Family-run firms told to up their game

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Many of Britain's family-run businesses are poorly managed and need to up their game, according to researchers.

Research conducted for the Business Department by academics from the London School of Economics concludes that the government must "reduce the role" of badly performing family-run firms.

Bad management

Professor John Van Reenen, director of the LSE's Centre for Economic Performance, said management quality was "highly linked" to productivity and profits. Second and third generation firms tend to have weaker management than businesses run by professional managers, he added.

"People think it's a wonderful thing to pass on to the next generation but if you look at the management qualities of those firms they seem to be less well managed and less productive," he said.

"We find that poor management practices are more prevalent when product market competition is weak and/or when family-owned firms pass management control down to the eldest sons (primogeniture)," researchers Nick Bloom and Van Reenen wrote in one paper.

Van Reenen called for the scrapping of inheritance tax breaks for families that allow business assets to be passed on tax free. Somewhat controversially, he also argued in favour of foreign takeovers of UK companies to improve standards. "Management quality is much higher in subsidiaries of foreign multinationals than their domestic counterparts," he said.

Robust defence

However, Roger Pedder, former chairman of Clarks and director of the Unquoted Companies Group, vehemently rejected the findings: "Do these academics not realise it is a competitive market out there?" he told the Daily Telegraph.

"What do they think Clarks in footwear or Swires with Cathy Pacific or William King, one of the last Black Country metal bashers, are doing to survive. It is rubbish to suggest we are sitting in our comfortable niches. I had to close factories in the UK because of the labour rates and move them to the Far East. Do they think I enjoyed doing that?"

The government wants medium-sized companies to raise their game. Mark Prisk, the business minister, said. "This is not about trying to scold business managers and business owners. This is about working with them to enable them to up their performance. Sometimes that will be challenging, but I think there is the appetite."

The success of Germany's Mittelstand of private small and medium-sized companies, many of which are family-run, shows that it can be done. But this involves proper training and maybe hiring some professional managers from outside.
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