Context Magazine

Platinum Bond?

Edition 2 - The family issue

Sibling-run businesses are among the most successful in the world, but they are also the source of some of the highest profile disputes. Claire Coe Smith explores the common hurdles and how to make it work.

In March 2021, two brothers from rural Ireland saw their individual fortunes rise to more than $11 billion each when the online payments company they started aged 19 and 21, called Stripe, became the most valuable private company in Silicon Valley. A decade after they started it, John and Patrick Collison’s March fundraising saw its value escalate to an eye-watering $70 billion.

Now just entering their thirties, the Collison brothers are a textbook example of why it pays to go into business with a sibling. Growing up in a small town in County Tipperary and entrepreneurial from day one, they launched their first start-up when they were just 15 and 17 and sold it for $5 million to a Canadian company. Now they are following in the footsteps of the Warner brothers, the Wright brothers, the Barclay brothers and many others.

“There is normally a deep-seated trust between siblings that is much harder to find among other business partners,” says Adam McGiveron, a Corporate Partner working with family businesses at Penningtons Manches Cooper. “There is also often a real honesty between siblings. We do see some long-standing disagreements and sibling rivalries playing out, and it can be like sitting in on a family argument, but it’s also true that many of those arguments are surface-level.”

Rivalries and competition

History is littered with stories of sibling rivalries bringing businesses to their knees, the most famous example being the case of the Dassler brothers, Rudolph and Adolf, who launched one of the world’s first athletic shoe companies in Germany in the 1920s. Despite enjoying enormous success, their arguments became so serious that after World War II Rudolph launched his own company called Puma. Adolf countered with the launch of Adidas, and a fierce sibling rivalry drove the growth of two of the biggest names in international sportswear, which continue to compete today.

But when it works, sibling business partnerships can result in great success. Michael Elghanayan, for instance, founded real estate company Epic with his brother Steven in the 1980s. Michael was based in London while Steven had moved to New York to do an MBA at New York University before starting work at Republic National Bank of New York.

“Steve is a year and nine months younger than me and left to study in New York when I was doing a foundation course in accountancy in London, so that separated us for a while,” says Michael. “We used to visit each other all the time. We both had a real interest in real estate, it was in our family, and we had family in New York and space to open an office. That’s how it came about: Steve loving New York and wanting to stay there and me loving London and wanting to build on opportunities here. We decided to open offices in both cities and work in real estate together.”

The business thrived and Michael says that part of the reason things worked is because the two brothers are different. “We both have different strengths and weaknesses,” he says. “We complement each other well. Steve is very extrovert and I am more shy and introvert; Steve is stronger on the finance side of the business due to his banking experience. I’m stronger on the organisational side due to my accountancy experience.”

Trust and security

Another secret to success has been staying nearly 3,500 miles apart: “Being on different continents and being masters of our own territory brought out a healthy competitive spirit between us and allowed us both to thrive, made us stronger, allowed us to take calculated risks together, having the security of knowing that all our eggs were not in one basket,” says Michael. “The other advantage of working with my brother is trust – we have the security and knowledge that each is watching the other one’s back.”

There have, of course, been challenges, and Steven and Michael know what can happen when relationships sour. Their grandfather was one of seven brothers who together built a hugely successful business in Iran, only for the arrangement to splinter when the revolution occurred in 1979. After a successful partnership spanning 45 years, some of the brothers had relocated to the US ahead of the revolution and built the business there, while others lost everything back in Iran. Huge disputes resulted.

“The key challenge for sibling businesses, which is never going away, is what to do with the next generation. often, they are not interested in entering the family firm, or some are more interested than others, and that is when disputes can start to set in.”

Water-tight agreements

“Steve and I learned from day one to have water-tight agreements so that we never got into a situation like that,” says Michael. “Even though we may never need to refer to those documents, we made sure we had solid understandings on everything. We have disputes, disagreements and arguments, but they don’t last too long – we have genuine respect for each other.”

It is often the issue of bringing other family members into the business and succession planning that create tensions. In the case of the billionaire British twins, the Barclay brothers, owners of The Daily Telegraph and countless other businesses in media, retail and property, it was the arrival of the next generation that caused public fallouts. In 2020, Sir Frederick Barclay and his daughter sued three of his twin brother Sir David Barclay’s sons after secretly recording their conversations at the Ritz Hotel, arguing they had to bug the hotel over fears their uncle’s conduct was damaging the family’s business empire.

McGiveron says: “The key challenge for sibling businesses, which is never going away, is what to do with the next generation. Often, they are not interested in entering the family firm, or some are more interested than others, and that is when disputes can start to set in.” Andrew Bayles is General Counsel at SwissIndependent Trustees, working with many siblings that are forced together after a parent puts the business into a trust and desires that they should run it as part of the succession planning of the family.

“We mustn’t lose sight of the advantages of being in business with somebody that you know so well that you can work in a way that you perhaps can’t do with someone else.”

Clear governance

It can be particularly challenging if one sibling moves into the business and the other goes off into a separate career.

“One of the best ways we have found to address that is to have some form of family council that includes family members that are in and out of the business, plus a blend of external professionals to help break through any deadlock that occurs,” Bayles says. He also advises that children are educated about the business from a young age, allowing parents to establish their appetite, and most importantly aptitude, for long-term engagement in day-to-day management.

Laura Dadswell, an international tax and trusts Partner in the London private client team at Penningtons Manches Cooper, says sibling relationships are the longest relationships we have in our lifetimes and often sit at the heart of successful businesses. Coming out of the pandemic, she anticipates a future trend of entrepreneurialism among Gen Z where sibling-owned, parent-funded businesses spring up due to fundamental changes in the traditional job market and professional career paths.

Dadswell says: “Siblings often assume everything will be fine as they are working with family and in doing so sleepwalk into problems, but the best thing is to sit down with advisers as early as possible. Bringing on non-executives or people with a little bit more emotional distance may help overcome challenges.”

But she adds: “We mustn’t lose sight of the advantages of being in business with somebody that you know so well that you can work in a way that you perhaps can’t do with someone else. We’re going to see an increase in sibling start-ups coming out of lockdown and where that works well, it can be really powerful.”

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