by Real Business - Thursday, 30th August 2007

1 Sibling rivalry: Not all families get along as well as Brian and Alan Stannah, the brothers who transformed a small manufacturing firm into a £137mturnover global giant – and still share an office (see pages 54–57). Just look at the bitter bust-up that erupted in the Gucci clan. Second-generation brothers Rodolfo and Aldo each ended up holding around half of the shares in the family luxury goods empire. But arguments and resentment simmered until the eighties, when they boiled over into well-publicised boardroom spats.

“Owners of family firms often make the mistake of trying to carve up the shares equally among their children to avoid accusations of favouritism. But that only serves to lock sibling rivalry in place,” says Peter Leach, chairman of BDO Stoy Hayward’s Centre for Family Business. “A 50/50 split between two brothers rarely reflects their individual abilities or contributions to the business.”

Grant Gordon, director general of the Institute for Family Business agrees: “Ask siblings of a similar age to work together and there are bound to be tensions and fall outs, especially if their roles aren’t properly defined.” The problem multiplies when the business survives to another generation. In the handover of the Gucci empire to the third generation, Aldo’s shares were divided among his three children – Paolo, Roberto and Giorgio – while Rodolfo’s shares went to his only son, Maurizio; an imbalance that fuelled resentment and led to violence, charges of tax evasion, imprisonment for Aldo – and the death of the Gucci family dynasty. “The most epic of disagreements in family firms are seldom about strategic issues. They are rooted in sibling rivalry, which started when the members were children,” says a report by Insead business school for Credit Suisse.

“In some cases, the thirst for revenge becomes one’s sole motivating force.”

2 Side-stepping succession: “What will happen to the business when Dad dies?” It’s a painful question and one that many family firms try to dodge. “The result is that succession becomes an event rather than a planned process,” says Leach. “It takes place unexpectedly when the owner becomes ill or dies, and an unprepared family member is thrust into the driving seat.”

Many owners ignore succession because they fear retirement or can’t bear to watch their kids tinker with their life’s achievement. “I knew a husband-and-wife team who refused to hand their shares to their son. He was desperate to expand the business but they claimed he was an idiot,” says Leach. “In reality, they didn’t want him meddling with the company and ruining their pension. They eventually sold their shares to him. Seven years later, he sold the business for 55 times the purchase price. They concluded that he wasn’t an idiot.”

3 Inertia and arrogance: A stubborn refusal to change entrenched business processes is typical in family firms. “They think they can walk on water,” says Leach.

“Very often these companies are successful because they’ve exploited a niche but they let that success go to their head. They fail to adapt to market changes and profits plummet.” He tells of a family-run manufacturing firm, valued at £50m.

The owner refused to sell because he was convinced the business was worth more. Within 18 months, it was on its knees. The family had been running the company for too long, they’d become complacent and failed to notice changes in the industry.

“They hadn’t realised how vulnerable they were,” says Leach. “They eventually sold that business for a comparatively pitiful £2m.”

Tags: family business, sibling rivalry, gucci, bdo stoy hayward, paolo roberto, succession, business failure, institute for family business, peter leach, doing business overseas, credit suisse, grant gordon,