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 grandparentsâ house once stood. Benfer recalls playing in the grain bays, leaping from a roof into a cushioning pile of sawdust. âThis was our playground as children, but it makes me cringe in the current health and safety environment,â 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. âApparently, Grandpa just rang up and said, âThatâs it, Iâm not coming in on Mondayâ,â says Benfer. âIt was very difficult for Dad, so he wanted to manage succession into the next generation better.â
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 â around the 20 per cent mark, says Robyn Langsford GAICD, partner in charge of private clients and family business at KPMG. âThis suggests that the glass ceiling at the top remains a challenge,â she says. International research shows itâs still common for family businesses to select their next CEO based on the male primogeniture â that is, the right of succession belonging to the first-born child, particularly the eldest son. âSons in families often get socialised around the dinner table to a greater degree in terms of whatâs happening in the business and being involved in the business at an early age,â 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. Sheâd been raised on warnings about the third-generation curse â 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. âI thought, âWell, that isnât going to be us,ââ says Benfer.
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 Groupâs governance processes. âAs managing director, Dad was always the one who made the final decisions, but now the business has grown and become more complex, it canât just fall on one personâs shoulders,â says Benfer. âWe now have a good blend of family and non-family helping to run our business.â
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.
âThis is the process I've been championing â to improve our governance practices to ensure the sustainability of our business into the fourth generation,â 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 boardâs 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. âTransitioning 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 weâre not losing that depth of experience,â says Benfer.
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 donât make it through the second generation. âThis generally happens because family members canât agree,â she says.
âOften you see disputes ending up in court, they end up selling or the business closes down.â
Role clarity causes a lot of conflict when family members become directors by default rather than deliberate appointment. âIn older structures, youâll often find the original patriarch or matriarch is the governing director, holding control,â says Bransgrove. âYou end up with next-generation family members on the board, without much input or ability to âdirectâ, and who are not familiar with the role and risks that they fundamentally might carry.â
Bransgrove founded the Women in Family Business forum to address the challenges that werenât being tackled through traditional business networks. Its first event in 2019 welcomed 150 attendees. âThe problems encountered being part of a family business are very different,â she says. âYou need a network that understands what it is youâre living through.â
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 Hammonâs grandfather in 1945.
âWe 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,â 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. âFamily businesses need functioning boards, even if theyâre never going to be striving for corporate governance best practice,â says EWMâs Susanne Bransgrove. âHaving a board that is a best fit for the business, rather than best practice is something to consider.â
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 â with an emotional facilitator â to discuss matters such as wills and financially binding agreements. âIt creates a very good divide,â she says. âWithout it, itâs very easy for family and emotions and related issues to end up sitting at a board level.â
Diversity is crucial. âBy ignoring the female family members youâre... ignoring a whole lot of different perspectives that come with embracing women in the business,â says KPMGâs Robyn Langsford GAICD.
Hammon and her brother were three years into their roles and engaged âfull tiltâ on the $38m redevelopment of the Scenic Railway when they sought additional mentoring. âWe got to a point where there were skills we needed that we didnât have as a family â around issues such as negotiating with banks and preparing government tenders,â 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.
âWe did need someone willing to challenge us,â says Hammon.
A second independent director, Owen Morgan GAICD, joined the board in 2015. Hammon says the pairâs input has been crucial to driving the groupâs diversification strategy, which included Scenic Worldâs 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 âimposter syndromeâ, the sense that they havenât really earned their place. âThereâs that whole issue of women having to work twice as hard to be recognised â and the level of self-doubt that women grapple with can be an ongoing challenge,â she says.
Womenâs often unstated responsibility to serve as âchief emotional officerâ to maintain family cohesion also holds them back. âTheyâre often given the hidden role of troubleshooter and conflict-solver, which is an incredibly important role in any family or family business, but itâs not necessarily recognised as such,â 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 â often with less autocratic and more consultative leadership styles â were better able to bring about transformation. âThey were very much more open to embracing new business opportunities and ideas, and thatâs really important,â says Langsford. âWhen youâre running a family business, you want to remain relevant in a time of ceaseless change.â
Having an outside network not dominated by family influence can be crucial to women in leadership roles within family businesses.
âThe family itself is such a tight unit, it can often be difficult to bring in external support,â says Langsford. âHaving those networks where youâre able to get external perspectives and download without the family influence overtaking what youâre saying is really helpful.â
A multi-generational outlook?
Deloitteâs Planning beyond the horizon: a multigenerational outlook report into the role of family enterprises noted cautioned: âWithout 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.â
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:
- Formalise planning processes
- Put family governance in place
- Prepare the rising generation
When we âzoom out to zoom inâ, 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.
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, itâs essential for the next generation to be included in their long- term decision making to align family strategy with business strategy.
Letting go is not simply about the incumbent generation giving up power. Itâs about preparing and educating the rising generation. Heirs to family businesses canât 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 familyâs 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. âIt would never have occurred to my father to invite me into the business,â she says. âManufacturing wasnât something girls did.â
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 â âEverything Waterâ as the company describes its operations.
Boyce calls her father (who took over as a permanent governing director in the 1970s) as an âold-fashioned autocratâ with fixed ideas about many things, including gender roles and how the business should be run. âHe was an amazing entrepreneur, but had his blind spots,â she says.
Throughout adulthood, Boyce was always a âdirector on paperâ, but her active involvement was not encouraged. âFinally, I got told one time too many, âYou donât need to read this â just sign it.â I said, âIf Iâm going to be a director of the company, weâre going to be real directors and weâre going to have board meetings.ââ
In the early 1990s, Everhard Industries introduced a formal board structure and welcomed its first non-executive director. â âa lawyer friend of my fatherâs,â says Boyce.
After completing the AICDÂ 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 â a big shift in vision and strategy. âWe would have gone out the door backwards a long time ago if we hadnât made the decision to import the products that we canât make competitively here,â 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. Boyceâs father developed dementia in 2012. â There was a period of hiatus where we werenât operating as efficiently or as well as we could,â 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 â Boyce, her son and her elder daughter â and three independent non- executive directors. There are 140 employees, of which 32 per cent are female, including the CEO and CFO. âIâm proud that three out of our five most senior managers are women,â says Boyce.
Early on, Boyce recognised her own children and grandchildren might not want to work in the business. âBut the oldest two have decided they want to build and grow it,â she says. Occasionally, Boyceâs grandchildren squabble over who will be âthe ruler of Everhardâ, but she has made peace with the idea that the business may not last forever in its current form. âThere are very few family businesses in Australia that make it into the fourth generation as we have. Weâll be 100 years old in 2026, but whether we make the fifth generation is out of my hands.â
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
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