Commercial Awareness - Downton Abbey Style - Episode 3

Five episodes into the new series and we have already seen a birth, marriage and death.  Sunday night’s [14 October 2012] tear jerker was a salient reminder that life rarely runs to plan.  Yet in the context of the longevity of the Estate, and indeed for any family business, these events are par for the course. For this is a family business, whether Lord Grantham likes the idea or not. And its ability to survive through future generations will depend on their ability to tackle the difficult issues now.

I touched in last week’s blog on the questions Matthew should have addressed at the outset before investing his money in the Estate.  In addition, in a family business context, there are also numerous generational issues to address.

The first question that springs to mind is who should ‘own’ the business? Should all family members (including the new arrival) acquire an interest automatically, or only upon coming of age (whatever that might mean)? Should all individuals acquire the same interest, or should a distinction be made between those actually participating in the Estate and those who do not?  And what happens if a family member doesn’t want to be involved – who is entitled to their ‘share’?

The next question is how to keep ownership within the family over a course of a hundred years or more. “Divorce” may be a word unspoken at Downton Abbey, but given this week’s turn of events, it is not inconceivable.  We have seen Lord and Lady Grantham’s marriage go through rocky times before (remember Lord Grantham’s dalliance with a chambermaid…), but one wonders if it will be quite so easy to forgive his perceived responsibility for Cybil’s death. The business structure needs to protect from ownership being passing outside the family in the event of a split (on indeed on a death through a will).

Ownership aside, it will be equally important to tackle the issue of day to day management and control. Most family businesses restrict executive board members to a small group of immediate family with an active involvement (Matthew and Lord Grantham being the obvious choice) but what happens if (as is likely) they do not agreed? For this reason, an older family member (Maggie Smith comes to mind) will often serve as a non executive chairman, and it is increasingly common practice to bring in a non family member to act as an independent non-executive – Carson would be the perfect choice, but I suspect he may be reluctant to agree…

The final consideration is how to bring on younger members of the family and hence protect the next generation of the business. Lord Grantham may find the concept of involving Lady Mary and Lady Edith in the business abhorrent, but failing this he is putting all his eggs in Matthew’s basket (as it were), which is a risky strategy in itself and a recipe for disaster a generation down the line.

If you had a pound for each occasion as a lawyer you ask yourself ‘why didn’t they spent the time thinking this through before they leapt in’, we’d all be much richer than everyone thinks we are. Its a hard life, but somebody’s got to do it…