Sharing the rewards in a family business

The second in a series of articles from a family business round table with Kuits Solicitors

What is deemed fair in one business won’t work for another

All parents will recognise the plaintive cry of “it’s not fair” after disputes between squabbling children have been resolved.

But once the playground is swapped for the boardroom, the rivalries and different points of view don’t get any easier to navigate.

When family businesses pass to second and future generations, and in deciding dividend policies, the question of fairness continues to loom large.

Sharing the rewards in a way that keeps everyone happy, whether they work in the business or are shareholders, is a difficult balancing act that brings in family dynamics as much as business performance.

Paul Bricknell, tax partner at Kuits, said: “It is an interesting conundrum as to who should or shouldn’t own shares. Is it everybody? Is it everybody working in the business? Or is it only the people leading the business who should have shares?

“There is no right answer. What works for one family won’t work for another.”

The issue of rewards can be linked to control – and the related question of how the business is run.

Marcello Distefano, managing director of restaurant group San Carlo, said: “As the families grow, and there are more families with wives or husbands involved with different motives, people start to have an attitude about each other – who works the hardest? Who deserves what?

“Our view is that one person must have the overall say-so, and if that person has been chosen to lead the business then they have the overall say-so and no-one else can go against that.

“That keeps it more secure otherwise you can join the long line of family businesses that eventually collapse because there are too many people trying to make a decision.”

Ian Meadows is chairman of 270-year-old Liverpool business RS Clare. He is bringing the sixth generation of his family through to run the business and he has a straightforward view of what’s required.

“As long as you keep the shareholders informed and, where possible, maintain cautious but growing dividend, they won’t interfere with the running of the business.” he said.

“Otherwise if you have people looking over your shoulder all the time it can counter-productive.”

Being rewarded from a family business doesn’t always require a family member to be on the payroll.

“We are a family-owned company, but first and foremost we are running a company,” said Suttons Transport Group chief executive John Sutton.

“It’s nice to be able to offer jobs to the family but if they are not capable of working in the business – or they don’t want to work in the business – that’s fine. They own shares, they get a reward, they get a dividend.

“We have a clear dividend policy – if the company makes money, you get some.”

There can also be difficulties and differences of opinion if an opportunity to sell the business arises – particularly if the lure of a payday is attractive to the family members who don’t work in the business.

“One of the things we look at when we are structuring family businesses is who controls the ability to sell,” said Bricknell.

“Be very clear about who can decide to sell and at what price because you don’t want someone looking at the cheque today and selling the family silver and not having anything left tomorrow.

“What you don’t want, as a family member working in the business, is a sister or a brother not in the business but who has a shareholding saying ‘I don’t care what you want, I want my cheque’.”

Those people running a family business can feel responsible for the prosperity of the wider family. But Tristan Robinson, client senior manager at Brown Shipley, said they should also remember to look closer to home.

“My job is making sure clients look after their personal wealth as well,” he said. “There’s so much focus on the business it’s important to carve out a bit of personal wealth to look after once the business is either sold or passed on to the next generation.”