‘Second-best should not be tolerated’

FAMILY businesses should not be a recruitment agency for family members and second-best should not be tolerated, Century Homes chief executive Gerry McCaughey told yesterday’s conference.

Mr McCaughey, who recently shared €98 million with his father and brother and an outside investor following the sale of the timber-framed house builder to Kingspan, said companies needed to concentrate on making a profit, regardless of their ownership structure.

“There shouldn’t be any difference between a family business and any other company,” he said. Focusing on profits meant families would avoid making decisions they would regret later. Family businesses should act like plcs, said Mr McCaughey. “You can have shares in a plc but you shouldn’t expect a right to come and work in it.”

Mr McCaughey’s father, who set up the company in 1990, made the decision to take on two sons based purely on their expertise and what they could bring to the business. He then went outside the family circle to approach Jim McBride, an outside shareholder who filled a skills gap. Family members with shareholdings in a business needed to realise they could still benefit from success without being directly employed in the venture, said Mr McCaughey. Those who were employed needed to be there on merit and have the same skills or qualifications as an outsider. The family connection could not be used as “a get-out-of-jail-free card” to tolerate poor performance, he said.

Mr McCaughey also highlighted the need for adequate succession planning. He quoted the example in Century, where his father had nominated him ahead of his brother to take over the top job, based on their respective experience. But both men were paid the same salary and profited equally from the sale of the business. He paid tribute to his father for handing over authority on his retirement and said business owners needed to know how to step down gracefully. “You either step down or you don’t,” he said. Those who took over needed to be allowed the freedom to make decisions without interference. “They’re going to have to do it when you’re not there,” he said.

But family businesses also needed to use their values as a selling point to compete against larger corporations. Mr McCaughey said profit was “not a dirty word” but that family businesses had greater flexibility to do things their way.