'Nepotism is good for British businesses'

Nepotism is good for business despite being disapproved of by society, says a new study that reveals family-run businesses remain prolific and successful.

Nepotism is good for business despite being disapproved of by society, says a new study that reveals family-run businesses remain prolific and successful.

More than 50 per cent of British companies are family businesses, where one family has a controlling interest in the finances and its members hold key positions.

The research, by Professor Adam Kuper, a professor of social anthropology at Brunel University in Bristol, also discloses that 50 per cent of people in the private sector work for family businesses which between them generate about half of the country's wealth.

As well as small firms that have traditionally been kept in the family, many of Britain's better known brands are made by family enterprises, such as Baxters soup, Walkers shortbread, Morgan cars, Young's beers and Thorntons chocolates.

Professor Kuper's preliminary findings, to be presented in Poland this week to the European Association of Social Anthropology, show family-run businesses have some distinct advantages. "While society disapproves of nepotism, it can be an extremely economically rational strategy, and very efficient in management terms," he said.

The children of family business owners learn about the company informally as they are growing up, and relatives develop a stronger commitment because they are likely to inherit or benefit from its success. Raising capital from the family tends to be easier and comes with better terms than from a high street bank, the professor said.

He added: "One of the seldom recognised disadvantages in rational meritocratic businesses - where exams are all important and fair is fair - is the enormous cost of control and evaluating staff."

But, despite family businesses starting up all the time, only 35 per cent, on average, stay within the family beyond the first generation because of problems over succession. Tony Bogod, the chairman in the South-east for the Stoy Centre for Family Business, said that heads of family firms could avoid arguing over who should take over by planning it at least 10 years before they retire. "Many put off the decision or never make it, but that is the worst thing they can do," he said. "The secrets of succession are communication, communication, communication." He added that splitting the business between all possible successors was rarely a good idea.

John Lodge, 61, is the director of Lodge Brothers, an undertakers in Kent that has stayed in the family for seven generations. His two children and four nieces and nephews are on the board. "We've taken a long-term view, as it [the firm] has been our inheritance. The ethos has been to develop it while you can and then pass it on to your children," he said.