The common spirit of family businesses | AvS – International Trusted Advisors

by Nick Harris

The common spirit of family businesses

Family businesses make up between 65% to 80% of all European companies, accounting for on average more than 40% to 50% of all jobs. Family businesses constitute a substantial part of existing European companies and have a significant role to play in the strength and dynamism of the real economy.

At AvS, we are in close daily contact with family businesses in Germany, Europe and around the world. And in all our conversations, we notice that family businesses have a lot in common across language and national borders.?There are more similarities between family businesses from various countries than differences: entrepreneurial spirit, longterm perspective, the importance of tradition & heritage, business values that go beyond just making money, careful financial stewardship – just to mention a few.

Typically, family businesses are deeply rooted in their local cultures, communities, and institutions, and dependent on the family’s resources for leadership, these family firms are influenced by the specific cultural context within which they exist.

Sure there are differences, but they may be more due to other factors than country. For example: what generation is in charge; whether the company is listed or not (this has a huge influence on governance, transparency, PR); whether the sector is about heritage, branding or technology; services or manufacturing-led; whether the CEO is an external manager or the family still have the reins; whether there is a professional board.

Differences come also from varied legal or regulatory frameworks and differences around governance requirements – for example 1-tier Boards in the UK vs. two-tier Boards in Germany, German union representation on the Supervisory Board vs. an antagonistic situation between owners and unions in the UK.?And there are the obvious cultural differences between different European countries: German rigor vs. Mediterranean laissez-faire – but these are generic/stereotypes.

All in all, family businesses will continue to play an important role in world economies. In order for this to succeed, we believe that family businesses need to pay attention to five things:?

• Succession planning: Poor transitions and a lack of succession planning are the single biggest factors in the failure of family businesses. To prepare for a handover from one generation to the next, a strong and effective board needs to be established by adding independent directors.?
• Professionalized structures: Many growing businesses face the need to professionalise their operations at some stage but for family businesses there is often an added layer of complexity. The personal nature of family relationships means that the consequences of mistakes could have a terminal impact on the business.
• Strategic longterm planning: Operating from an annual budget year-on-year limits the business to incremental efficiency improvements without creating new opportunities.
• Innovation: The disruption that digitization has brought to the marketing environment is one example where family businesses can take advantage of the change or get left behind in legacy systems. E-commerce, online advertising, and consumer targeting on social media are powerful new tools that were not available to previous generations.
• Empower the next generation: Something current leaders and the next generation have in common is their belief in the power of entrepreneurship and their openness to set up new ventures alongside the existing family businesses. Unlocking this idea and making it a practical reality could help to prepare the next generation for leadership, while creating value for the current business.

Nick Harris is part of the consultant team of AvS - International Trusted Advisors . Based in Geneva, he serves family businesses, family offices and private equity firms in the areas of executive search, board search, management appraisal, succession planning and talent development.

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