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Keeping it in the family is bad for business

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Family-run companies have been identified as the weak link in Britain’s economy by a recent survey.

After it surveyed a total of 10,000 firms for the Business Department, the London School of Economics (LSE) blamed underperforming family-run businesses for problems with rebuilding the economy.

Since the productivity of whole companies depends on the quality of management at the top driving the rest of the staff, who is in charge is vitally important.

It was found that companies which have been passed down through families and are now run by the second or third generation of the original founder do not necessarily have the best management in place.

Businesses which have managers who have been hired solely on merit and through no family connection to the firm are often more efficient with higher levels of productivity.

One way of addressing this issue may be for the government to scrap the ability to pass business assets down through families tax free.

Companies which are part of a larger multinational firm also benefit from higher levels of quality management, showing that traditional ideas of the high street are not always the best for the economy.

Some firms have hit back at the claims, like footwear company Clarks, for example, who have proved that family-run businesses can thrive and compete in the competitive market.

The Business Department has said that the findings show that medium sized companies should raise their game and not take the findings as criticism, but an opportunity for improvement.

Business Link reminds those thinking about setting up a family business that decisions should be made for the good of the business and not the individuals involved.

Prof John Van Reenen, director of the LSE’s Centre for Economic Performance, said: “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.”