As if families are not complex enough, try adding $3.5 trillion in intergenerational wealth transfer over the next 25 years, according to the Productivity Commission. Three case studies show the importance of a good governance framework.
Enterprises controlled by families account for about 70 per cent of all Australian businesses and employ approximately half the country’s workforce. Recent research from Grant Thornton shows this vital pillar of the economy faces a number of obstacles, with more than 90 per cent citing cash flow challenges and 70 per cent concerned about product innovation. The intricacies of succession planning remain a challenge for 72 per cent, while market expansion and talent cultivation are among key concerns.
The economic significance of family businesses is underscored by recent University of Adelaide research. An exploration of the significant socio-economic contributions of family enterprises, it finds improving performance by just one per cent would result in the creation of 35,700–48,000 full-time jobs, and add $5.8b–$7.8b in GDP. Associate Professor Christopher Graves, director of the Family Business Education and Research Group at the University of Adelaide Business School, notes that family businesses have accumulated knowledge through history and tradition, which serves them well in navigating future challenges. But legacy also poses challenges.
“Sometimes, the identity of a family in a particular business is very much rooted in their history and tradition, and it can end up being a bit of an Achilles heel in the sense that sometimes an interpretation of history and legacy needs to be challenged or reinvented,” says Graves.
Interviews with 27 family business leaders show most cite the entrepreneurial legacy of their founding generation. “It’s not so much about an identity based in a particular industry or product, but more about being wealth creators who are really good at identifying opportunities, seizing them and enjoying the benefits, not only for the family, but also for broader society,” says Graves.
While diversity is widely recognised for its significant business payoffs, Grant Thornton research shows 76 per cent of family enterprises don’t have a plan in relation to gender diversity. It also notes that diversity of thought can be introduced beyond daily operations via non- executive directors or an advisory board.
Graves notes family business success hinges on robust governance, clear communication and definitive purpose. “When it comes to governance, family businesses must be very clear about why the family is banding together and continuing to pool their wealth. Once they understand that, they can start thinking about appropriate governance structures to help them keep on track to achieving their vision.”
1. Tough nut to crack
Canny structuring and a value-add strategy resulted in a good life after takeover for Bundaberg company Macadamias Australia.
The owners of a family-run macadamia farm, with more than 220,000 trees in the prime growing region of Queensland’s Bundaberg, never planned on opening a visitors’ centre. “We used to sell our nuts at the front door of the office,” says Macadamias Australia managing director Janelle Gerry MAICD. “But people were asking so many questions.”
Three years ago, they set out to satisfy consumer curiosity with a $1.8m visitors’ centre featuring interactive displays, a tasting station, shop and cafe overlooking the “home farm” macadamia orchard on the main road into Bundaberg. It’s this part of the business, plus a macadamia value-adding facility and vegetable processing business, that Gerry, her husband, and two adult children retained after the Steinhardt family sold most of its assets to Canadian investment giant PSP last year.
Getting started
Gerry’s parents, Ron and Marion Steinhardt, founded the family agricultural business in 1958, growing sugar cane, tomatoes and zucchinis before finding their feet with macadamias. The business was passed down to Gerry and her brothers.
In 2016, as the business grew, the siblings engaged a business adviser to help create family governance frameworks — including a family council, constitution and policies — to ensure sound collective decision-making. This required Gerry to wear four different hats: executive, family member, shareholder and director. “It’s quite difficult to be a multi-generational family business if you don’t have a structure in place,” she says.
As Macadamias Australia became one of the largest family-owned, vertically integrated macadamia businesses in the country, a further shift in governance occurred in 2017, when the company incorporated an external chair, Lisa May GAICD, and an additional non-executive director, Anna-Maree Shaw GAICD, to its board. They were specifically chosen for their expertise in food marketing and manufacturing.
Shaw came from a rural farming family partnership, so was acquainted with family business challenges. “This was an opportunity to go back to my roots and share my international experience, to apply what I’d learned on the board of a division of Walmart International,” she says.
The company relaunched a range of retail macadamia products in new packaging formats under the Macadamias Australia brand. They also looked to local family businesses for guidance on global market expansion. “John McLean FAICD and his wife Rae-Lee from Bundaberg Brewed Drinks instilled the importance of distribution partners in our export markets,” says Gerry. “They advised us to tackle a few strategic markets well, before moving to the next target.”
The board is also guiding the expansion plans of Farmfresh Fine Foods, which includes a new freezing line for its roasted and par-fried (partially cooked) vegetable products.
While construction of a cracking facility proceeded according to schedule, the installation of machinery was delayed, largely due to the pandemic’s effect on suppliers. “Even when you’re assessing risk, things don’t go to plan... then it’s great to have the board in place to say, ‘OK... what do we do to mitigate the loss, or the effect of what’s just happened?’” says Gerry.
Capital raising
The sale process started when the family explored options to raise capital to accelerate growth. Last year, Stahmann Webster, part of Canadian pension investment manager PSP, bought the majority of the company’s orchards, along with the $35m cracking facility, for an undisclosed sum.
Each sibling chose to establish their own family business. “Our parents instilled in us an explorer spirit, to always challenge the status quo and encourage freedom of thinking,” says Gerry. “It’s at the heart of who we are.”
The board played a key role during the capital raising, offering oversight during in-camera sessions held just before the monthly board meeting. “Ultimately, the decision to divest at this scale rested with the family shareholders, the three sibling families,” she says, noting the two non- executive directors provided valuable guidance on the road ahead. “We [engaged] a PR company to manage communications to ensure all stakeholders were taken on the journey during negotiations and after the deal was made. My main concern was that all employees retained their jobs as part of the changes and everyone felt secure about their futures. Regular meetings were held with staff to keep them informed, as well as [with] other stakeholders including customers, suppliers, growers and the community.”
May and Shaw also helped the family through 100-day plans and transitional plans. Understanding the risk appetite of the new business shareholders and ensuring this was reflected in a robust decision-making matrix was essential, as was ensuring the business was adequately resourced to facilitate the sale. “The board ensured we never dropped the ball on the business and it was very much business as usual until the deal was done,” says Gerry.
Following the sale, Gerry and her husband retained May and Shaw to help them navigate the next phase for their business group, keep them accountable and strategically focused, and help execute their ambitious growth plans. A further change occurred with the appointment of chief commercial officer Spencer Bartlet, former GM of Cereal Partners Worldwide. Gerry credits his network, approach to sales and operations, and passion for leading and developing people.
Many of the staff in the restructured organisation have stuck around for more than a decade in a very difficult labour market.
“Some of them started on our factory floor and we’ve developed them over the years to the point that two of them are now production managers,” says Gerry.
2. Keeping watch
For Julian Farren-Price, head of the eponymous Sydney watch seller and jeweller, stewardship of this venerable brand’s heritage is as much privilege as duty.
Julian Farren-Price, second-generation owner of Sydney luxury watch seller and jeweller J Farren- Price, suspects his mother, Krysten, had succession planning in mind for her business before he was even born. “She always maintained it was an accident I came into the business,” says Farren-Price. “My view is she planned it from the get-go, even naming me Julian so I was the next ‘J’ Farren-Price.”
A former accountant, who upskilled through international watch, jewellery and gem courses, Farren-Price worked side by side with his mother for 25 years in the St James Centre store, in Sydney’s Castlereagh Street. Together, they built up a business that now has 21 employees around Australia.
The current operation started in 1976, when Krysten Farren-Price eschewed retirement for a “hobby” retail business stocking Girard-Perregaux watches and jewellery. This followed the demise in the 1970s of what had been Australia’s largest watch retail chain — also known as J Farren-Price, but operated by her husband John Farren-Price. Through personalised service and attention to detail, Krysten and Julian Farren-Price developed the retail outlet into a purveyor of premium brands, including Rolex, Patek Philippe, Vacheron Constantin, Chopard and Longines. “Our unique selling proposition is that we are a family business,” says Farren-Price. “There’s a reasonable chance that if you walk through this door, I’ll be here, watching everything like a hawk, trying to cross the Ts and dot the Is. The brands we represent expect perfection and so do I. I’m not here to build an empire, I’m here to have a business that engages with customers and delivers beautiful products.”
He says there was never a specific succession plan, more an understanding that ownership would pass to him as the only son without the complication of other stakeholders with different plans.
Krysten worked in the shop until her eighties, tapering her workload, but always across the detail. “If the phone rang at five o’clock in the afternoon, it was my mother calling specifically to see what we had sold that day,” says Farren-Price. “She did that until the day she died.”
He says when he took on ownership, he also took on stewardship of the 80-year-old brand’s heritage. This sense of responsibility means he has rejected offers to open other stores around Australia and globally, preferring to retain control.
Operationally, he has executive staff in key positions to diversify risk and allow him to lead a life outside of work. He intends to stay to mark the company’s centenary and to see if it interests his daughters, now in their twenties. “It’s my life, like it was my mother’s. “I’m looking forward to the adventure of taking it forward.”
3. Nice as pie
Fourth-generation family business Plarre Foods Group owes its longevity to innovation and the development of a robust culture.
Generational change presents a significant risk to family businesses, with only about a third surviving to the second generation. Plarre Foods Group has bucked the trend. One of Australia’s longest- standing bakery families, the business spans more than 122 years and four generations. Steve Plarre GAICD was appointed CEO in July 2012 and has worked in the businesses his entire career. He describes family legacy as a “dual-edged sword”, noting, “The pride, and fear of letting the family down, drive you to succeed.”
With brands including Ferguson Plarre’s Bakehouse and Pie Society, the business runs more than 80 bakeries in Victoria, employing some 200 staff. Plarre says innovation is built into the company’s DNA. His grandfather developed and patented the emulsifier Mellofine, which helps produce a fluffier sponge, while the third generation of the business established a deep commitment to environmental sustainability. In 2007, it began planting the Ferguson Plarre forest with offset partner Greenfleet. The forest now boasts about 40,000 trees.
In the early 21st century, the business formalised its board and began establishing the processes required for future success. “Family members sat around the table and, for the first 100 or so years, made some good decisions, but some of it was luck,” says Plarre. “We now have a proper board with an independent chair and a director.”
Rod Douglas FAICD is chair of Plarre Foods Group, having joined the board in 2009. “In family businesses, there is often a pretence of governance, as distinct from a courageous application of governance,” he says. “The reality is, you’ve got to have a thick skin to work with families, to tell them the truth all the time, because they don’t necessarily want to hear it. Oftentimes, employees find themselves following a leader who has built an amazing family business, but they have no clue where they’re going, which means it’s hard for them to help. As soon as you document culture, people can debate it and ask how it defines what they should be doing. It enables you to unleash the creativity of the team.”
Succession plan
At Plarre Foods Group, culture is underpinned by company values. “We have a strategy temple and the heartbeat is values,” says Plarre. “It moves down into our five-year goals, then breaks into our one- year plan and reset periods, where we set new targets for the next three months. Everything is tested against our values.”
Plarre and his brother Michael, general manager of manufacturing, were encouraged to explore careers outside the family business before taking the reins. For their own children, diversity of experience will be a prerequisite. If they wish to join the family business, they must have worked outside it full-time for at least two years.
“If they eventually want to be chosen as CEO, they’ll go through the same process as anyone else,” says Plarre. “Having the surname Plarre gives you a job interview — the rest is up to you. Our plan sits around making sure we’re match-fit for a sale event. It’s not our intention to sell, nor are we in love with handing over to the fifth generation. Mike and I want to finish our tenure with a wonderful business and to have contributed to it to the best of our ability.”
This article first appeared under the headline 'Family Affairs’ in the March 2024 issue of Company Director magazine.
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