Kinloch Anderson, an Edinburgh family company since 1868 are renowned experts in kilts, tartans and all aspects of Highland Dress. Deirdre Kinloch Anderson married into the family firm and shares her thoughts. What does your family business do? Scottish Clothing and textiles, renowned for kilts and Highland Dress, also wholesale and skirt production, tartan design and Brand Development in Japan, Korea, Taiwan and China. How did you get involved? Married into the 5th generation What did you want to be when you grew up? Initially the first ever lady mounted Policewoman! Then social worker. Then working with publication of Children’s school books in foreign languages. What are your first memories of the family business? My husband was dedicated to making it ever more successful and wanted me to be interested and involved when appropriate. What values are important in your family/family business? To be a role model for Scotland, upholding the highest principles of integrity and service. What is the best thing about being a family business? For us, personally, the lifestyle that goes with it, the places we go to and the people we meet. Commercially, when we have made a decision we can go ahead and do it. And the worst? The demands and pressure of the ultimate responsibility. What is the best thing about your working day? Working with a great team of people in our Company. There’s always a new challenge. What is your proudest family business achievement? There have been so many over the 145 years: Queen’s Award for Export in 1979, Douglas Kinloch Anderson OBE in 1983, Award for Business Excellence Scotland 1999, Deirdre Kinloch Anderson OBE 2010, but most important is always thinking ahead. Is there a next generation waiting in the wings to take over? 2 sons: 6th generation in the Company in their early 40’s. One is Chief Executive and the other is Director of Brand Development. What do you see as the biggest challenge facing family businesses? Same as for other companies, the challenge and competition of the workplace. What words do you associate with family businesses? For us: Scottish, Authentic, Creative, Experienced, Enterprising, Discerning, Dependable, Global Words of wisdom – What piece of advice would you pass on to someone thinking about joining the family business? First take time to learn as much as you can about our Company. Then always look for new opportunities, new developments so that we can remain world leaders in our niche market.

Advisers can help clients better secure their family business by asking them to address four key areas: legal structure, governance structure, policies and processes. Many traditional professional advisers and trustees are familiar with legal structure, but it is critical to address all four areas to help clients build a solid business foundation for the future. In this article, Christian Stewart explores the topic in more detail. Legal Structure The first question to ask is: what is the right kind of legal structure to secure the long-term protection of the family business? Should it be owned by a trust, a charity, a foundation or a holding company? Should there be a mechanism, such as voting and non-voting shares or a partnership structure, to separate control from the economic interest in the business? If it is going to be a trust structure, what kind of trust and what kind of trustee? In Asia, for example, trust ownership is not uncommon, but where the asset is the shares in a family business, an institutional trustee will want a trust structure that completely carves out and allocates responsibility for control of the shares in the family business to the settlor of the trust and their family. Alternatively, an institutional trustee may recommend a private trust company structure to be run by the settlor and their family, with the institutional trustee providing only administrative support. One reason for needing a legal structure to own the business is to consolidate ownership and prevent fragmentation of the shares. A legal structure is about allocating the benefits of ownership, and control. It should provide an ownership transition plan for the business, and the right one can also help to protect shares from creditor, divorce and illegitimate heir claims. A legal structure such as a trust can potentially allow the shares in the business to be owned by the family for multiple generations. Family meetings to explain the terms of the family trust or other legal structures will ensure there are no surprises in store. Governance Structure The legal structure is not sufficient by itself, so the next point to address is what governance structure would best suit the goals and objectives of the founder and their family. As a minimum, periodic family meetings between the business owners enable them to talk about the relationship between the family and the business. Family meetings should follow an agenda and rules, with someone chairing and another facilitating. These key roles can be rotated among family members, but a family new to formal meetings is likely to use a non-family facilitator. These meetings are not necessarily about decision-making but about ensuring that the family has a voice and creates a fair process. More formal governance structures are a family assembly comprising all family members; a family council, a smaller group that represents the family assembly; and possibly one or more committees of the family council, for example education and development, or career planning. If there’s a family office that manages the liquidity the business generates, it should be a structure separate from the family business, with its own organisation, officers and staff. The family office can help organise the governance structure, and support the activities and initiatives of the family council, which is responsible for ensuring control and overseeing the office. Part of planning the governance structure is reviewing the manner in which the family business has been governed: looking at the composition and the role of the board of directors of the business. There is often a link between the governance structure for the family and the board of directors. In practice, this may be achieved by having overlapping memberships or through arranging occasional meetings between the board and family council. Governance structures provide leadership and direction for the family and its business. They help ensure continued support and commitment to the business, and enable harmony because family members have worked out their differences behind closed doors. And if the founder or family’s goal is to continue the business for generations, there needs to be an organised structure and processes for the owners to make decisions together. Choosing Policies Policies regulate the relationship between the family and the business, but what kind do you need? A family employment policy, a dividend policy or a policy for compensating family members who work in the business? And do you need policies relating to the qualifications for acting as a director? Is there an exit policy governing how shares can be sold? Having the right policies helps avoid predictable conflicts and establishes boundaries between family issues and business matters. Policies make things clear, so everyone is on the same page. "Governance structures provide leadership and direction for the family and its business. They help ensure continued support and commitment to the business" It’s common for the family council to develop the terms of the policies, but it cannot make policies or decisions about the management or operation of the business. In these cases, it can develop and propose the policy to the board of directors, which approves it as necessary. Process Options Finally, there are processes, and which ones are needed to bring the family and business governance system to life. Consider the following example: a business founder sets up a family trust to own the shares in the family business. The trust is structured so the founder controls all the voting rights on the shares. It provides that if the founder dies or becomes incapacitated, control of the voting rights on the shares will pass to their surviving spouse. But what if the spouse does not know anything about being a controlling shareholder in the business? What if the spouse does not understand the trust structure and their potential role in it? What if there is a board but the spouse does not understand its role – that the members of the board could be their representatives in the future and that they have the power to change them? What if the spouse does not understand the strategy of the business or the risk profile of the business? In practice, this is a common scenario. The trust structure in this example may be a good legal structure and it may help the founder keep control and pass legal control to their spouse. It provides an ownership succession plan, but you can see this trust structure is not by itself going to teach the spouse how to be a good owner and business steward. You cannot rely on structure alone to guarantee future success. The types of ongoing processes that business-owning families implement can include education and development of shareholders and owners (whether that ownership is direct, or indirect through a trust), career planning and developing the next generation of family managers and leaders. As the future business will be a more complex environment than the business of today, the next generation need skills in important areas such as communication and conflict resolution, strategic planning and leadership. Different Approaches The traditional approach to selecting and setting up a legal structure for the family business has been to work only with the business founder. In Asia, for example, it is not uncommon to find cases where the legal structure is not fully revealed to the rest of the family members until the founder has died or become incapacitated. In practice, a different kind of approach is taken to design the right governance structures, policies and processes. The most common is either to form a family task force, which may consider options and give proposals to the founder, or to install a series of family meetings, which include the founder, their spouse and adult children, to discuss and design their own governance structure, etc. The founder can control these meetings, but by involving their spouse and children, the rest of the family can get a clear understanding of their goals, wishes and thoughts and they can all work together to develop an approach that has family buy-in and support. The most common approach is to combine the agreed governance structure, policies and processes into a written document known as a family constitution or a family charter. These agreements can be made legally binding but often they are not. The family constitution’s value and effectiveness come from the process of the family members working on it together, considering alternatives, and coming up with their shared understandings of how things should be done. If the legal structure is handled in the same way as the family constitution, the same benefits will be achieved: increased family buy-in, understanding and the ability to get feedback on the basic question of whether or not the proposed legal structure will be workable when the founder is no longer around.

Family businesses are certainly not immune to difficult economic times. But they usually have more options than publicly owned corporations. Let me share with you what some of my clients are doing to not just survive, but thrive, even in today’s business climate. A recent online Gallup article entitled “Building Engagement in This Economic Crisis,” quotes its chief scientist of workplace management, James Harter, Ph.D., saying, “In bad times, employee engagement is the difference between surviving or not.” But how does a family business keep employees focused and motivated? Rather than lay employees off (which reinforces the message of fear and uncertainty), many companies use downturns to create their own “stimulus package” to grow their businesses. Expand in a shrinking economy? Sounds impossible. But that’s just when you need your employees’ most creative thinking and loyalty. A policy of no layoffs in tough times (and I have clients who manage to do this) makes it clear to everyone that we are in this together. Another of my clients involves key employees in brainstorming sessions to create new opportunities for the company. This is not “make work” but truly helps the company take a fresh look at what its customers need and how to better meet those needs. The brainstorms have produced several ideas for new opportunity. Enthusiasm replaces hand-wringing. Positive attitude maintains an environment for growth and possibility. Think how strong that company will be when economic prospects do improve! A business plan is an excellent template for discovering new opportunity. Most family businesses don’t have a formal business plan. They can get by without it during the good times, but in difficult times operating without a plan is needlessly punitive. Formalising the business strategy sets you up for new options and renewed profitability. An effective planning tool I am familiar with for small to medium sized family businesses is the Jack Tesmer Institute’s Quick Plan; part on-line survey and part face-to-face discussion. The process helps focus the business on the market to evaluate your approach, organisational readiness and profitability. Another possibility is to work with a traditional business planner, such as John Pope, who works with family businesses to create a formal business plan. With a strategic business plan in hand, you have a better understanding about what to do, how to do it, when, with whom and at what cost. It could not only help you weather the current storm, but prepare you for an even brighter future. All of this discussion is about the business side. But what about the family side in rough times? Stress rises when any business struggles and it can go stratospheric within business families. Now is the time to reinforce and strengthen the family’s commitment to the business. Hold regular family meetings aimed at building emotional equity of your family and bond the family team. Family businesses traditionally spend a lot of time, money and energy building the financial equity of their business. In tough times as well as in good times, it is equally important—if not more important—to building the emotional equity of the family. Emotional equity in the family is the emotional connection, the emotional reserve and the sense of belonging we all need to get through the stress of tough times. Remember to celebrate family rituals and traditions. Keep up informal get-togethers where father and sons or brothers and sisters meet over a cup of coffee to support each other through stresses. One of the most difficult topics for any family to discuss is money. Start a series of family meetings that focus on money, on the family’s values regarding money, and money management and spending. Make sure your family’s behaviour is aligned around your family values. In a recent client meeting, a grandfather expressed his concern that stock market losses meant he could no longer continue to fund his grandchildren’s education at the current level. The grandparents were reluctant to raise the topic in the family. By not doing so, they were inadvertently creating tension within the family. Once the topic was on a meeting agenda the family was able to discuss and resolve it. Stress plummeted all around. Tough economic prospects do not automatically mean paralleling tough emotional and financial prospects. Opportunities can be found. Involve your employees and the entire family through family and company meetings. Share, brainstorm, and envision the future. It’s not a diversion, it’s an embrace that will certainly help the family and likely help the business. managing growth. About the Author - Tom Hubler continues his long-standing dedication to helping families of wealth and family-owned businesses succeed. He helps families develop a shared vision for the family and for the business; identify individual talents; tackle any unspoken issues; and create individual and organisational strategies to ensure a personally and financially rewarding business with a wealth preparation plan that ensures family values continue to emphasise a family culture of gratitude, philanthropy and purposeful living. www.hublerfamilybusiness.com

Latest research from KPMG in Singapore identifies the challenges facing family firms. This landmark study of family businesses in Singapore by KPMG reveals several interesting findings about how they see themselves. While some findings contain new insight, there are some which are less surprising. Preparing and training a successor was the most important challenge for family businesses. Other ‘top of mind’ concerns for family businesses in Singapore included choosing the right successor, resolving potential conflicts among family members and maintaining family control of the business. We have observed that many family businesses did not have a clear succession strategy. They should therefore start planning and grooming their successors early. However, 9-in-10 participants of the survey indicated that dealing with the issues of running the business was more critical than family disagreements. When asked about the major causes of conflict within family businesses, nearly a fifth cited the competence of family members working in the business. Nearly a third indicated they had no formal processes to resolve conflicts. While they face many challenges, family businesses are also able to count on strengths such as the ability to win business or customer loyalty, opportunities for competitive pricing or strong brand presence. A significant 9-in-10 considered governance structures to be an important element of the family business. Surprisingly, close to half of those surveyed said their current structure was optimal, with another 29 percent indicating that some minor tweaks might be required. In our experience, many non-listed family businesses are in need of change in this area. Download and read the full report below:

Latest family business poll from the Institute for Family Business shows family firms more than twice as likely to be trusted than those on the stock market. Key Findings More than half (55%) say being a family firm is important to business trustworthiness Only 26 per cent say being listed on the stock market is important to business trustworthiness Strong values (88%), heritage (73%) and commitment to local community (71%) key to business trustworthiness Quality of products (94%) and staff (93%) ranked highest Fifty three per cent believe family firms have stronger values than non-family businesses People are more than twice as likely to trust family businesses as they are a company listed on the stock market, according to a new YouGov poll for the Institute for Family Business (IFB), published today. Fifty five per cent (55%) of people say being a family firm is important in trustworthiness. Only 26 per cent (26%) say being listed on the stock market is important. Values are key. Eighty eight per cent (88%) say an important factor for a company to be trusted by them is that it has strong values. Fifty three per cent (53%) say family businesses have stronger values than other companies – only nine per cent (9%) disagreed. Family businesses employ more than nine million people, contribute over a quarter of UK GDP and pay more than £84 billion in tax. They number some of the largest and most successful companies in the UK, including Clarks, Dyson, Warburtons, Primark, JCB, Speedo, Glenfiddich, Yorkshire Tea, Aunt Bessie’s, Ginsters, Selfridges, Wates and Walkers Shortbread. The most important factors in business trust are: Quality of products and services (94%) Staff (93%) Value for money (90%) Strong values (88%) Company heritage (73%) Commitment to the local community (71%) Being UK-based (65%) Having won awards for its products/ services (65%) Being a family business (55%) Being owned by the same family for generations (54%) The survey also found that people recognise that family businesses make an important contribution to the UK economy (71%) and play an important role in creating employment (53%). Their commitment to looking after their customers also gives family firms an advantage over non-family businesses, with more than half (52%) of consumers recognising that they offer higher standards of customer care – only eight per cent (8%) disagreed. Responding to the survey’s findings, IFB Director General Mark Hastings said: “Trust is a critical issue for businesses. Family businesses not only score well for trust, but have an advantage over other companies.” “Strong values are the key to what makes family firms different. Living those values is giving family firms an edge over listed companies. Family businesses pride themselves on carrying strong family values throughout their business practices – maintaining trust is essential when your name is above the door.” “Britain’s family business sector provides more than nine million jobs and produces a quarter of GDP. They are the backbone of the economy and number many of the UK’s largest and most successful companies. More than seven in ten people agree that family business makes an important contribution to the UK economy.” “Now is the time for Government and other businesses to work more closely with the sector and help put trust back into business.”

At Cropwell Bishop they believe in keeping things in the family. That is why, from their creamery in the beautiful Vale of Belvoir, they have made mouth-wateringly delicious Stilton for more than three generations. Today, cousins Robin and Ben Skailes oversee the day-to-day running of the cheese dairy along with their fathers, David and Ian. Using traditional methods passed down by their grandfather, they continue to produce award-winning Stilton of the very finest quality. Robin spoke to Paul Andrews and shared his thoughts on the family firm and his passion for their product. What does your family business do? Makes handmade Stilton cheese and other handmade blue cheeses from our family farm. How did you get involved? I always loved the cheese so it was easy for me. What did you want to be when you grew up? A Racing Driver What are your first memories of the family business? Being forced feed Stilton at 4 years old! What values are important in your family/family business? Responsibility towards the local community and protecting traditional cheesemaking. Our creamery plays a big part in Cropwell Bishop village life. Most of our employees live locally, and some of them have been with us for more than 25 years. Some have even worked under Robin and Ben’s grandfather. That is why we trust them to maintain the highest standards of cheese craft; and why we regard them as part of the family. Our strong family values extend to our suppliers, too. We have hand picked some of the best milk suppliers in the region: small, family-run farms whose expertise, like our own, has been passed down through generations. And in return for the exceptional milk they supply, we make sure our farmers are paid a price that they deserve. After all, we’re likely to need their milk for several generations to come. What is the best thing about being a family business? To plan for the future and the long term. And the worst? Having my father as my boss! What is the best thing about your working day? Tasting Stilton! It is something that I will never tire of either! What is your proudest family business achievement? Being shortlisted for the Midland Family Business Awards and winning the 2013 Family Business of the Year Award. Is there a next generation waiting in the wings to take over? Yes, I have 2 young sons who already love Daddy’s cheese. What do you see as the biggest challenge facing family firms? Competing with much bigger companies as more consolidation takes place. What words do you associate with family businesses? Passion, fun, long term. Words Of wisdom – What piece of advice would you pass on to someone thinking about joining the family business? Work for someone else before joining the family firm.