Keeping it in the family is bad for business
FIRMS run by families are often feudal throwbacks that are a recipe for disaster, a new report is claiming. Around 30 per cent of UK companies are family owned and half of them are managed by family members, with control passed down by primogeniture to
FIRMS run by families are often feudal throwbacks that are a recipe for disaster, a new report is claiming.
Around 30 per cent of UK companies are family owned and half of them are managed by family members, with control passed down by 'primogeniture' to the eldest son.
However, the Centre for Economic Performance (CEP) says this can spell disaster as such bloodlines do not necessarily make sound business sense.
The benefits of family management are usually lost if control is passed to the children of founders and inheritance tax should be used to discourage the practice, experts argue.
"Many traditional family firms have bad management practices - they lack effective monitoring, have dysfunctional targets and limited incentives for staff," said Nick Bloom, a director at the CEP.
"These traditional family firms account for around a third of the UK's productivity gap with the United States.
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"Handing down the chief executive (CEO) position from father to son generates difficulties if the father doesn't have kids until his 30s - either he continues running the firm until his 70s or he hands down the CEO position to an inexperienced son. Either way management practices are likely to suffer."
Privately held firms in the UK, the majority of which are family owned, are currently exempt from inheritance tax.
But Mr Bloom wants a cap to be introduced at £1m, meaning that small family firms worth less than this amount would still be exempt, but medium and large companies would not.
He believes this would act as a deterrent for badly managed firms to be kept within families and would end up boosting UK productivity.
It would also raise about £250m a year for government spending or to help fund other inheritance tax reforms.