Andrew Donaldson, Chief Executive of James Donaldson & Son shares his thoughts on life in the family business. Andrew is pictured on the left with his father Neil (retired in the centre) and brother Michael (Chairman on the right).
I took over as chief executive of the Donaldson Group, a sixth-generation family business, in the Spring this year. We’re a 160-year old independent Scottish firm that began as a forest products specialist with a focus on timber importing before branching out into other areas of our trade.. Over the past 10 years we have slowly diversified into more of a rounded construction materials solutions provider. Our strategy is quite simple in that we aim to be able to supply anything that goes into a new build house. We have seven trading subsidiaries across the group, operating from 31 locations in the UK and we’re continuing to grow.
Anderson Anderson & Brown (AAB) provides us with corporate finance advice for mergers and acquisitions (M&As). They were excellent through the relatively complicated acquisition we completed earlier this year of two Scotland-based trading businesses involved in joinery manufacturing. They were Rowan Manufacturing Ltd and Smith & Frater Ltd which have integrated well, despite the Covid-19 pandemic.
Not long after I became Chief Executive our business had to close for the first time in 160 years. We shut entirely on 23 March – a date forever ingrained in my memory – through to 4 May. While some of our peers and competitors remained open, we made an early decision to shut, mainly from a safety perspective for our employees.
When my father took over the firm, we were one of about 50 or 60 family businesses in Scotland in our trade. We can now count the number of family businesses in our industry on one hand. I think succession has a lot to do with why this has happened. If there isn’t an obvious successor coming through, the business is likely to sell out to a large national company or private equity.
In terms of what makes family businesses different, I believe scale has a large part to play. If you get too big, you can lose that family touch. While we have doubled in size in the last 10 years, we have actively worked to keep our family culture and ethos.
Internal communication is also important and access to people. One of the things which amazes colleagues when they join the business is how flat our structure is and that they can pick up the phone to me or any of our senior leadership team, or come and see me when they want.
From a funding perspective we are limited because we want to remain an independent family business without external equity investment. We bank with RBS and they have been incredibly supportive. We like to keep debt low so our gearing is maintained around 25 per cent to 50 per cent – we don’t want to risk the crown jewels of the business.
Looking at tax, we’re very straight laced. We have about 140 shareholders, around 100 of whom are employees. I think we had one of the first employee shared ownership trusts in Scotland.
When it comes to succession, we plan long-term. We brought in a new non-executive about four years ago to help us with the transition. I was adamant that I wouldn’t take over as chief executive if I didn’t feel I had the correct skills at the time. My father resigned as chief executive in 2011 and neither myself nor my brother felt we were ready to take over. For the first time we had a non-family member running the business when we appointed Scott Cairns as Group Managing Director. But Scott had worked for us for 24 years so he knew the business intimately. My dad became executive chairman so there was still a family influence. Having a family member at or near the top helps maintain a moral compass.
Before I joined the Donaldson Group I worked outside the business and was with KPMG for several years. A lot of family businesses fail or don’t perform to the best of their ability because nepotism comes in. It has always been our belief that the best person for the job should always be at the top, whether that is a family member or not. Over the past few years, this mantra has worked well for our business. Ultimately, it’s about the business and it’s employees, not the family.. People are attracted to come to work for a well run family businesses and that is of huge value when it comes to recruitment.
To sum up, family businesses are unique, but it’s difficult to put your finger on exactly why. We run ourselves like a good PLC when it comes to such things as governance and controls, but we want to be a successful private business at the same time. It’s a very fine line but, if you can get it right, that’s a good lever for success.
Find out more about the business by visiting the James Donaldson Group website here