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The mastery required to run a family business in today's world 

To Have & To Be 

The family business is a concept dating back to well before the birth of Christ. It continuously adapts to the latest requirements. Even today, many of the most successful German businesses are family-controlled or run by private owners. 

The German economy largely remains in the hands of families. According to the Centre for European Economic Research [Zentrum für Europäische Wirtschaftsforschung, ZEW], in 2014 over 90% of German companies were family-controlled, and in 88% of these the day-to-day operations of the company were managed by the owner family. Admittedly, 75% of family businesses had an annual turnover of less than 1 million euros. On the other hand, Germany is home to a higher than average number of large family-owned companies. According to Matchbird and EY, roughly 680 companies have annual turnovers of at least 300 million euros; with more than 1.5 trillion euros, their combined annual turnover is comparable to the gross domestic product of Italy, as stated in the Handelsblatt gazette on 15 June 2016. More than 170 German family businesses have achieved an annual turnover of at least a billion euros. From the locksmith around the corner who opens the door when you are locked out, to Webasto, Dr. Oetker, Merck, BMW and VW – no matter the size of the company, family entrepreneurs rise to the occasion.


Economic heavyweights

Their impact on the development of prosperity is correspondingly significant: almost one in every two euros of total turnover is generated by family-owned companies in Germany. Considerably more than 50% of all employees subject to social security contributions are employed by family businesses. In addition, family enterprises increase their staff at a much faster rate than publicly traded companies. Family-owned companies are also less sensitive to crises: as a result of the global economic disaster in 2009, internationally, family businesses experienced a revenue decline of approximately 10%, while the number of employees shrunk by about 1.4%. However, just one year later, this decline was more than offset: family-owned companies achieved higher annual turnovers than in 2008 and employed more people than ever before. Since then, turnover and employment figures have continued to increase significantly; the loss of momentum in 2013 turned out to be short-lived, as reported by the IFF Institut für Familienunternehmen e.V. (Institute for Family-Owned Businesses): family businesses are the backbone of our economy.

  • Give and take in socially responsible companies
    With ownership comes responsibility: the exceptional economic benefit generated by family enterprises documents a long tradition of fair giving and taking in socially responsible companies.
  • 1.5 trillion
    Family businesses are the backbone of the German economy. The combined annual turnover of the 50 largest family-owned companies totals approximately 1.5 trillion euros.
  • Cutting-edge professionalism
    The use of family offices has become more and more popular over the last two decades. They provide a consolidated team that takes over management and administrative tasks for wealthy families.
  • Governance and compliance in owner families
    A smart and strong corporate culture is key to success. Wealthy families use many of the same structures and methods as used in the business world, which, just as corporate governance and corporate culture, are very effective.

Signs of a special family culture

A high degree of continuity is key to the success of family businesses. Many family-owned enterprises steadily grow across generations. Talent is hereditary, true skills, however, are not. Each person develops these skills through learning and living. If this is successfully done, it is a sign of family culture with a very special mission.

 

Asset development headquarter
The safeguarding of assets and asset development management are highly responsible tasks. It is highly recommended to enlist an expert. The family office is ideally suited to take care of the various direct and indirect tasks. Lawyers and chartered accountants are usually at the top of the family office – these individuals are experienced in mergers & acquisitions and, as consultants, enjoy the full trust of the owner family.

The family office provides the staff required for management and administrative tasks, from the development of a long-term investment strategy, comprising a variety of different assets such as industrial holdings, forestry or arts, to the selection and monitoring of investment consultants. It also performs Supervisory Board tasks, manages foundations, and selects and monitors property managers. The family office serves as the family asset development headquarter.

 

Single family office and multi family office
A single family office, which is set up for just one individual family, only makes sense for families with a net worth of at least 50 million euros. Alternatively, a multi family office can be used. The infrastructure costs for multi family offices are split among several families. Economies of scale can be generated by combining capital, e.g. when purchasing financial products.

The family organises itself

The more members a family has – often several family branches form one modern family clan – the more important it is to organise this group professionally: just as with corporate compliance, family compliance plans establish a set of rules that all members have to abide by. They also describe the mission, which defines the idealistic aspects of the joint ownership.

Inspired by publicly traded companies

The first corporate governance models for company management were developed in the 1930s. They mostly served to safeguard the interests of shareholders vis-à-vis the operational management of the company. Therefore, these only apply to a limited extent to the organisation of owner families.


However, corporate governance provided the basis for the "Governance Code for Family Businesses" [Governance Kodex für Familienunternehmen] which was developed by the INTES Family Business Academy [INTES Akademie für Familienunternehmen], the F.B.N. Family Business Network and the ASU Family Business Association [ASU Die Familienunternehmer] in 2004. See: www.kodex-fuer-familienunternehmen.de.
In May 2015, the third revised version was published.

 

Structures. Formalities. Values and rituals

The Code illustrates how a family can establish itself as an organisation without having to become a legal entity: the family governance plan specifies the prerequisites for membership, describes roles and responsibilities of members, defines conduct rules, provides recommendations on how to deal with conflict situations, suggests rules for earnings calculations and profit appropriation, and much more.


Family governance plays a special role in the determination and implementation of family values and principles and, last but not least, in the creation of events and rituals with which families celebrate and communicate their family bond. These have a significant impact on the family culture and the bond between the individual owners.

Customised to the needs of each individual family

How the family governance plan is structured depends on the individual circumstances of the family or the clan – there is no one-size-fits-all solution. Rashly implementing a ready-made solution would not be recommended anyway: the most in-depth discussions about the contents of the family governance plan take place in the development phase. At no other point in time will the internalisation of the Code be as strong and evident as during its development. In order to have devoted, and therefore particularly loyal, "accomplices" in the family, the development of the Code should be understood as the creation of a "piece of family history".

 

Tension and integration efforts

When implementing the family governance plan, special consideration must be given to those members who have not yet worked at any of the family businesses, do not have any previous leadership experience, are new to the clan or are just entering the workforce. Hardly any Supervisory Board of listed companies has to deal with such differences in experience as are present between clan leaders, usually very experienced and efficient professionals, and enthusiastic younger members of the family council.. The fact that they continuously relieve these tensions within their community and successfully implement significant integration measures is one of the key reasons for why family businesses are so flexible, persevering and strong.

 

Future generations

roperly introducing young family members to the culture of the owner community is of great importance for the success of family-owned businesses. 

Managing the development of the family's assets in such a way that more can be given to the next generation than was received by the previous one requires extensive knowledge and experience, the willingness to keep learning and lots of discipline: risks and opportunities are most often encountered when it is least convenient. But more than that, one has to develop a certain attitude towards wealth: do you have enough money to go on spectacular spending sprees or are you a responsible owner? To have. Or to be. Or both?

 
An owner in the proper sense of the word does not purely view his assets as a personal advantage, but also as a responsibility that far encompasses his personal needs. This attitude, which has a succinctly altruistic aspect to it, is not something we are born with. It is learned. Taught by the community in which one grows up, and, particularly, by one's family. A family which, at the same time, is also a community of owners.

  

Being introduced to future responsibilities

Learning how to gain control over personal desires is a key aspect of character formation. Wealth should not be viewed as a means to indulgence and social prestige, but rather as an opportunity to make a difference and revitalise communities and to create and continue great things. Property and ownership – the "to have" – are just tools. But the "to be" – "these are the values I stand for!" define a person and boost their self-esteem.

 
The significance of being able to create something that serves and empowers others, not oneself, is something that can only be learned through practical experiences. Including and promoting participation of young people in charitable work is therefore an excellent way of teaching this concept to youngsters. If at all possible, it is highly recommended to inspire a passion for particular charitable activities in young family members and to encourage them to get personally involved and committed to these programmes. A joyful interest in activities that do not serve any personal advantage develops a strong communal attitude and results in mature behaviour in group settings. Enhancing the social skills of family members strengthens the family bond and increases solidarity. This is, for example, advantageous when implementing long-term strategies which are often accompanied by setbacks.

 

Awareness for corporate social responsibility

Charity projects are meaningful, and, at the same time, practical. They can also serve to raise awareness for corporate social responsibility. Companies who do not fall short in this area have a significant competitive advantage in highly developed economies. Authentic social responsibility is a key success factor – not only for marketing efforts and the positioning of the brand, but also for recruiting highly marketable talent.


Their desire to own socially responsible and sensitive companies is one of the reasons why many family-owned businesses have such an excellent reputation. It is thus all the more important that the next generation – the future leadership elite – learns about and experiences responsibility and involvement in charity work from a young age.

In today's world, wealthy families often use specialised management and control mechanisms that are comparable to those used in modern companies.

"Keeping people in mind" is one of the prominent obligations family businesses are committed to. Their special expertise in this at times challenging area is one of the key factors in their remarkably sustainable success.

Creating greatness begins with committing oneself to goals and standards that are beyond personal self-interest.

Maintaining sober, incorruptible realism and, at the same time, retaining a sense for passionate idealism:
the ability to keep a healthy balance between these two characterises many outstanding entrepreneurs.