14/12/2018 - 12:09

Success is one thing, smooth succession quite another

14/12/2018 - 12:09

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SPECIAL REPORT: BGC Australia and Perron Group are going through changes that all family-owned businesses face, large or small.

Success is  one thing, smooth succession quite another
Michael Smith says an ownership board provides an interface between the operating businesses and the shareholders. Photo: Attila Csaszar

SPECIAL REPORT: BGC Australia and Perron Group are going through changes that all family-owned businesses face, large or small.

Recent developments at BGC Australia and Perron Group have shone a spotlight on the perennial issues of succession and ownership faced by all family businesses.

Buckeridge family owned BGC this month appointed Macquarie Capital to advise on the likely sale of the vast construction and property group, which has annual income of more than $2.5 billion.

(CLICK TO SEE A FULL PDF VERSION OF THIS SPECIAL REPORT)

The appointment came one month after BGC brought in three independent directors to bolster its board, led by new chairman Neil Hamilton.

This marks a profound change at BGC, which was previously dominated by its founder, the late Len Buckeridge.

It contrasts with developments at Perron Group, which has implemented a smooth succession in the aftermath of founder Stan Perron’s passing.

Mr Perron started preparing for his succession more than 25 years ago, when he appointed professional directors to his board.

In line with his ordered approach to business, he put in place very clear guidelines on how the group should be structured and managed after his death.

The changes include long-serving director Laurence Iffla taking over as chairman and his daughter, Elizabeth Perron, chairing the Stan Perron Charitable Foundation, which will receive the majority of the group’s assets.

Perron Group, which ranks as one of Australia’s largest private companies with net assets of more than $4 billion, also has a well-established professional management team, ensuring a high degree of continuity.

Some of the oldest and best-known family businesses in Western Australiahave adopted a similar model.

Lionel Samson Sadleirs, Craig Mostyn Group, D’Orsogna and Mrs Mac’s are all run by professional managers (see table).

They also have, to varying degrees, governing boards led by professional directors.

This model allows the families to retain ownership of the business, even where family members lack the desire or skills to run the business.

It contrasts to the path chosen by the Buckeridge family, which has been grappling with the future of BGC ever since the death of its founder four years ago.

With multiple children, stepchildren and grandchildren laying claim to parts of the estate, the family decided the best solution was to sell the business.

It’s a path already taken by the families behind many other prominent WA businesses, including Boans, Aherns, Bunnings, Clough, Multiplex, Midland Brick and Peet.

The funeral industry illustrates the propensity of families to sell out if they get an opportunity.

ASX-listed companies InvoCare and Propel Funeral Partners dominate the industry around Australia after buying up dozens of family operations.

Sydney-based Invocare controls more than 45 per cent of the WA market, including Purslowe Funerals and Chipper Funerals, and added to its network this year by purchasing South West operator Archer & Sons.

Propel is another major player in the WA market, which it entered last year with the acquisition of Seasons Funerals for $10.9 million.

Against this backdrop, the longevity and continuity at market leader Bowra & O’Dea seems all the more remarkable.

Established in 1888, it is now a fifth-generation family business led by Joe O’Dea.

The only family business in WA with greater longevity is Lionel Samson Sadleirs, which was established in 1829 (see table).

The group has extensive operations that include trucking group Sadleirs, with professional directors and executives, including chairman Michael Smith, leading the operation.

Eighty family shareholders, who have a family council, own the business.

Mr Smith said an ownership board also represented the shareholders.

“It provides an interface between the operating businesses and the shareholders,” Mr Smith told Business News.

Mr Smith said a similar approach was adopted at 7-Eleven and Starbucks Australia, which he also chairs.

The Withers and Barlow families own both of these businesses and have an ownership board to liaise with the operating board, which has one family representative.

Mr Smith likened the meetings with the ownership board to having a compact AGM several times a year.

He added that Lionel Samson Sadleirs’ operating board was also evolving, and he anticipated the number of family members would be reduced from three currently.

“By the time I leave in a couple of years, there will probably be more independent directors and the family representatives will be down to two,” Mr Smith said.

Craig Mostyn Group, which has been running for 95 years, does not have an ownership board but has developed its own governance structure.

Members of the three founding families wholly own the business.

They have two family members on the agribusiness company’s five-member board – Andrew Mostyn and David Keyte.

Mr Mostyn was also the last family member to hold an executive role, prior to his retirement in 2017.

The group used to have an ownership board but stopped it about 20 years ago.

“Our mostly independent board now functions professionally and a family board would only add confusion in my opinion,” Mr Mostyn said.

“We consult regularly and at least once a year hold a ‘family only’ meeting so they have the opportunity of input should they feel the need.”

One of the key goals of these meetings was to ensure family members maintained an affinity with the business.

“We try to keep people informed and engaged,” he said.

“That gets harder when you have fourth generation members in their 20s.”

Mr Mostyn, who was formerly chair of Family Business Australia, said all shares in the business were held by second, third or fourth-generation family members and none had ever sold any shares.

If any wanted to, the company’s constitution granted pre-emptive purchase rights to other family members.

Mr Mostyn said the current structure had evolved over a long period of time.

“We set about trying to professionalise our business many years ago, with non-executive directors coming on the board in the 1950s and 1960s.”

He noted that bringing professional managers into a family business does not always succeed.

“There are a lot of sad stories of people trying to get someone from outside but it doesn’t work out,” Mr Mostyn said.

“It’s a matter of getting the culture right and keeping that going.”

He added that there has been very little long-term analysis of family businesses.

“It’s incredible that the study of family businesses is only about 30 years old,” Mr Mostyn said.

“Even in the US and Europe where there are a lot of very old family businesses, there are no long-term studies and long-term delving into the educational side of things.”

Trust and planning

Family Business Australia WA state manager Lorraine Willis said she had observed many ‘next generation’ family members pushing for greater clarity on succession.

“Planning is everything and the sooner you start the better off you’ll be,” she said.

The need for greater planning was highlighted by this year’s KPMG Family Business Australia survey.

It found only 27 per cent of family businesses have a succession plan for the current leader and 64 per cent of ‘next gen’ members do not believe they are ready to take over.

Ms Willis said a lot of younger people did not want to wait until their parents were ready to have the discussion.

“It’s also about communication and alignment of values,” she said.

“There has to be trust between the incumbents and the next generation.”

KPMG partner Agnes Vacca said surveys of incumbents and the next generation revealed very different attitudes.

“The biggest issue for future leaders is the communication style and how the future direction of the business is set,” she said.

Agnes Vacca says family members need to be aligned in their thinking. 

Ms Vacca said the incumbents grappled with balancing the needs of the family and business.

“It’s just too complex for a lot of people to think about, they don’t know how to compartmentalise the issues and deal with each one,” she said.

Ms Vacca said family members needed to have the capacity to grapple with tough questions.

“You need to look at what people really want for themselves and what is best for the business,” she said.

“And how committed they are to the business and how aligned they are in their thinking.

“The most important thing is getting it all out on the table and getting clarity on both sides.

“They will have dinner conversations about it but you need a facilitator to draw out the issues.”

 


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