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FACTS & FIGURES ON
FAMILY BUSINESSES & BUSINESS FAMILIES


We are often asked for relevant figures, data and facts about family businesses and business families.
You will find an overview of key figures here.

FIGURES


  • 91% of all private sector companies in Germany are family businesses. 91%
  • 87% are owner-managed. 87%
  • 57% of employees in the private sector work in family businesses, and they generate 55% of all turnover. 57%
  • 80% of family businesses provide 80% of training positions in Germany. 80%

FACTS


  • The proportion of family businesses decreases as companies get bigger.
  • The quantitative importance of family businesses is highest in the building industry, hospitality and retail.
  • The lowest proportion of family businesses is in the energy, water supply and waste disposal industries, as well as mining.
  • The areas with the most family businesses are Thüringen (95%), Saxony (94%) and Saxony-Anhalt (94%). 91 percent of companies in Nordrhein-Westfalen are family businesses.
  • Nordrhein-Westfalen has the family businesses with the biggest turnovers: 138 of the top 500 are in the region.
  • Around 170 research institutions are explicitly involved with the family business form of enterprise.

THE HOT TOPIC – SUCCESSION


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family businesses are due to undergo succession between 2018 and 2022.
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Bavaria
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Nordrhein-Westfalen is top of the handover list.
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Baden-Württemberg
TOP 3 INDUSTRIES
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Producing industry
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Services
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Retail
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employees are employed in businesses throughout Germany that are due to be handed over between 2018 and 2022.

DEFINITIONS IN FAMILY BUSINESSES & BUSINESS FAMILIES


Here are the most important terms in family business research:

Here are the most important terms in family business research:

FIX

FAMILY BUSINESSES

FAMILY BUSINESSES

Family businesses are companies that are wholly or partly in the possession of one or more families, who fundamentally steer the company and in which a handing over of responsibility to the next generation is envisaged.
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BUSINESS FAMILIES

BUSINESS FAMILIES

A business family is a family whose development is shaped by a company owned by one or more family members and in which a handing-over of entrepreneurial ownership to the next generation is envisaged.
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SHAREHOLDER EXPERTISE

SHAREHOLDER EXPERTISE

Shareholder expertise encompasses all of the skills and abilities of the current potential shareholders in a family business that enable them to successfully perform their function as owners.
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FAMILY STRATEGY

FAMILY STRATEGY

A family strategy reflects the way a business family sees itself and defines how the family can remain a resource to the company in the long term.
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FAMILY CONSTITUTION

FAMILY CONSTITUTION

A family constitution is a legally non-binding document belonging to a business family and summing up key guidelines for familial and entrepreneurial thinking.
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FAMILY BUSINESS GOVERNANCE

FAMILY BUSINESS GOVERNANCE

The term family business governance (or family governance) refers to paying equal attention to the way family and business issues are handled.
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SMEs

SMEs

The terms ‘Mittelstand’ and ‘small and medium sized enterprises (SMEs)’ are used as synonyms for family businesses. But they do not describe the same thing.
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SUCCESSION

SUCCESSION

Succession describes the efforts made to ensure that ownership, leadership and a sense of responsibility are passed onto the next generation.
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THE TEN WITTENER THESES


1st THESIS: FAMILY ENTREPRENEURS ARE DIFFERENT

They are defined as having a determining influence on the progress of a company.

This type of company is characterised by this influence, and not its size. Between 70 and 85% of all businesses can be categorised as family businesses, depending on definition. So, with an estimated 3.38 million small and medium sized businesses in Germany (as at: 2003), we are talking about well over two million family businesses of that size.

This considerable number makes it clear that family businesses – in which either one member, several members of differing degrees of relationship, or even several families collectively, own a company – are in fact the much vaunted backbone of the German economy.

This is very significant, not only to the companies but also to the families. What actually constitutes a family business? There is no clear definition (which explains the fluctuating estimates). Some researchers approach it by defining quantifiable structures, such as assuming an ownership share of at least 50 percent. But a much more promising definition assumes that a company is owned by a family or a group of families that exercise a decisive influence on what happens to the business. They must be in a position to shape the crucial decisions in the business, and to give the business its character, both internally and externally. If this is the case, then one can meaningfully talk of a family business. This definition allows us to consider everything from the structures to the numerous, complex dynamics in family businesses. It guides our attention to the way we define roles, interaction processes, and the relational dialectics that families and businesses deal with and that go to make up with ‘familyness’ – which means the particular set of resources and risks which the family and company have.

It is this peculiarity which is hard to get a handle on if we reduce family businesses to particular definitions of size, which is why this thesis comes before all the others. Family businesses of different sizes, from artisan businesses to multinationals, are the product of the often productive, sometimes destructive synergy of business and family logic. The conflicting set of priorities which this produces have two poles which can be characterised as follows: In families, the focus is on the individual person with all their strengths and weaknesses. They are valued simply because they belong to the family. Fairness in this context is understood mainly in terms of equality of claims, rights, duties and expectations. Membership of a family is for life, because you cannot hand in notice on blood ties. Giving and taking are often asymmetrical (parents-children), and immediate or medium-term reward is not expected for work done.

And indeed, the profit obtained from these relationships is more emotional and non-material than it is material. Communication is primarily verbal and less formalised. In a business, however, the primary focus is on the development, production and sale of products and/or services. People are only important in terms of objectively justifiable functions they fulfil for the organisation. In principle, they have to be replaceable in the roles they fill, which means they must be terminable. Their value is derived from the work they do, which is compensated directly and materially through wages and salaries. Fairness here is defined as a balance between performance and material reward. Communication is formalised, and mostly even fixed in writing – contracts are sealed by a signature on paper, not by a shake of the hand. These two very different sets of logical working principles belonging to family and company influence each other reciprocally, thus shaping the particular properties of a family business.

It is precisely this linking of different logics which leads to shareholder disputes and disruption in the business family, fuelling generational conflict and so on. At the same time it is precisely this linkage which can give a family business its special competitive edge over a company led by the principle of shareholder value, since the family which owns the business often imparts values that can give the business meaning beyond that of short-term financial profit expectations and promises. “Family businesses don’t consider the market and values as alternatives. They say: both.” From this viewpoint, the aim is not, as is often demanded, to quickly and completely decouple the family and company, it is to promote precisely that positive interaction between both systems in order to achieve synergy effects and the concomitant competitive advantages.

2nd THESIS: FAMILY ENTREPRENEURS ARE MORE SUCCESSFUL

Because they have a family by their side. Trust, commitment and loyalty give family businesses enormous competitive advantages. They have to succeed in utilising the family as a resource which serves the company. When in doubt: “The company comes first.”

Family businesses are more successful than non-family businesses in many respects. Co-evolution of company and family focusses the aim of securing their mutual livelihoods over the long term and over generations. The proprietor family often views the business as a central, overarching life theme which, over and above securing their own livelihood, represents the challenge of repeatedly reorganising themselves and finding a shared meaning – a ‘con-sensus’. This constantly requires the family to be actively or passively involved in the business. The business, in turn, can make use of the family in many different ways.

The unique configuration of resources and capabilities which the linkage between business, family and ownership provides is called the ‘family factor’ and the family factors collectively are called ‘familyness’.11 Family factors can be found in a very wide range of resources, such as:

Values:

Familial values like trust, commitment and loyalty can represent competitive advantages to the company such as strong personal relationships to customers and suppliers, a strong orientation towards customers, and high levels of motivation and commitment among the workforce.

Decisions:

Much shorter decision-making channels and decision-making structures that are more often verbal enable decisions to be made flexibly and quickly, reducing transaction costs, and, combined with the trust factor, this reduces agency costs as well.

Human capital:

The family can provide a pool of special knowledge and aptitudes which it makes exclusively available to the company.

Financial strategies:

A conservative monetary policy encourages long-term financial strategies. The yield expectations of family shareholders are generally well below what is usual in the shareholder value mindset, and family members are more willing to put up additional private assets in the event of a crisis.

Networks:

Families’ longevity and ability to inspire commitment are also revealed in the quality of the networks they develop, which are often cordial and therefore very sustainable.

Branding:

The name of the company, which is the same as the family name, is often a powerful symbol of identification both for the product and the workforce. Belonging is valued in itself.

If the far-reaching, complex linkage of business, family and ownership – and the problems and conflicts it entails – can be managed successfully, then family businesses have a decisive advantage over non-family ones. It is therefore unsurprising that the 30 biggest family businesses achieved almost twice the turnover growth that the 30 DAX companies did last financial year (+ 9.7% compared with + 5.4%). Employment growth figures differ even more dramatically. The big family businesses took on 9.2% more people, compared with their DAX equivalents (1.6%). It is the family that provides the company with the beneficial ‘familyness factor’, which can manifest in such things as people’s ability (including non-family members) to identify strongly with the company. But achieving these qualities requires special forms of management, since every family business sets its own particular priorities when it comes to balancing family and interests. Not nearly enough use has been made of the opportunity to regulate these reciprocal interests by means of a family constitution, which defines things like the role of family members by marriage and other people joining the family, family conferences, and de-escalation arrangements in the event of family conflicts, as well as formulating ethical principles.

3th THESIS: FAMILY ENTREPRENEURS ARE MORE AT RISK

Because they have a family by their side. Family dispute, loss of trust, broken commitments and feelings of betrayed loyalty can dramatically disrupt the business, and the company can fall victim to tribal war. Belonging to the family and the business at the same time brings conflicting priorities that are fraught with contradictions and vulnerabilities.

“How conflict is managed is one of the key determinants of effective families and family businesses.” Family businesses don’t just have potential competitive advantages, they are also more at risk than other types of business.

‘Familyness’ can be an obstacle as well as a benefit. The linkage between business, family and ownership produces conflicting priorities that can be described as paradoxical. A decision which is right in the logic of one system can be wrong in the logic of another. This can apply in relation to conceptual pairings such as the following: ‘fair for the family – right for the business’, ‘tradition – innovation’, ‘person-related – issue-related’, ‘owner – shareholder’, and so on. Contradictions like these make people very vulnerable in the event of a conflict. Family businesses have to deal not only with different arenas and extents of conflict, but also with very different types of disputes. Bonds between family members are generally very strong, which is why disputes within a family system can escalate with such severity. The people involved can experience very strong emotions if they feel let down in their loyalty, trust, sense of justice and ultimately their relationships. If family disputes spill over into the business, then the company can fall victim to the family dispute. This can be especially pronounced where conflicts between sibling lines that persist down generations are not constructively addressed and escalate into ‘tribal warfare’.

Another area in which the ‘family/business’ configuration can be very vulnerable is company succession. Whether internal (by a family member) or external company succession, a shortage of people willing to succeed to the business remains a controversial point. The latest research reveals that 150,000 jobs are endangered by difficult business successions in around 43,000 businesses in Germany. Many family businesses continue to find it difficult to regulate business succession favourably, despite the wide range of support on offer (such as founder networks). Older generations generally want very much to place their businesses in the hands of their own offspring, and not into the hands of others, but this seems to be happening less and less. One of the reasons may be that those involved see themselves confronted with multiple paradoxes. These are emotive situations in which there is no one clear solution and you can ‘only do the wrong thing’. For instance, if the father says that his son should follow the career path of his choosing and seek his own way, while at the same time telling him how important it is to him personally not to be disappointed, and that he sees in his son the ideal successor – this can be experienced as a predicament which can be summed up as: “You are free to choose the solution I want!” But the opposite can also be an aspect of obstructive familyness, if the owner, at an advanced age, cannot find a way of letting go of the business and handing it over appropriately, leaving the following generation in a wearing, demoralising holding pattern.

In critical situations, especially ones without governance rules, the family and company are often confronted with two options. ‘Family first’ or ‘business first.’ Studies on the longevity of family businesses show that the latter strategy is more sustainable. It gives the interests of the business absolute priority over all others, such as when family membership is not the sole criterion for employing, rewarding and promoting family members. But this is by no means about neglecting the family or forcing it out of the business. That is why a ‘family business first’ strategy is often pursued. Its job is, in dialogue with the family, to clarify the interests of the business, negotiate priorities, and seek mutual alignment. This approach is intelligent because it does not seek to play the interests of one side off against the other’s. Instead, it is about deferring family interests in the knowledge that they themselves will benefit from this way of thinking in the long term.

4th THESIS: FAMILY ENTREPRENEURS ARE (POTENTIALLY) MORE INTELLIGENT

They find it easier than publicly owned corporations to liberate themselves from the logic of short-term profit orientation, which is often damaging to business. They can also diversify widely, something for which publicly owned enterprises suffer share price cuts, despite the fact that it increases their long-term prospects of survival.

A publicly owned large corporation can hardly escape the short-term profit mindset of its shareholders, whereas family businesses find it easier to free themselves from the logic of shareholder value.

This alone does not make the business more successful, but it does open it up to a certain amount of strategic options, such as when negotiating the dimension of time. What a family’s success boils down to is whether it continues to exist over generations. This attitude is often translated into family businesses. They expect less short-term profits and more long-term, continuous growth; investments made are less risky and more promising of security. In a family which holds the majority of a company’s shares, the criteria by which the success of entrepreneurial decisions is evaluated are deferred.

They always tend to ask how much a decision will contribute to their long-term existence. This is how family businesses (provided the financial basis exists) can hold on for decades to business areas even if they only produce meagre profits for long periods. And when an industry revives again, this holding on can prove highly profitable. Because their thinking goes beyond single economic cycles, expertise that exists in the business is looked after, because of which, a crisis may well serve to build up their market position instead of leading to their demise.

This long-term strategy often goes together with a strategy of diversification: family businesses often position themselves broadly in the market and spread their risks in a very particular way through diversification. Intentional investment in multiple non-synergetic areas of business allows businesses to survive slumps in the industry. In the long term, the areas that produce profits tend to change. In family businesses, this generally means a greater likelihood of survival, unlike publicly owned businesses. There is another aspect that needs considering in this context: a family, focussed on building up long-lasting relationships, will employ people on the basis of different factors. Because they are interested in keeping their personnel on for many years, family businesses secure themselves against loss of knowledge.

This means that variable experience as well as pure technical knowledge can be passed on to subsequent, upcoming managers who are internally promoted, which provides an answer to the scarcity of manpower. It also prevents valuable staff from migrating to rival companies (see also Theses 6 and 7). By building up a long-term outlook for shareholders, the business liberates itself from owners’ exaggerated yield expectations, which places it in a position to intelligently implement the strategies mentioned.

5th THESIS: FAMILY ENTREPRENEURS ARE IN A DIFFERENT FINANCIAL POSITION

Family businesses are more cautious when it comes to taking on outside capital, and they are keener on financial independence. But if they do need outside capital, they find it more difficult to generate than large corporations. They are affected by the inheritance taxes that successors have to pay.

Financing represents a key aspect of corporate management. This is especially important to family businesses, because in almost every single matter of finance, a potential investor’s desire for information clashes with a company’s desire for confidentiality.

A look at equity ratio statistics shows that the average German company has a much lower equity ratio than in every other European country and the USA. The core problem of the small and medium sized enterprises that are especially affected by this is not merely their relatively low equity ratio, it is the dependency that goes with it.

If it does not prove possible to finance growth from cash flow alone, then family businesses have to manage the contradiction between entrepreneurial autonomy and dependency on investors. This contradiction has been resolved in two ways in the past. You either had a trusted bank which would finance growth and innovation, or you treated investors carefully and intentionally relinquished strong growth.

The capital requirements of Basel II proposed and already enacted by banking regulatory authorities, and the uncertain market situation that has come about in recent years, have caused many large banks to shy away from financing SMEs (meaning businesses with less than €50 million annual turnover and less than 500 employees).

This initial overreaction, which many banks have since reversed, has caused lasting distrust in banks among many family businesses; they have, initially out of need, turned to new forms of finance, such as private equity. There are many options available in equity (such as investments), outside capital (such as bond issues) and mixed forms (‘mezzanine capital’).20 As we have said, there are both opportunities and risks in this sector. Public discussion of this has been heavily influenced by critical opinions of financial investors whose concerns are purely fiscal, who buy up family businesses using borrowed money, then saddle the companies they have bought with the debts. But as well as them, there are an increasing number of more long-term-oriented investment companies who pursue an aim of stable value creation and place value on successful collaboration over decades.

Moreover, family businesses are (still) affected by inheritance taxes, unlike non-family businesses. The 2007 inheritance tax reform is expected to yield considerable tax relief for family businesses. The accretion model announced in the coalition agreement, which envisages inheritance and capital transfer tax on business assets being deferred over a period of ten years and reduced by a tenth for every year that the business continues to operate, aims especially to give small and medium sized family businesses the opportunity to secure jobs and make new investments. The intention of this tax measure is to establish competitive equality between publicly owned and family businesses. The way this law is developed in its details will determine whether the gap will be successfully bridged.

6th THESIS: FAMILY ENTREPRENEURS HAVE A LONGER VIEW

They hold (for longer) to their foundational myths, proven business principles, established customer and supplier relationships, and above all their employees, which has a positive effect on the development of their stock of expertise and trust. At the same time, this holding on can make it more difficult to respond flexibly to new demands.

Family businesses sometimes hold to foundational myths and decision-making principles over several generations, ones handed down and applied by preceding generations. Business principles that have been passed down and proven are often inherited and successfully maintained by new generations. Existing customer and supplier relationships, for instance, may have grown in trust over many years.

Little wonder, since this type of company is often tied to one location for long periods; this is a consequence of that. But because the ‘half-life of knowledge’ is constantly shrinking, family businesses, like others, are forced to deal with the pressure from the market to innovate. Holding to constant relationships is usually a competitive advantage when it comes to developing and sustaining core entrepreneurial expertise, but it can be precisely that behaviour which becomes a problem in an increasingly dynamic business environment.

The key is to balance the charged relationship between continuity and reorientation. The long-term nature of a family business’ ties is also evident in its relationship with its workforce. They can trust in the foresight of family businesses – to secure them long-term jobs – and are not subjected to constant fear of cost-cutting. Furthermore, the fact that in Germany, 70% of all employees and 80% of all trainees work at small and medium sized businesses lends these considerations a lot of importance in society as a whole. Again there is a potential downside, because this behaviour can mean new employees are rarely brought into the company from outside and ‘fresh knowledge’ never finds its way into the family business.

If the family name is used as a brand, then it is recognisable and identifiable not only for people on the outside, but also to the workforce. The family, if it conveys its own values credibly through consistency of thought, speech and action, and builds transparency towards everyone in the organisation, receives a very special resource from its workforce in return:  trust, which forms a foundation of a corporate culture based on trust. A long-term outlook is often linked to a close commitment to the region in which the family business is active – and that in turn influences their corporate culture. “If you’re really rooted in that community, it’s going to have a big impact on the way you are.” Regional commitment is demonstrated in a special willingness to take responsibility for social and community affairs. Their values prompt them to respond to acute social misfortunes and help to rectify them. They often demonstrate the same entrepreneurial energy that they do in their business: opportunities are recognised and taken. That is why family businesses bring a particular kind of presence to the region where they are from and where they are rooted.

7th THESIS: FAMILY ENTREPRENEURS ARE FAMILY ORIENTED

They transfer familial relationship patterns to their management and workforce. So the work they provide is more meaningful and people identify more strongly with the company: You’re part of the family! Such ‘emotional dividends’ benefit business and workforce alike.

A strong sense of loyalty, feelings of gratitude and love between family members can represent a vast resource for businesses. Good family management is required to ensure that these values are used positively, established over generations, and secured in the long term.

Part of this is recognising the difference a business can make to a family, and organising the family as a business family. Close relations between family members in the nuclear family structure of a family business in its first or second generation is quite natural, but it becomes increasingly unlikely in family businesses in their third generation and beyond, and has to be actively sustained and regularly revived, especially if the business is set up as a ‘tribal organisation’.

With every new generation, the ‘centrifugal force’ increases as each core family is newly founded; commitment among a consortium of cousins is markedly less than ties between siblings. Care must be taken to ensure that despite this, even distant relatives develop a shared identity with the business family. And it is especially important to ensure that a configuration does not emerge in which loyalty to the tribe is placed above loyalty to the business.

Successful multi-generation family businesses therefore treat the extended family in a very particular way by constantly reproducing new, small family structures and providing opportunities for contact and relationships at many different levels, thus preventing the deterioration of the sense of family. At an ownership level, this leads to a concentration of mutual interests rather than those of individual investors. What is more, intelligent governance rules prevent the blocking of decisions and the selling off of shareholder stakes. By maintaining a sense of family, the business produces new strength for innovation. Employees of family businesses who are not from the family often highly appreciate the sense of family and close commitment described above, but it can also impact negatively on their career paths, especially if it prevents their own advancement. This happens if young family members and shareholders are shoehorned into leadership positions, regardless of competence. It has proven propitious only to appoint family members to the business if they are at least as suitable as candidates from outside the family.

8th THESIS: FAMILY ENTREPRENEURS ARE MORE ENTREPRENEURIAL

Family businesses are characterised by marked creative drive, the desire to build something lasting, orientation towards customers, and a willingness to take risks. The smaller the business is, the more its progress will depend on the leadership aptitude, innovative strength and entrepreneurial foresight of a single person – with all the benefits and drawbacks that entails: short decision-making channels, but major upheavals in the succession process and in the event of the sudden absence of the formative leadership personality.

The smaller a family business is, the more the leadership, responsibility and aptitude, innovative strength and entrepreneurial foresight is concentrated in a single person.

The owner is the heart and soul of the company as well as its driving force. That is why, in many family businesses, a corporate culture can still be found that reflects the image of the pioneer in its founding era. The individuals actively involved in a family business often identify very strongly with it, which often means they are more willing to put in the work and expand the business. ‘Per aspera ad astra’ – ‘through hardship to the stars’: this could describe the fundamental maxim of family businesses.

There are limits to people’s commitment in non-family businesses, whereas family members (as well as employees) who work together in family businesses are more willing to go beyond them. In very traditionally led family businesses, the position of the businessman’s wife reveals how she plays a prominent role in balancing the inward and outward tendencies of family and company, and therefore safeguards the sense of collectiveness, even in critical situations. Most family businesses have recognised that the divergent logics of family and company require special attention.

In Germany, women may generally play a lesser role in corporate leadership than men, but they are highly successful in their own leadership positions in family businesses. Flat hierarchies in such companies facilitate short decision-making channels and eliminate time-consuming holding patterns. Customers appreciate this a lot, and so do suppliers and employees. Yet the strong entrepreneurial orientation associated with a strong personality also has its downside. When crises arise, it can become critical. All of the aforementioned benefits can turn into their opposite if, for example, the businessman is suddenly absent, be it through illness, accident or death; if they experience payment difficulties or the threat of insolvency; or if a succession process fails, leaving the company ‘headless’. A person who has shaped a business for many years can often lose, towards the end of their professional life, that sense of the market which has so long defined them. A company’s fate can be decided by whether its entrepreneurial authority has been concentrated too much and for too long in one central personality, and whether the principles of entrepreneurial action have been consciously passed on and institutionalised.

9th THESIS: FAMILY ENTREPRENEURS ARE MORE RESISTANT TO ADVICE

Families guard their boundaries; just as they are unwilling to allow outsiders into their private sphere, they also assume that business related issues can be solved inside the company. This explains their success to a large extent, but it is an attitude which has its risks and side-effects, especially if outside advice could open up new opportunities.

Families draw their own boundaries and protect their privacy against the public, and in the same way, families that own family businesses often try to solve the problems that arise in the company inside the family itself (see also the third Thesis).

The family and company zones are intertwined, because family members and employees can be one and the same. If there is a strategy within the family about how business problems are dealt with appropriately, and how external advice can be obtained, then this again is one of the templates of a successful family business. But a family’s own internal drive to solve its conflicts does not always fulfil its function as a protective mechanism. It is not uncommon for corporate decisions that should actually be made rationally to be put at risk by fiercely emotional disputes that can push people to their limits.

Given the aforementioned conflicting priorities between family and company, escalating disputes of this kind are not uncommon. Conflicts can arise within the family between branches of the family, between successors and relinquishers, between major and minor shareholders and between owners and outside managers, and they can cause extremely strong feelings and financial damage.

It is not for nothing that family disputes in family businesses have been referred to as the “biggest destroyer of value in the German economy.”. Family businesses often procrastinate for a long time before seeking support, despite dramatic escalations and shareholder conflicts that can drag on for years. “It’s nobody else’s business what goes on among us.” – Management and banking advice is met with reserve. ‘Weak signals’ are ignored, crises intensify and even dangerous shifts such as a lack of liquidity can be ignored, as an analysis of numerous family business insolvencies shows. Appearances are kept up on the outside, while the crisis becomes all-consuming inside the family. Once a crisis has manifested, the balance between familial and business interests is lost – old conflicts emerge and accusations are levelled about who is really responsible. Events begin to spiral and become very difficult to stop internally. Shareholder conflicts hinder the progress of the business, and tense business circumstances also aggravate the family.

In the worst case, the business and the family can go under. If the situation becomes very fraught, an insolvency crisis can sometimes be averted by recourse to networks of friends and by the family’s willingness to sacrifice – in which case ‘familyness’ has once again proved a lifeline. But despite this, many family businesses still tend to draw too firm a boundary around themselves and the business, and to seek support too late. This is an absolutely fundamental aspect of this form of business. But despite all the criticism of their resistance to advice, one ought not to forget that many family businesses have become successful precisely because they have not allowed themselves to be advised, precisely because they have not followed the recommendations of consultants and stubbornly pursued their own line instead. This strengthens their historical resolve to adopt a critical attitude towards external advisors.

10th THESIS: FAMILY ENTREPRENEURS LAST LONGER

Family businesses are more competitive and durable. They are a model of success, provided they remain in a position to manage the paradoxes that come from the linkage of family and company. It is consistently essential to find a balance, so that the interests of neither the family nor the business are served unilaterally. If this balance is successfully struck, then the unique resources of this form of business are brought fully to bear.

The success of family businesses and their longevity seems at first to contradict all of the expectations of traditional business management theory, which proposes that a family’s involvement in business interests can only cause confusion and therefore threatens business activities.

Yet it is precisely this unorthodox approach which characterises family businesses and determines their success or failure. Family businesses are successful if they succeed to manage particular contradictions. We have already mentioned the term ‘paradox’ as a particular form of contradiction. Paradoxes are contradictory behavioural expectations that arise because members of a family business are always members of the family and the business at the same time. These two systems are not always clearly distinct – on the contrary, it is more often unclear who somebody is speaking as – who one happens to be at any given time: father or businessman, daughter or successor. Simultaneous membership in the family and the company gives rise to certain contradictions, since “as social systems, family and businesses could hardly be more different.” One particular contradiction lies in the principle of equality, known as the ‘equitability paradox’. In the logic of a family, all family members should be treated as equally and fairly as possible – even though everyone knows it will never be entirely possible. While equality is the guiding theme of fairness in a family, the logic of a business paints an entirely different picture.

The focus there is not on equality, it is on expertise, performance and responsibility. According to the logic of the family, it is only fair for every family member to be given a position in the business, whereas in the logic of the business, leadership succession is all about selecting the best candidate according to their performance, and thus securing the continuity of the company. This is where the importance of careful paradox management becomes clear: you have to recognise the conflict between these two logics, endure it, and find a solution which is compatible with business and family alike. The paradoxes cannot be eliminated, but they can be defused through understanding. Benefits particular to the business and the family can be gained through active family management, seeking one’s own method of diffusing paradoxes, identifying taboos, confronting conflicts, and by the entrepreneur analysing his or her own anxieties, wishes and aims. Multi-generation family businesses which survive the critical third generation by transferring certain decision-making patterns and behavioural rituals to subsequent generations have demonstrated this successfully. They show that it is possible to constructively steer the conflicting priorities of family and company, thus making this very particular form of business into a fundamental source of strength – for many generations to come. Predicting whether a family business will succeed in the long term is approximate at best. But there are certain indicators on the route to success, and we will name a few. For example, family businesses have to subsume their own particular family and owner interests beneath the company’s need to survive. The principle of ‘family business first’ applies.

Furthermore, ‘professional ownership’ should be practiced, which means the proprietor family needs to be very consciously managed, as does the organisation itself. A high level of identification with the company can be achieved if all of the family members and shareholders are given an experience of being an accepted member of the proprietor family. One way of achieving this is to create frequent opportunities for the family to gather. Achieving lasting success requires a leadership which subscribes by its authority to a written and unwritten code of conduct. Ownership disputes and the associated legal conflicts need to be prevented using established conflict solution mechanisms that are accepted by everybody.

FINAL OBSERVATIONS

Family businesses are neither out of date nor a guaranteed success model; they have a particular Janus-faced character expressed in ‘familyness’, which can help but can also hinder. Because these businesses are so widespread and because they perform so differently from publicly owned companies, the academic establishment – and that includes the Witten Institute for Family Businesses (WIFU) – must embrace the challenge of continuing to closely investigate the particular characteristics of this form of business and living. Special attention needs to be paid to the business family and its relationship with the business itself (and vice versa). A key premise is to consider the family as a potential resource for the business, not a burden to be jettisoned as soon as possible. The question is then how one can organise the resources – ‘familyness’ as a collective expression of family factors – so that they are a continuous reserve for the company. This requires a carefully planned and executed family strategy, to sustain the family business across generations as a business and familial form of organisation.

SUCCESSION IN FAMILY BUSINESSES

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