True test of success will come in troubled times

IMAGINE what it must be like to be the head of a very successful company, basking in the reflected glow of the public affirmation that comes from 13 years of consistent profit growth. You might even start to think it was all down to your skill and astuteness as a leader.

Keith Miller, as head of Scotland's biggest house building and construction group and among the UK's top ten, has picked up several awards over the past few years from business organisations keen to share in his success. Recognition from Ernst & Young, Scottish Business Insider, and even an OBE have come his way, as he built the group's profits – and his family's £730m fortune – each year since he took over.

That changed in April when he had to reveal his first fall in profits. The group's 2007 results showed a 7 per cent drop in pre-tax profit to £81.2 million. Hardly a disaster, but for a sportsman like Miller it must have been an annoyance to have a flaw in such a winning streak.

The only problem is that business has got worse – much worse – since the 12 months covered in the group's last report. During this time Miller has faced battles on two fronts. One was the collapse of the housing and commercial property market that made up the most of the company's £1 billion business. The second was a battle royal among the company's family shareholders who, seeing the approaching property market downturn, sensed a good time to get out. The feud threatened to spill out into the public domain, a galling prospect for what remains a close-knit family that prefers to guard its privacy.

In order to meet the family's demands to sell shares in the family owned business, in February Miller had to go to HBOS as a backer. It was to be one of the last big deals Peter Cummings, head of Bank of Scotland Corporate, was able to do before that group ran into its own well-publicised problems. It could not have come cheaply.

The deal with HBOS was the first time anyone from outside the family, with the exception of a handful of employees, had a stake in the company. It has already had a dramatic impact on the firm's culture.

This week, Miller Group reluctantly admitted it would no longer be reporting results in the same way. Miller was proud of his commitment to reporting like a PLC – anyone with such a good track record would – with half-yearly reports on results plus updates.

Since the downturn, Miller Group has put up the blackout curtains on details of current company performance. Industry sources are rife with rumours of big job losses among the group's 2000 employees. Miller now refuses to make public statements, except for the kind sent to The Scotsman last week, that revealed little except times were "challenging" but claimed that its construction division and its coal mining division – revived last year – were performing well.

Although HBOS is still only a minority shareholder, it is thought the bank is behind the new Miller code of silence, which in essence is "do not reveal what you are not obliged to". It is probably the right policy in these febrile days when HBOS' reliance on the mortgage market and its stakes in large house builders like McCarthy and Stone – and now Miller Group – make them look incredibly vulnerable and may even have played a fatal part in its hasty marriage with Lloyds TSB.

Miller often noted the value of not having to operate in the glare of public attention required by a PLC. But there is a question of whether family shareholders, particularly a complex web of cousins and second cousins, are easier to deal with than shareholders.

In order to comprehend the complexities of multi-generational family businesses, it is important to look back at the company's history.

The Miller Group was founded by Sir James Miller, who took over his father's architectural practice and brought in his younger brothers, John and Lawrence, in 1934.

Sir James had quite a career and enjoyed the unique distinction of serving as both Lord Provost of Edinburgh in the fifties and then Lord Mayor of London in the sixties.

It was Sir James' son, also James, who took over control of the business when the old man retired in 1970.

The relationship between James and his cousin Keith has been long commented on.

The two men are very different. James, an Oxford graduate, was a civic grandee like his father before him, with roles on several company and school boards and a penchant for shooting. Keith, on the other hand, left Loretto College with a desire to go straight into the family business, although trades and management studies came later at Heriot Watt and Glasgow universities.

Friction between the two erupted when Keith, the son of the founder's younger brother John, was initially passed over for the chief executive role in the early 1990s. Up until that time, James had been both chairman and chief executive. Keith, who was then in charge of the group's mining division and its embryonic development division, saw James hand the top job instead to the group's first non-family boss, David Cawthra.

The incomer did not last long and in 1994 Keith Miller got the top job. He had proved himself having successfully launched a partnership with EDI, the City of Edinburgh Council's development arm, to launch the transformation of the west of the city into its first modern business estate, Edinburgh Park. He then turned around a loss, among the company's first, into what until recently has been a long, spectacular run of growth.

He is considered by his peers to have been both shrewd and lucky in his career. In 2005 he nearly doubled the size of the business when it acquired Fairclough Homes. The deal was pricey – but at £260m it was not in the same league as later deals that have come back to haunt larger housebuilders, such as Taylor Wimpey.

But it may yet cause regret for buying at so close to the top of the market.

For the most part, Miller has the deep respect of the business community. "Keith is a major business leader in Scotland – and indeed the UK," said Cummings who liked Miller enough to go against market sentiment and buy a stake in his company.

"He has built the Miller balance sheet over the past five years, making it a significant player in the commercial property and house building sectors."

Others in the property industry are less complimentary, suggesting he has merely had the good fortune to preside over Miller Group during an unprecedented property boom.

Said one: "He always strikes me as a pleasant man, not desperately bright, who has fallen lucky and doesn't know what to do with it."

His leadership skills will be tested now that the luck has run out.

BACKGROUND

KEITH Manson Miller, 59, is chief executive of the UK's largest private housebuilding, construction and property development company, the Miller Group.

In 1994 Miller took over the family business. Then, the company had a turnover of £358 million. Under Miller's stewardship, the size of the business more than trebled, with a turnover of £1.3 billion and profits of £81m.

In 2005 Miller acquired Fairclough Homes which raised the number of houses it built each year from 2,500 to closer to 4,000. Although the deal was done close to the top of the market, group net debt was £668m in the last accounts with new debt facilities negotiated with HBOS.

In 2005 Miller was awarded a CBE for services to the Scottish construction industry and charity. In 2006 he was Ernst & Young's Scottish Entrepreneur of the Year.

Miller is married to Lee, a former Miss Scotland, and has three daughters. He enjoys skiing and sailing his yacht Crackerjack.