THERE are many big issues facing family businesses.
For a start, the family members are not only the shareholders and the board of directors, but the management of the company too.
But of everything they face, the most thorny issue is how to deal with the kids when they either want to join the business or cash out.
According to Terry Rowney, chairman of Family Business Australia, one of the worst things a family business can do is expect the kids to join — or even let them join. “The first problem from generation to generation is sharing the same dream,” he says.
He says family businesses should have a constitution defining if, how and when family members can join the company but, despite being best practice, few companies — perhaps 0.5 per cent — have one in place.
ong that tiny percentage are three of Australia’s best-known family-owned wine companies — Brown Brothers, De Bortoli and Taylors of Clare Valley.
Mitch Taylor, managing director and winemaker at Taylors, a third-generation member of the winemaking clan, says the family is eager to avoid nepotism. “We set up a family constitution that has a good couple of paragraphs on what you need to do to enter the family business,” he says.
“We don’t want to hear, `Don’t worry, you can always fall back on the family business’.”
In past times, it was normal for the children to join a family business. Taylor joined the winery in 1988 and became managing director in 1995.
The same is true at De Bortoli. Current managing director Darren De Bortoli joined the company in 1982 at the age of 21 having studied winemaking.
De Bortoli says that when he began working for the company it wasn’t an issue to discuss whether the children should gain substantial external work experience before joining the business. What was on his father’s mind was to find a family member to succeed him in running the business.
Down the track, the winery started formal directors meetings, which helped identify many of the issues it should address. At the top of the list was the criteria for family members joining the business, which is owned by four siblings and their mother, Emeri.
At De Bortoli, the kids must be at least 25 years old, and preferably 28, to join. “We want to ensure they have experience in the outside world and don’t assume that they have a right . . . to a job,” says De Bortoli. They should ask, he says, not what the business can do for them, but what they can do for the business.
Over at Brown Brothers, eldest brother John Brown joined what was basically a big farm at the age of 17 in 1958, followed by his brothers, Peter and Ross.
When he joined, the substitute for board and management meetings were informal morning teas arranged by his mother.
But in 1988, when he took over from his father as chief executive of the company, it needed structure. Formal board meetings were established and two external directors were brought in to add perspective to family decision-making.
At that time, he addressed how to bring family members into what was a business of 150 employees without taking another’s position. It was the beginnings of the family constitution.
Now with his brother Ross as chief executive, there is a formal process to bring any of the family’s 10 children into the business; four years working elsewhere after finishing their formal education and a formal application, which is vetted by the board. Brown says the view is that not all of the 10 children need to be in the business, but some will be. For instance, John Brown’s daughter Katherine joins next year with relevant experience after having studied wine-marketing.
She is currently in France where she has worked at wineries in Bordeaux and Champagne.
The rule at Taylors, where there are potentially 16 children in the next generation, is that five years of work experience is required in another business. Then there has to be a vacancy, the family member has to have a degree of expertise and they have to apply through the proper channels.
Rowney, from Family Business Australia, says: “There is great substance in having the kids work in another business first. They may find out that their old man isn’t such a crank after all.”