Family value

Monday, 01 November 2021

Denise Cullen photo
Denise Cullen
Freelance Journalist

    The next generation of family business owners are shifting the conversation around diversity and purpose and the need to adapt governance practices for improved performance and succession planning.

    Kate Benfer GAICD looks out over the 320ha of rolling green hills that comprise the extended family farm at Mount Cotton, outside Brisbane. Her grandfather started the Darwalla Group here in 1933 and she is standing outside the feed mill where her grandparents’ house once stood. Benfer recalls playing in the grain bays, leaping from a roof into a cushioning pile of sawdust. “This was our playground as children, but it makes me cringe in the current health and safety environment,” she says.

    Her grandfather reared chickens for eggs, but the focus switched to meat processing when her father Albert took over in the late 1970s. While the Darwalla Group is now the largest Queensland-owned poultry producer, it was a bumpy transition from first to second generation. “Apparently, Grandpa just rang up and said, ‘That’s it, I’m not coming in on Monday’,” says Benfer. “It was very difficult for Dad, so he wanted to manage succession into the next generation better.”

    Family businesses like the Darwalla Group represent 67 per cent of all Australian businesses, and provide 55 per cent of private sector employment, according to KPMG. However, the question of succession is often fraught, complicated by a range of business and personal considerations. And the growing conversation on diversity and inclusion has largely bypassed family businesses, says international research by KPMG and the STEP Project, published in the KPMG Family Business Planning Diversity Entrepreneurship report. For example, only 31 per cent of global family businesses had women on the board, while only 18 per cent of current family business leaders were female.

    Australia is placed relatively low on female participation numbers at the family business management/executive level — around the 20 per cent mark, says Robyn Langsford GAICD, partner in charge of private clients and family business at KPMG. “This suggests that the glass ceiling at the top remains a challenge,” she says. International research shows it’s still common for family businesses to select their next CEO based on the male primogeniture — that is, the right of succession belonging to the first-born child, particularly the eldest son. “Sons in families often get socialised around the dinner table to a greater degree in terms of what’s happening in the business and being involved in the business at an early age,” says Langsford.

    As the youngest in the family, and especially as a female, Benfer never saw it as her role to work in the family business. She joined the fold six years ago, after devastating drought sent grain prices skyrocketing and cashflow problems threw the issue of succession planning into focus. Benfer and her three siblings were set to become majority shareholders. She wanted to be involved. She’d been raised on warnings about the third-generation curse — the notion that the first generation starts the business, the second builds it and the third ruins it. As a member of the third generation, she looked around and considered how many people relied upon the Darwalla Group and their 50 per cent-owned Golden Cockerel business. “I thought, ‘Well, that isn’t going to be us,’” says Benfer.

    They’re [women] often given the hidden role of troubleshooter and conflict-solver, which is an incredibly important role in any family or family business.

    Robyn Langsford GAICD

    Reframing the conversation

    The next generation of family business owners are shifting the conversation around influence, purpose and participation, and the need to adapt governance practices for improved performance and succession planning. For example, just as work health and safety standards ratcheted up over the years, so too did the Darwalla Group’s governance processes. “As managing director, Dad was always the one who made the final decisions, but now the business has grown and become more complex, it can’t just fall on one person’s shoulders,” says Benfer. “We now have a good blend of family and non-family helping to run our business.”

    When her father stepped down from daily operations about 18 years ago and Darwalla appointed its first independent CEO, a family council was formed. Consisting of shareholding directors and family members, meetings were more a monthly performance review than a proactive strategic decision-making forum. With the increasing complexity of business, including a more onerous regulatory environment, there is a need for the board to step up.

    “This is the process I've been championing — to improve our governance practices to ensure the sustainability of our business into the fourth generation,” says Benfer.

    At the age of 84, her father has left the board and two independent directors have joined, for a total of six. James Beck GAICD was appointed to improve the board’s management oversight and prepare for a generational change in shareholding, while current CEO David Greaves GAICD has been appointed managing director with the intention to remain on the board when he retires as CEO, currently planned for April 2022. “Transitioning a CEO to the board is not necessarily the way an ASX board would handle things, but in a family business, it allows for a good amount of comfort for all our stakeholders that we’re not losing that depth of experience,” says Benfer.

    As MD, Dad was always the one who made the final decisions.

    Kate Benfer GAICD

    Succession planning

    Susanne Bransgrove, third-generation family business owner and family business governance specialist with the EWM Group, says 70 per cent of family businesses don’t make it through the second generation. “This generally happens because family members can’t agree,” she says.

    “Often you see disputes ending up in court, they end up selling or the business closes down.”

    Role clarity causes a lot of conflict when family members become directors by default rather than deliberate appointment. “In older structures, you’ll often find the original patriarch or matriarch is the governing director, holding control,” says Bransgrove. “You end up with next-generation family members on the board, without much input or ability to ‘direct’, and who are not familiar with the role and risks that they fundamentally might carry.”

    Bransgrove founded the Women in Family Business forum to address the challenges that weren’t being tackled through traditional business networks. Its first event in 2019 welcomed 150 attendees. “The problems encountered being part of a family business are very different,” she says. “You need a network that understands what it is you’re living through.”

    Anthea Hammon GAICD, Scenic World Blue Mountains managing director, says getting the right people and structure in place is crucial to a successful transition. She and her brother, David, were aged 27 and 30, respectively, when they took over as joint managing directors of the tourist attraction, located on a site purchased by Hammon’s grandfather in 1945.

    “We were really quite young to be taking on a business of this size and what the joint CEO roles gave us was the confidence to be able to help each other grow as leaders,” she says. Following the development of a family council in 2006, the family decided to introduce a board of directors in late 2007, initially with family members, as the company moved towards best practice.

    Four steps for the future

    Having independent directors on family boards increases trust and transparency. “Family businesses need functioning boards, even if they’re never going to be striving for corporate governance best practice,” says EWM’s Susanne Bransgrove. “Having a board that is a best fit for the business, rather than best practice is something to consider.”

    Holding director-only meetings before board meetings allows family members to have difficult conversations without senior management present, says Sue Boyce FAICD, chair of Everhard Industries.

    Another way of managing family business dynamics is through a family council, says Anthea Hammon GAICD of Scenic World Blue Mountains. The family council sits above the board of directors and is comprised of Hammon, her four siblings and parents. It meets every six months — with an emotional facilitator — to discuss matters such as wills and financially binding agreements. “It creates a very good divide,” she says. “Without it, it’s very easy for family and emotions and related issues to end up sitting at a board level.”

    Diversity is crucial. “By ignoring the female family members you’re... ignoring a whole lot of different perspectives that come with embracing women in the business,” says KPMG’s Robyn Langsford GAICD.

    Hammon and her brother were three years into their roles and engaged “full tilt” on the $38m redevelopment of the Scenic Railway when they sought additional mentoring. “We got to a point where there were skills we needed that we didn’t have as a family — around issues such as negotiating with banks and preparing government tenders,” she says.

    The first independent non-executive director, Gordon Howlett, was selected for his tourism track record, family business experience and financial background. Howlett became chair in 2013, a position designed to give him sufficient authority when working with the family.

    “We did need someone willing to challenge us,” says Hammon.

    A second independent director, Owen Morgan GAICD, joined the board in 2015. Hammon says the pair’s input has been crucial to driving the group’s diversification strategy, which included Scenic World’s parent company, Hammon Holdings, winning the tender in 2018 to operate BridgeClimb Sydney for the next 20 years.

    Challenges ahead

    According to Langsford, women in family businesses are just as likely as those outside them to experience “imposter syndrome”, the sense that they haven’t really earned their place. “There’s that whole issue of women having to work twice as hard to be recognised — and the level of self-doubt that women grapple with can be an ongoing challenge,” she says.

    Women’s often unstated responsibility to serve as “chief emotional officer” to maintain family cohesion also holds them back. “They’re often given the hidden role of troubleshooter and conflict-solver, which is an incredibly important role in any family or family business, but it’s not necessarily recognised as such,” says Langsford.

    The research also shows that when it comes to business transformation, multi-generational firms were 45 per cent more likely to deploy a business transformation strategy. Family businesses that had female CEOs — often with less autocratic and more consultative leadership styles — were better able to bring about transformation. “They were very much more open to embracing new business opportunities and ideas, and that’s really important,” says Langsford. “When you’re running a family business, you want to remain relevant in a time of ceaseless change.”

    Having an outside network not dominated by family influence can be crucial to women in leadership roles within family businesses.

    “The family itself is such a tight unit, it can often be difficult to bring in external support,” says Langsford. “Having those networks where you’re able to get external perspectives and download without the family influence overtaking what you’re saying is really helpful.”

    A multi-generational outlook?

    Deloitte’s Planning beyond the horizon: a multigenerational outlook report into the role of family enterprises noted cautioned: “Without the right planning and preparation, some family enterprises may fail to successfully transition to the second generation, and the process becomes even more challenging for third or fourth generations.”

    Families that can define 10-to 20-year aspirations and six to 12-month initiatives, with a clear line of sight from one to the other, will be more likely to stay ahead of the game, according to the report, which offers three tips for embedding a multi-generational outlook in your family enterprise:

    1. Formalise planning processes
    2. When we “zoom out to zoom in”, we put capability-building on a schedule, deploy actual resources toward chosen initiatives and put in place metrics to measure whether they are progressing as planned.

    3. Put family governance in place
    4. Family enterprises typically have excellent business governance, but few operate with the same level of rigour when it comes to family meetings or communication. Yet, to plan beyond the horizon, it’s essential for the next generation to be included in their long- term decision making to align family strategy with business strategy.

    5. Prepare the rising generation
    6. Letting go is not simply about the incumbent generation giving up power. It’s about preparing and educating the rising generation. Heirs to family businesses can’t sustain their leadership through raw power. The previous generation and their stakeholders must grant them the authority to lead. Preparation should be focused on how to nurture the rising generation, setting multi-generational targets together and using any deviations from meeting these targets as learning experiences. Learning together as a family sustains the family’s power to adapt to disruption.

    Sue Boyce FAICD was never pegged to preside over Everhard Industries, the Brisbane manufacturing company started by her great- uncle in 1926 and later led by her father for more than 50 years. “It would never have occurred to my father to invite me into the business,” she says. “Manufacturing wasn’t something girls did.”

    The fourth-generation family-owned company manufactures and distributes laundry, kitchen and bathroom products as well as commercial surface water drainage, stormwater drainage, wastewater systems — “Everything Water” as the company describes its operations.

    Boyce calls her father (who took over as a permanent governing director in the 1970s) as an “old-fashioned autocrat” with fixed ideas about many things, including gender roles and how the business should be run. “He was an amazing entrepreneur, but had his blind spots,” she says.

    Throughout adulthood, Boyce was always a “director on paper”, but her active involvement was not encouraged. “Finally, I got told one time too many, ‘You don’t need to read this — just sign it.’ I said, ‘If I’m going to be a director of the company, we’re going to be real directors and we’re going to have board meetings.’”

    In the early 1990s, Everhard Industries introduced a formal board structure and welcomed its first non-executive director. — “a lawyer friend of my father’s,” says Boyce.

    After completing the AICD Company Directors Course, Boyce came on board in 1994 as an active director and to take on the role of national sales and marketing manager. The company, which had long prided itself on being an Australian manufacturer, also made the decision to start importing some of its products — a big shift in vision and strategy. “We would have gone out the door backwards a long time ago if we hadn’t made the decision to import the products that we can’t make competitively here,” says Boyce.

    Boyce resigned after four years in the sales position because she and her father continually clashed at work. She remained on the board and close to the company, but found this frustrating at times due to the focus on operational issues and lack of a succession plan. Boyce’s father developed dementia in 2012. “ There was a period of hiatus where we weren’t operating as efficiently or as well as we could,” she says.

    After her father died four years ago, Boyce became the majority shareholder and assumed the role of chair. The board is currently comprised of three shareholders — Boyce, her son and her elder daughter — and three independent non- executive directors. There are 140 employees, of which 32 per cent are female, including the CEO and CFO. “I’m proud that three out of our five most senior managers are women,” says Boyce.

    Early on, Boyce recognised her own children and grandchildren might not want to work in the business. “But the oldest two have decided they want to build and grow it,” she says. Occasionally, Boyce’s grandchildren squabble over who will be “the ruler of Everhard”, but she has made peace with the idea that the business may not last forever in its current form. “There are very few family businesses in Australia that make it into the fourth generation as we have. We’ll be 100 years old in 2026, but whether we make the fifth generation is out of my hands.”

    By the numbers

    8 in 10 family businesses are forecasting revenue growth in coming year

    76% said COVID-19 had no impact on succession plan

    56% of family businesses have plans to transition leadership

    65% of those will transition business to another family member

    30% have not considered succession/ leadership transition

    32% have considered change of ownership

    8% of family businesses have a retirement plan for the CEO/MD

    70% of Australian businesses are family businesses

    $4.3 trillion estimated value of family business sector

    Source: Family Business Australia Survey 2021, Grant Thornton

    18% of family business leaders are female

    Source: Family Business Australia

    Latest news

    This is of of your complimentary pieces of content

    This is exclusive content.

    You have reached your limit for guest contents. The content you are trying to access is exclusive for AICD members. Please become a member for unlimited access.