Most family companies are sold or broken up before the fifth generation takes the reins, but Selkirk Bricks has bucked the trend thanks to shrewd management policy.

Not many family companies make it to the fifth generation with the business intact, ready to be handed on to the sixth.

Selkirk Bricks in Ballarat, Victoria, has done just that through a fairly simple means: for the past three generations of family ownership, the company has been managed by outsiders. It was decided early on that having family report to family just doesn’t work, although of course it helps to have the Scottish ghost of the founder, Robert Selkirk, haunting the place as well.

The current managing director, Tony Stone, actually has a Selkirk – Jock – reporting to him as CFO, but everyone knows who is boss: it’s Tony. That state of affairs is reinforced by having a majority of non-family on the board as well, under chairman John Hart.

Majority ownership still rests with the fourth generation – three great-grandsons of Robert Selkirk – with Jock making a fourth shareholding bloc around the table at the two-monthly meetings of the Family Council.

It all seems to work pretty well, although the family does admit that there has been the occasional difficulty, without being specific.

Family businesses almost always get into trouble when later generations can’t agree on succession and management reporting lines; more of them get sold or broken up for this reason than any other.

The Selkirks are getting ready for the sixth and subsequent generations to take on the family’s two brick kilns and 15 per cent of the Victorian brick market by drawing up their first formal shareholders' agreement. They met this week to finalise the details.

Your correspondent is neither Scottish nor a Selkirk so I don’t know the details of the agreement, but the key item is that if a family member works in the business then he becomes entitled to share options that vest after 10 years' continuous service. In other words, those not working in the business have agreed to be diluted if a nephew, sibling or cousin does work in it.

Jock has been CFO for seven years and therefore has three years to go before his shares vest.

He says he’s not sure whether he will put his hand up to be managing director when Tony steps down. He thinks the system of having an outside MD works pretty well, but like all young executives, he’s ambitious. Maybe that’s where the Selkirk System breaks down – it’s inevitable that at some point family will report to family, at which point it’s hard to make sure fights don’t break out.

But for the moment Robert Selkirk’s legacy is being harmoniously governed. Robert arrived in Victoria in 1854 at the age of 14 with his family and after working as a stonemason for thirty years, eventually started his own business making bricks by hand just outside Ballarat in the goldfields.

In 1900 he moved to the current headquarters at 630 Howitt Street and five years later had enough money to buy a continuous kiln with capacity for 6 million bricks a year.

These days the Selkirks' two big kilns produce 50 million bricks a year and they also distribute pavers and other building and landscaping products through their network.

The two big players in the Victorian brick market, Austral and Boral, have approached them with an offer a few times over the years but have always been given short shrift. The Selkirks are perfectly happy with their dividends, thanks very much, and don’t need to cash in.

These days the main focus of the business is to cut down the energy intensity of the gas-fired kilns, because the carbon tax has raised costs by between five and seven per cent. Those costs have been passed on in higher prices, so profit hasn’t been affected, but the way the carbon tax works manufacturers like Selkirk get to keep the profits if they can reduce emissions, so there’s a strong incentive to do so.

They’ve also got a nice line of business exporting bricks to Japan. Apparently the Selkirk brand is highly regarded there, and there’s a view that exports could grow.

It’s hard to imagine the business growing rapidly from here because of the limitation that fiercely-held family ownership always places on capital, but nor is it easy to imagine the business being sold or broken up as so many family companies are before they get to the fifth generation.

The Selkirks seem to have it worked out.

Every week Alan will be writing about an Australian family business success story. If you know of a family business that deserves recognition,

Follow @AlanKohler on Twitter

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