” Mr Galvin said.
“No doubt we’ll stuff up a few times and take a while to get that right because for 18 years it has just been us two making the decisions.”
Marsh Civil managing director Phillip Marsh operates with a board of directors that sets the direction, governance and strategy for the company, as well as an advisory board with an independent chairman that sits between the board and a management board, which runs the day to day operations.
“That independent chairman of that board, he doesn’t accept everything you show, he’s accountable,” Mr Marsh explained.
“He says, ‘Why haven’t we met those targets?’ whereas previously, where we didn’t have that structure, I could talk it away and we’d move on.
“Now if you say you’re going to do something, then the next meeting you’re front and centre.”
External input
JWH Group, which encompasses Plunkett Homes, Rural Building Company, WA Country Builders, Oswald Homes and the Cherylton diversified farming operation (comprising 23,000 acres in the south west) is a first generation family business run by Julian Walter.
After hiring a former big four accounting firm partner as CFO to tidy up the company’s governance issues, family council and balance sheets, Mr Walter said the company now has other issues to face despite being told by the banks that JWH’s reporting standards were akin to that of a public company.
“We’ve got no board as I’ve found it’s too hard to get board members now, with all the rules and regulations out there,” he said.
However he brought in a close friend to act as a chairman of sorts while paying him as a company director.
“Although he’s a friend he knows me well enough to say, ‘You’re a dickhead, you really stuffed up there’,” Mr Walter said.
“That’s what I pay him for, to tell me and the rest of the guys what I don’t want to hear and what I do want to hear sometimes too.
“I do need someone that will tap me on the shoulder and say, ‘Are you serious about dropping three or four million bucks on this, you know you really are being stupid’.
“I can be too entrepreneurial at times.”
Leeuwin Estate founder and managing director Denis Horgan said continuing the advisory board he established 20 years ago may be tough after expressing difficulty at finding suitable board members with the relevant industry knowledge.
“The board’s worked extremely well other than the fact that they’re all getting to be about my age and it’s about time, with the new generation coming in, we restructure the board and have one member that my kids can relate to,” Mr Horgan said.
“One of the challenges I’ve found is that not many people understand the wine industry.”
However Mr Marsh suggested diversity was important.
“You don’t want surround yourself with people the same as yourself,” Mr Marsh said.
Mr Martin highlighted that a basic understanding of the relevant sector was critical along with a sense of discipline.
“We’ve got an ex-CEO of CSBP on our board, and even though he was a financial man, the fact he was a CEO in the same sort of industry is fantastic,” Mr Martin said.
“A (public) listing brings a market discipline … but it’s not necessarily the most efficient or best for the company in the long term.
“Probably 15 years ago we put in place the governance and board structure that was equivalent to a publicly listed company.”
Mr Martin said a private board where final decisions usually rest with the family held some advantages such as a long-term outlook and strong balance sheets.
“A lot of public companies have had a lot of money and blown it quickly because the CEO or the executive almost get on an ego trip,” Mr Martin said.
Interestingly Mr Horgan strongly warned against rushing into a public listing as a means to capital.
“I think going public is a last resort,” he said.
Craig Mostyn Group executive director, Andrew Mostyn suggested balance across all facets of the business was key.
“If you’ve got that dominant CEO I think that’s where an independent chair can keep that CEO intact,” he said.
“I report through to my CEO, who is not family, but then as the CEO he reports through to me as a director and we have no issue with that at all.
“Again no one answer fits all.”
