Sunday June 7, 2020

Comment: Family businesses must be protected as society changes

They employ 1.2 million people and are the bedrock of the Irish economy. Yet as our definition of a family evolves, these companies face unique challenges

20th May, 2020
Open for business but for how long? The future is uncertain for many family firms

Families have always played a central role in Irish society, and family businesses have always been the dominant economic structure in Ireland. But society has, and is, changing, and that has serious implications for them.

Years ago, our families mirrored our Catholic ethos. We were known the world over for the number of children we had, and it wasn‘t uncommon to come from a family of ten, 11 or even 12 siblings.

Industrialisation came late to Ireland – most people either worked on a farm or lived in a rural setting. Divorce was non-existent. Unmarried mothers had to give their children away.

The family firm, meanwhile, was run by the father, who rarely discussed its workings. The mother ran the household, the eldest boy was told he would inherit the business, while the next boy joined the priesthood or became a teacher. The girls were told to get husbands.

It‘s a scenario that is almost unrecognisable today. There are now nuclear, extended, co-habiting, separated, divorced, remarried, blended, gay/lesbian, childless and one-parent families. Families are getting smaller, and first-time parents are older.

All of this has implications for the future of family firms. And given that they are still the dominant business structure in Ireland, those implications are of national importance.

A recent survey by the National Centre for Family Business at Dublin City University showed that there are 160,700 family businesses in Ireland and 137,000 family farms, employing 1.2 million people. Their contribution to the economy is enormous, with family businesses found in every village, town and corner of the country.

Yet they are becoming extraordinarily complex. The increasing number of marriage breakdowns has a profound effect on ownership of the family business and succession planning.

Remarried family business owners with children from a second marriage are becoming more common. Even so, there are fewer children being born to business owners than there were decades ago, and many of them don’t want to join the family firm. There is also an increasing number of family business owners with no children.

Family businesses have traditionally been strong in farming, the service industry – shops, pubs, restaurants and hotels – distribution, building and construction. These are all tough sectors with long and unsociable hours.

In years gone by, it was a given that some of the children would join the family business, but that is no longer the case.

Young people’s attitudes are changing, and the members of Generation Z who are coming along next may reject working in these types of industries. They might not like the idea of being tied down working long hours for a parent who has little intention of retiring.

Successive governments have done nothing to encourage the sustainability of family businesses. Tax policies push businesses into selling rather than paying the punitive taxes required to hand on the business to the next generation. Less than 10 per cent of family businesses will ever see past the third generation.

Significant attitude changes to such businesses in Ireland in terms of economic policy will be needed if we are to retain the 1.2 million jobs they account for and maintain their central role in Irish business.

We should move away from the awful acronym SME, and recalibrate the thinking of organisations such as Enterprise Ireland to think about family businesses instead of the company’s size.

We should not give more favourable treatment to foreign companies which are mainly based in and around big cities such as Dublin. We should support the family businesses that are in every corner of the country.

We must develop economic policies to support these firms and to make them more attractive for the next generation. We must shape tax policy to encourage entrepreneurship and to encourage the next generation, not obstruct them.

As the structure of families in the developed world changes, whereby there will be fewer children and those children may have less sense of obligation to join the family business and be more keen to do their own thing, we must recognise the inevitability of the changes we are facing.

Families may be only in transition and not in decline. We must do all in our power to protect family businesses, encourage the next generation to join those businesses, and protect the bedrock of our economy.

It will be those companies, after all, that will get us out of the mess we are now in thanks to Covid-19.

Paul Keogh is chair of the National Centre for Family Business at Dublin City University

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