Definition of family business
The terms family businesses and small and medium-sized enterprises (SMEs) are versions of the generic term medium- sized companies . In practice, many small and medium-sized enterprises are organized as family businesses, although the two terms are defined differently.
- Small and medium-sized enterprises are determined by certain quantitative size limits. For practical reasons, a company is classified in a certain size category based on the number of employees or the level of sales.
- Family businesses, on the other hand, are characterized by their ownership and management structures. So they are not subject to any size restrictions. In practice, however, the delimitation proves to be difficult, especially since there is no definition of family . An EU expert group suggests adopting a definition developed in Finland: a company of any size is a family business,
- if the natural person (s) who founded the company or who acquired the company's share capital or whose descendants hold the majority of the decision-making rights,
- the majority of the decision-making rights exist directly or indirectly, or
- if at least one of the named is formally involved in the management of the company, or
- if 25% of the voting rights in listed companies are held by the named companies.
According to a definition by the Institute for SME Research (IfM) in Bonn, family businesses are characterized by the unity of ownership and management . Owners who are authoritative in terms of capital or control law manage their company themselves or together with external managers.
In addition to the narrow definition of the IfM Bonn, there are other definitions with less strict criteria. For example, the definition of the Family Business Foundation also includes certain companies in which there is a separation between ownership and management, but as long as the company is controlled by a manageable number of natural individuals or families. In addition to the ownership and management structures mentioned above, the Association of Family Entrepreneurs sees the unity of risk and liability as the most important characteristic of a family business, since the entrepreneur uses his own capital to make business decisions.
It makes more sense than making a strict separation between family and non-family businesses to speak of the degree of family influence. Family influence can be exerted across different dimensions. These include, for example, voting rights, positions on the supervisory board , positions in management but also a special family corporate culture that builds up over time. In the case of large, listed companies in particular , it is often the case that the family is no longer part of the company's management. However, through company shares and positions on the supervisory board, the families can still exert a great influence on the company (see, for example, the influence of the Quandt / Klatten family on BMW). Large numbers of scientific studies on listed family businesses, especially in the US context, often assume that a family must own at least 5% of the company shares in order to be classified as a family business. European studies often work with different definitions, which assume 20% or 25% ownership share by the family. These definitions often include so-called “founder-led companies”.
The oldest family business in the world and at the same time the oldest company at all was the Japanese temple builder Kongō Gumi , founded in 578 , until its liquidation in 2006. It was replaced by the Japanese inn ( ryokan ) Hōshi , founded in 718. In third place, this follows about 800 years old french winery Château de Goulaine . In Germany, the farm in Ratingen (Mettmann district), which has been owned by the Poßberg family since around 910 (first documented mention in 950), is one of the oldest family businesses. The Thurn and Taxis operated nearly 600 years, the European postal sector. Of the family businesses in Germany that are still economically active today and have been continuously owned by one family since they were founded, according to current knowledge, the oldest is the galvanizing plant The Coatinc Company in Siegen, founded in 1502 . The company heads a list of the oldest family businesses in Germany, which the Family Business Foundation is continuously updating. Traditional family businesses are united in the Association les Hénokiens .
After the importance of large family businesses in Europe and the USA rapidly declined in the first third of the 20th century, which was mainly due to the limited financing options, leading economic historians such as B. Alfred Chandler assumes that the days of family businesses are numbered and that owner control will be replaced by managerial rule. However, examples like that of Franz Haniel & Cie. GmbH that transforming family businesses into public companies is not a one-way street. In fact, Haniel is now a private equity company owned by around 500 family members, but it hardly interferes in the operational work of around 800 holdings.
Family business characteristics
The influence of the family can be felt through various information or organizational channels. On the one hand, the family can decisively determine the fate of the company through voting rights, participation in the management or through the supervisory bodies. On the other hand, influence arises from the experience of generations that has accumulated in the owner family. Furthermore, many family businesses are characterized by a corporate culture shaped by the owner family , which can, however, open to external influences to varying degrees - up to the dominance of professional foreign knowledge. An analysis of the 1,000 largest family businesses in Germany shows that in 61% of these companies an owner representative is also active as the first managing director or CEO in the company.
According to the prevailing opinion, the influence of a family on a company is not dichotomous (existing or non-existent), as was previously assumed by some authors , but rather continuously graduated. A validated scale for measuring family influence is the so-called F-PEC . William G. Dyer , on the other hand, postulates four types of relationships between members of the owner family and non-members in management positions: the paternalistic, laissez-faire, participatory and professional types.
There are family businesses in all market economy-oriented countries. In most of these countries they represent the large majority of companies (numerically), around 60% across the EU. In Germany, the share of family businesses in all active companies - excluding public companies - is 90%. They often contribute to more than half of GDP and employment. More and more family businesses are developing international (multi) location strategies today.
Small family businesses often tend towards a kind of long-term total accounting in the sense of Eugen Schmalenbach . They account for much longer periods than corporations that are dependent on their shareholders . Although they are seen as rather low-yielding, they are particularly resilient in times of crisis. This also applies to the US, where the Vermont Business School studied this phenomenon after the 2008-10 financial crisis.
The narrowness of the fields of action of many small family businesses does not have to represent a competitive disadvantage: they often share the value system of their local customers and suppliers. The value system as a success factor has hardly been examined so far, although it is an important factor in explaining the sustainability and longevity of both the individual family business and the type of business as a whole. While the concept of corporate values and value-oriented corporate management is at least theoretically accepted as a success factor by corporate management, little is known about the nature and contribution of the value orientations of family businesses to their stability and sustainability.
In family-run companies, however, succession planning for the management is often problematic. According to estimates by IfM Bonn, there will be around 27,000 handovers every year by 2018. Disputes within the family can also have a negative impact on the management, especially if the degree of kinship in the later generation becomes broader and strategic uniformity is lost as a result. Since the public disclosure of key financial figures and company developments is not required by law for many family businesses, the resulting lack of transparency makes it difficult for potential investors to carry out a detailed (risk) assessment of the company. It is also problematic when key positions in family businesses are not awarded to the best candidate (or the best candidate) but to a family member who was only selected for this position on the basis of relatives. Such vacancies can have a long-term negative impact on the company's success.
However, family businesses also have a number of advantages. This includes long-term planning, the often high reputation, the possible speed in implementing decisions, and the often positive working atmosphere. In addition, meta-analyzes confirm the often high innovative capacity of family businesses.
A panel study of over 7,400 Western European family businesses over a period of 10 years (1995-2004) showed that large family businesses in particular are more robust than other businesses when faced with sudden fluctuations in demand, because they are more risk-averse and do not take advantage of every growth opportunity that arises (so-called control-versus-growth -Hypothesis).
The largest German family businesses were even able to increase their equity base from 30.1% to 33.5% in the years 2007 to 2009 despite the financial and economic crisis, as the study The largest family businesses in Germany by the Institute for SME Research (IfM) in Bonn showed. This means that family businesses in Germany have a significantly higher equity ratio than non-family-run businesses.
The DAXplus Family 30 Index shows the development of listed family businesses in which the founding family has at least 25 percent of the voting rights or is on the board of directors or the supervisory board and holds at least 5% of the voting rights. It includes German and international companies from the Prime Standard of the Frankfurt Stock Exchange .
The 500 family businesses with the highest turnover in the world are listed in the "Global Family Business Index", which was first published in 2015 by the Center for Family Business at the University of St. Gallen and Ernst & Young . In this index, family businesses are on the one hand privately held companies in which a family holds at least 50% of the voting rights and, on the other hand, the listed companies in which a family holds at least 32% of the voting rights in the company.
Family businesses and their medium-sized structures are considered to be particularly stable. Due to the low dependency on outside capital, you do not need to orientate yourself on the share price and can plan for the medium term. If there is a recession, they are more willing than large listed companies to keep their employees busy. The business journalist Wolfgang Münchau , on the other hand, saw no economically relevant advantages in the capacity as a family business, but instead addressed family businesses as oligarchs in 2015 in Spiegel magazine because of their lobbying power and self- interest. He therefore demanded: "Smash family businesses" and tax inherited large estates.
The list of the 1,000 largest family businesses in 2017 by the medium Die Deutsche Wirtschaft shows that they achieve a total turnover of around 1.73 trillion euros and provide around 7.2 million jobs. Of the 1,000 family businesses with the highest turnover, most (270) are based in North Rhine-Westphalia. Baden-Württemberg (200) and Bavaria (196) follow. According to cities, the top 1,000 family businesses can be found in 578 cities across Germany, most of them in Hamburg (57), Munich (28), Düsseldorf (21) as well as Stuttgart and Berlin (15 each).
According to the Institut der deutschen Wirtschaft (IW), family-run companies - which in Germany also include very large ones - generate a higher return on average, but with an average equity ratio of 16%, they have a lower equity base than other companies with 22%.
A study by the Center for European Economic Research and the Institute for SME Research in Mannheim in 2019 shows that the “Top 500” family businesses employed 2.54 million people in Germany in 2016, which is the number between 2007 and 2016 of employees in Germany increased by 23%.
Contrary to popular belief, family businesses are also an important phenomenon on German stock markets. Half of all listed companies on the CDAX - with the exception of financial stocks - are actually family businesses.
In addition to the large trade associations, the association Die Familienunternehmer - ASU and the Family Business Foundation take on the political representation of interests, especially for family businesses.
Despite this great importance for the economy, scientific involvement with family-run or family-controlled companies has only developed over the last few years. Family businesses include the " Family Business Foundation " based in Munich, the IFF Institute for Family Businesses based in Stuttgart, the "Institute for Family Businesses" at the WHU Otto Beisheim School of Management in Vallendar, the "Witten Institute for Family Businesses" at the University of Witten / Herdecke , the Institute for SME Research Bonn (IfM), the Hamburg Institute for Family Businesses and the Friedrichshafen Institute for Family Businesses.
Around 80% of all companies in Austria (= 240,000) were family-owned in 2008. Austria is 10 percentage points above the EU average. Family businesses employ more than 70% of all employees here and can therefore be described as the backbone of the Austrian economy. Most of them are run by the second generation. In the last few years the trend towards conversion into corporations has increased . In the period from 2006 to 2012, over 44% of the companies surveyed were affected by handover or succession issues .
In Switzerland, 88% of all companies are family businesses, with the majority again being small and medium-sized enterprises. 30% of companies on the Swiss stock exchange are family-dominated. The "family phenomenon" on the stock market goes back to the so-called " restricted registered shares ". Because these shares have relatively more voting rights associated with a share than with normal shares, family influence is ensured despite the lower capital shares. The largest non-listed family businesses in 2008 were the DKSH Group, Tetra Pak (Suisse) SA and the Hilti Group. A key issue in family businesses is corporate succession. It can be assumed that 18.5% of all companies are faced with this task within 5 years. In the field of science, the Center for Family Business at the University of St. Gallen deals with (national and international) family businesses.
A study commissioned by the European Commission dealt extensively with the definition of family businesses and their economic importance in the European context. The study covers all member states of the European Union, the countries of the European Economic Area (EEA) and the candidate countries for accession to the European Union (Turkey, Croatia, Macedonia). On average for all the countries examined, around 70% to 80% of all companies are family businesses. Their share in total employment is 40% to 50%.
In 2003, 89 percent of all businesses in the United States were family businesses. They generated about 59% of the gross domestic product . Around 58% of all employees worked in family businesses.
Multi-generation family business
The successful management of large companies requires the entrepreneur to have appropriate training and skills, which are indispensable in the founding generation. In the following generations, sooner or later a tension arises between the talents of the heirs, their interests and the requirements of successful management and the market. Also and especially the distribution of the shares among several shareholders can lead to problems in business activity, as conflicting interests and ideas can exist within the shareholder group. An early control of the descendants according to their abilities and the introduction to the company is advantageous.
Family business governance
Family differ in their corporate governance to the typical, at the Stock Exchange listed public company . Family business governance is called family business governance. It is defined as the organization of control and management as well as securing the cohesion of the family with the aim of increasing the market success of the family business over generations and avoiding conflicts in the family. Family business governance is characterized by topics such as
- Identity of management and ownership,
- Independence from the capital market,
- Succession of family members in management,
- Exit of family owners,
- Advisory board and supervisory board as family council and shareholders' committee and
- Distribution of profits.
The individual, situation-appropriate “family business governance” of a family company is summarized in a family constitution, a family code or a family strategy. The “ Governance Code ” specially developed for family businesses provides recommendations for optimal regulation of these governance issues . In addition to this institutionalized family governance, there is also an informal one, which is exercised through communication, role expectations and role models.
Research on family businesses is encouraged by the International Family Enterprise Research Academy ( IFERA ) and the Family Enterprise Research Conference (FERC) , among others . The International Council of Small Business and Entrepreneurship (ICSB) and its European branch, the European Council of Small Business and Entrepreneurship (ECSB), also call for research on family businesses. The most important journals with a focus on family businesses are Entrepreneurship Theory and Practice, Family Business Review and the Journal of Family Business Strategy. The Witten Institute for Family Business provides an overview of international research institutions active in the field of family businesses . International research in the field of family businesses is strongly promoted by the Family Firm Institute (FFI), which not only owns the Family Business Review magazine, but also awards annual awards for dissertations, working papers, reviewers and published articles in the field of family businesses. Research on family businesses is encouraged by the International Family Enterprise Research Academy ( IFERA ) and the Family Enterprise Research Conference (FERC) , among others . The International Council of Small Business and Entrepreneurship (ICSB) and its European branch, the European Council of Small Business and Entrepreneurship (ECSB), also call for research on family businesses. The most important journals with a focus on family businesses are Entrepreneurship Theory and Practice, Family Business Review and the Journal of Family Business Strategy. The Witten Institute for Family Business provides an overview of international research institutions active in the field of family businesses . International research in the field of family businesses is strongly promoted by the Family Firm Institute (FFI), which not only owns the Family Business Review magazine, but also awards annual awards for dissertations, working papers, reviewers and published articles in the field of family businesses.
Family businesses as employers are compared in many studies with traditional corporations or public companies. There are studies on job preferences or employer attractiveness; The job characteristics of family businesses are compared with those of non-family businesses and evaluated. There are also sources of information specially tailored to the work environment in family businesses.
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