Family business sagas make great TV, but not in the real world

The House of Gucci, Succession, Yellowstone – three hugely successful TV series and films covering generations of family business intergenerational conflict and succession.

In the real world, however, sagas should be avoided at all costs.

Peter Brewer, Partner in HCR Law’s Dispute Resolution Team, has years of experience in managing disputes and tensions in family and owner-managed businesses.

For a special HCR Law podcast, he sat down with George Bryan to discuss the issues.

George was a third generation in his family business Drayton Manor Theme Park in Staffordshire, before it was sold in 2020 to a larger operator.

George is now using his unique experience as a family business adviser, interpersonal mediator and student psychotherapist.

They discussed the unique challenges faced by family businesses and how to avoid many of the pitfalls.

Facing up to a crisis

In 2020, there were around 4.8 million family businesses across the UK, generating £575bn in gross value added (GVA) to UK GDP, and employing 13.9 million people.

One of them was Drayton Manor.

Brexit and Covid-19 had a devastating effect on the UK’s economy, but the pandemic was particularly pernicious in the leisure sector, enforcing business closures for months at the beginning of their season.

Drayton Manor is one of the UK’s best-known leisure parks. Opened in 1950 by George and Vera Bryan, by 2020 the family-owned park was welcoming a fourth generation, but after months of Covid-19 induced zero income, it was sold to Looping Group, which also owns the West Midlands Safari Park.

Well before the business was sold, George Bryan (grandson of the first George), had taken a step back from the operational side of the business. He’d retained his position on the Board, but it was his elder brother, William who had taken on the role of managing director.

For the last seven years, George has put his experience to good use as a family business adviser.

Succession is generally the biggest tension in family businesses, but not always through a sense of entitlement, but simply wanting to carry on family tradition, he said.

That comes with its own problems, because loyalty to the business doesn’t necessarily mean a family member has the skills to do the job.

“Encouraging family tofirst gain experience outside the business can be a good move,” said Peter.

George agreed but pointed out: “But many smaller family businesses are owner/managed and can’t do without the next generation for an extended period – often years.”

Of the business, but not in the business

What happens if family members don’t want to get involved in the operational side, but remain shareholders?

A family council could be the answer. This is a governance body which sits alongside the family business to manage the relationship with the company.

It provides a safe space for family members to voice opinions, prevent conflict and educate the next generation. The family business can then recruit from outside, bringing in the right skills to run the business.

Peter said: “Family business disputes should be avoided at all costs. They not only destroy personal relationships but can affect the business’s value.”

Policies can take the heat out of potential challenges

While on the Drayton Manor Board, George established a family employment policy. “Not to restrict family coming into the business, but to streamline the organisation. which was in danger of becoming unwieldy,” he explained.

“From two family members in the first generation – my grandparents, to three in the second to six (my brother and I, two cousins already in the business and two that weren’t) to potentially 10 in the fourth generation.

“We implemented a training programme for family members – a month in finance, another in operations and so on, for them to learn all aspects of the business.

“But if they decided not to go into the business after training but wanted further study, such as university, the business would help pay as long as their training was relevant, such as finance or management, which could be used in the business.”

Good planning and structure add value to the business and reduces the likelihood of family disputes.

Mediating arguments

Peter is also a civil and commercial mediator regularly commissioned by other solicitors.

“I’ll mediate between minority shareholders. This could be shareholders attesting their rights have been infringed by the conduct of the majority shareholders and they’re entitled to certain remedies in the Companies Act.

“They may want to be bought out because they consider their position as a minority shareholder has been unfairly prejudiced as a result of the actions of the majority shareholders.”

The upside of an Unfair Prejudice Petition is that remedies available to the court are extremely wide, the downside is the cost – and it must be funded by the individual director themselves, not the company.

“Before it arrives on the desk of a solicitor such as me, it’s worth setting out the risk and realities of the situation and the financial cost,” said Peter, “including what it might do to family relationships.”

George agreed. “When I mediate between family members, I look at the shareholders agreements and constitution, if there is one, to see if it could be resolved early on.

“Often people just want to be heard, and perceived wrongs (which can have happened decades ago and have nothing to do with the business), righted.”

Focus on the legal merits, not family emotions

As a mediator, Peter aims to take emotions out of the situation. “I’ll focus on the legal merits of the claim – are you likely to win or lose? What does a good day in court look like to you and what about a bad day? What could be the financial cost to you? Such questions can bring reality into an emotional situation.”

Shareholders agreements can be effective in the event of a dispute, added Peter, “but often a family member won’t see the need – perhaps they’re setting up the business with their brother, husband or wife and they “really trust them”.”

Think of a shareholder’s agreement like car insurance, he advises. “Most of us begrudge paying car insurance premium, until we are involved in an accident. Shareholders agreement operates in the same way.”

George said: “When something happens – on purpose, or an event – such as a death, then everything’s in place, and there will be no surprises for the family as the key issues have already been agreed.”

How can lawyers and mediators help family businesses avoid disputes?

• Draw up a shareholder’s agreement, business structure, articles and possibly a family employment policy. Investing early in legal advice will add real value to the business
• Implement these agreements and share them across the business. This is where a family business adviser can help.