Interview with Peter Leach

What is your history with family business consulting? How has it become your profession?

I was an auditor and financial advisor back in the mid-70s and was working with multiple family businesses. After a while I realised that similar questions of a more personal and family relationship nature were coming from different families, and patterns could be identified. Therefore I started to specifically study family systems and psychology in the 80s, and also organised some research studies at the London Business School.

Working together with family businesses made me realise the richness of the subject, so I also wrote a book, which happened to be the first book on this topic in the United Kingdom. To my great pleasure it sold very well, and supported me becoming a professional family business consultant.

Today, I am a partner at Deloitte LLP in London and I lead the Firms’ Family Enterprise Consulting business globally. In addition, I teach about the topic and am an Adjunct Professor in Family Business at Imperial College London.

What does a family business consultant do? How would you describe it?

 As a neutral person, you can act for the entire family, helping the group create alignment around their vision, values and the way they work in the business. It involves spending considerable time with families and we work together to ensure that they are aligned around personal roles, how to manage conflicts, develop policies and procedures. 

A family business consultant supports the family to ensure there is a clear governance structure, as it is essential to have clear communication channels and a balance between the family and the business. The family business consultant has to develop significant trust with all members of the family, needs to learn and understand the motivation of all family members and try to consolidate and harmonise these aspirations to help families overcome and manage the challenges they face.

Do you have any industrial or geographical focus?

Not really, I have had engagements over the globe in various industries and business sizes.

Which were the most interesting challenges you have faced and how did you solve them? Can you specify any examples?

There were two brothers running a retail group of companies, arguing about strategic questions such as which shops to acquire and after several years of disagreements, they were very angry with each other. After some time working with them, they realised that they were not fighting because of their personalities, but because they did not have a professionally run board, nor a clear operating and decision making structure. Once they knew what the problem was, it could be easily rectified.

What I have learnt as a result of cases like that is that there are three kinds of difficulties in family businesses: personality, structure and the business itself. While everybody blames the personality, my belief is that it is rarely the personality which is the root of the problem, but that the structure is wrong. Therefore family members’ behaviour might deteriorate as they are unhappy with the structure, but it is generally misconstrued as a personality issue. It is rarely the business that causes the problems as this can be re structured or sold off as needed.

Family members have come to me saying they would like to sell their shareholding because they simply cannot work with certain family members, or because despite having a stake in the business they have no say. Invariably what happens is that once the structure, or decision-making protocols, are put right, then the situation is completely fixable.

 As another example, I have worked with a mother, who was the chairman and 75% owner of the company, with six children all working in the business. The children were badly behaved and showed a lack of respect for their mother who had built the business from nothing - in some cases the children took valuable stock from the shelves and simply walked out.

As the CEO of the business was the mother’s son-in-law and control was exercised by the mother, the children felt that the family was less important than the business, so they did not really care. As the mother was desperate to create a family team, we organised a family meeting where the mother introduced a structure whereby all participants had one equal vote for the purpose of that meeting. Therefore, if the majority of the children were in agreement regarding a certain topic, they could lead the final decision. This structure worked well and meetings from that point were led by this principle.

As the family started to work together as a team, the dynamics of the family greatly improved, as well as the performance of the business. It is important to note that the solution was not to give shares to the children to make them equal shareholders, but she simply introduced an equal structure for the purpose of the family meetings. This is one of the various tools that can work very well and prove to be transformational for the family.

How do you see the potential succession routes when the founding owner is stepping down? Do most families try to perform a successful generational change, and sell the Company if there are no willing and able younger family members? What are the empirical statistics?

The statistics are unfortunately quite gloomy, as only 30% of family businesses can perform a successful generational change between the first and the second generation, while only 13% from the second to the third generation. It is very important that making a succession is never an ‘event’ - it always has to be a process. The elder has to realize that they gradually need to allow the next generation to take on the business and let them get on with it – not staying with them and telling them what to do.

Therefore, one of the rules of succession is that the generations need to be ring-fenced financially, so that the elder generation does not need to rely on the business performance of the next generation for their financial needs. This way, the advice of the elder can be better delivered and appreciated, as they are not giving advice colored by their own personal interests.

The other golden rule is that the elder generation needs to settle the succession issue while they are around, so they can bless it. Without their blessing, the business can fall apart. While they are alive, they hold the family together and everyone behaves themselves, but once the elder dies, family dynamics can change drastically and the business may fall to pieces.

Have you seen many family businesses being sold?

Sometimes a family needs to sell the business if they feel that they could not run it in the future without taking too much risk. If all the assets of the family members (both working and non-working), are tied up in the business and something goes wrong, it can result in a disaster. So the family needs to establish an overall asset allocation and separate the company wealth from family wealth. After decades of significant business and financial success, there can be enough accumulated profit to be able to ring-fence a robust family wealth ‘pot’ from the company wealth, so even if something happens to the business, the (high) standard of lifestyle can continue for the family. However, in the case of younger family businesses there might not be enough proceeds to separate substantial family wealth from company wealth. Should this be the case, and the family sees a higher risk regarding the future performance of the business, the best decision might be to sell it and realise the financial proceeds to ensure family wealth in the longer term, and might choose to invest in something else.

Do family businesses usually acquire other companies to grow?

From my experience, family businesses are not shy to acquire companies. I have been engaged with families who spent hundreds of millions of pounds on acquisitions, mainly to diversify risks across industries and geographies. For this, the most important part is to have the right management in place. You can find money anywhere, but good management is hard to find. Personally, I do not believe that family members should overstretch themselves as in most cases they do not have the time to run these newly acquired businesses properly.

Do you see many families owning their family businesses directly as natural persons or via legal entities?

At the beginning it is practical to hold the operating companies directly as natural persons, however, beyond a certain size, from a risk management perspective the best solution is to establish a holding or trust structure, where the natural persons are holding the operating companies via these additional entities. I would also suggest designing structures that minimize the number of actual shareholders in the operating company, as a high number of shareholders leads to votes, and family businesses should never vote. I think voting can only be the last resort and alternative decision making structures should be put in place to avoid it.