BGE Budapest LAB · comparative research.1 This report is the synthesis of the research work...

ISSUE 2, 2017

MAKÓ CSABA

CSIZMADIA PÉTER

HEIDRICH BALÁZS

CSÁKNÉ FILEP JUDIT

COMPARATIVE REPORT ON FAMILY BUSINESSES’

SUCCESSION

2

BGE Budapest LAB

COMPARATIVE REPORT ON FAMILY BUSINESSES’

SUCCESSION

Makó Csaba Budapest Business School, CFA

[email protected]

Csizmadia Péter Budapest Business School, CFA

[email protected]

Heidrich Balázs Budapest Business School, CFA

[email protected]

Csákné Filep Judit Forum Familia

Working Paper Series 2-2017

ISSN: 2630-7960

Copyright © 2017 Makó Csaba, Csizmadia Péter, Heidrich Balázs, Csákné Filep Judit

Kiadó: BGE Budapest Lab

1087 Budapest, Berzsenyi utca 6. [email protected]

Felelős kiadó: Dr. Radácsi László, igazgató Szerkesztő: Dr. Kása Richárd

Online megjelenés: Timár Gigi

Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It maynot be reproduced without permission of the

copyright holder. Copies of working papers are available from the author. The views expressed in the Budapest LAB Working Paper Series are those of the author(s) and do

not necessarily reflect those of the Budapest Business School or Budapest LAB. Research Working Papers have not undergone formal review and approval. Such papers are included in this series to elicit feedback and to encourage debate on important public

policy challenges. Copyright belongs to the author(s). Papers may be downloaded for personal use only.

www.budapestlab.hu

3

ISSUE:2-2017

Dátum:2017.01.23.

ComparativeReportonFamilyBusinesses’Succession

ThisprojecthasbeenfundedwithsupportfromtheEuropeanCommission.

TheEuropeanCommissionsupportfortheproductionofthispublicationdoesnotconstitute

endorsementofthecontentswhichreflectstheviewsonlyoftheauthors,andthe

Commissioncannotbeheldresponsi¬bleforanyusewhichmaybemadeoftheinformation

containedtherein.ERASMUS+KA2StrategicPartnership2014-1-HU01-KA200-002307:

INtergenerationalSuccessioninSMEs'Transition–INSIST

1.Introduction

Approximately70-80%oftheoperatingfirmsinEuropearefamilybusinesses(inthefollowing

FBs)(Mandl,2008).Accordingtoestimates,familybusinesses’contributiontotheglobalGDP

variesbetween70and90%,whilemorethan30%oftheFortuneGlobal500companiesbelong

tothiscategory(Ellstrodt–Poullet,2014).Albeitfamilyfirms’economicandsocialweightis

incontestable, relatively little attention has been devoted to the aspect of the succession

processsofar.In2006theEuropeanCommissionestimatedthatintheup-coming10years,

one-third of Europe’s family businesses will have to transfer ownership either within the

family or elsewhere. Succession is a general problem in Europe, but concerning different

aspectsbycountry.Incaseofthepostsocialistcountries,forinstance,thefirstgenerationof

companyfoundersafterthecollapseofstatesocialismisabouttoretireandthesecountries

have no prior experiences relating to the successful management practices of ownership

transfer.IntheUK,oneofthecentralproblemsisthecommitmentofthenextgeneration(s),

whileinGermanythelegalrestrictionsconcerningfamilybusinesssuccessionisofparticular

importance.

Withregardtotheproblemsmentionedbrieflyabove,theINSISTprojectaimsatprovidinga

general overview of the most important challenges of the succession process in the

participatingcountries.Themaingoaloftheprojectistoprovidesupportforfamilybusiness

ownersandmanagersinpreparingandmanagingthesuccessionprocesssuccessfully.

4

Sincefamilybusinessmanagementandespeciallysuccessionsprocessesvaryinthedifferent

socio-cultural and legal-economic environments, the research consortiumwas established

with the aimof reflecting these differences to the extent that at least three substantially

differentgeographicregionsoftheEUarecovered.

Despitetheheterogeneityofthevariousparticipatingcountries,theprojectaimstoidentify

thecommonproblemsandknowledgeshortages in thisareaandconsider thembasedon

comparativeresearch.1Thisreport isthesynthesisoftheresearchworkcarriedoutbythe

differentpartnersandcoversthefollowingmainareas:

1. TheoreticalandMethodologicalFoundations

2. RolesandImportanceoftheFamilyBusinesses

3. CharacteristicsoftheSuccessionProcessintheFamilyBusinesses:

- Social-culturalFeaturesoftheFamilyBusinesses:specialfocusonthefounder’s

roleinthesuccessionprocess

- Survivability”oftheFamilyBusinesses:Transferabilityofthe„Social-Emotional

Wealth”(SEW)

- Organisational-collective learning: an underestimated dimension in the

successionprocess

- Managingthesuccessionprocess

4. PolicyEnvironment:legalandfinancialregulationsinthesuccessionprocess

1 The project develops a training curriculum that may support family business owners, managers and employees in managing the ownership transfer successfully. The curriculum covers four basic areas: 1. Strategic module: the module explores a range of entrepreneurship theories and practices and involves an in-depth critical examination of business start-ups, the experiences of entrepreneurs and key aspects of small business management. 2. Mentoring module: the purpose of this module is to improve the ability of potential mentors to develop a close relation with SME owners to support them in facing daily issues and in developing a better vision of the future, for their enterprises to prepare sustainable transmissions with relevant business opportunities. 3. Financial and legal module: the core aim of the module is to compile such syllabus and training materials which are suitable for the different generations of small or medium-sized enterprises and which accommodate the small or medium businesses’ leaders facing financial and taxation aspects of generational transition. 4. Social and cultural module: the module provides deep insight into the social and cultural aspects of succession, such as socioemotional capital and the role of trust and conditions necessary for the utilisation of social capital, the ability of successive generations to acquire the skills to identify new market niches, handling the effect of the ”generational shadow”, etc. The curriculum development is based on the results of this comparative research that consists of both desk-top analysis and company case studies.

5

II.TheoreticalandMethodologicalFoundations

II.1ProblemsofdefiningFB

As shown in the introduction, family businesses are at the heart of the economy. Their

functionisnotexclusivelyrestrictedtothecontributiontoeconomicwealth,buttheyplaya

significant role in employment creation and stabilisation as well as in intergenerational

knowledge transfer.When trying to provide a detailed picture of the current situation of

familybusinessestherearetwomainbarriersresearchershavetoface.Thefirstproblemis

that awidely accepteddefinition is stillmissing. There aremore than100definitions and

concepts of family businesses available in the literature, furthermore the name ‘family

business’itselfisquiteheterogeneous,aswell:familybusiness,familyfirm,familycompany,

family-ownedcompany,family-controlledcompany.Whendefiningtheterm‘familybusiness’

usuallythreedifferentaspectsaretakenintoaccount,namely:ownership;governance;and

participation indailyoperation.Ownershipreferstotheassetsthefamilypossesses inthe

company.Governanceisrelatedtotheextenttowhichfamilymembersarerepresentedin

decisionmakingbodies(boardofsupervision,boardofdirectors,etc.)andexercisecontrol

over the company’s strategic direction. The third aspect is the involvement of the family

membersintotheday-to-daymanagerialactivities.Familybusinessesmaydifferwithrespect

towhatcombinationoftheabovepresentedpracticestheyapplyintheireverydayoperations.

Thecomplexityoftheissuemeansaseriouschallengeforboththescientificcommunityand

policymakerswhenlookingforaftermakingabroad-basedconceptoffamilybusinessthat

captureseachaspectofthephenomenon.Insteadofprovidingataxonomyofheterogeneous

attemptsmadetodefinefamilybusinesses,inthefollowingpartsofthisreportwewillrelyon

thedefinitionelaboratedbytheEuropeanCommissionthatdescribesfamilybusinessinthe

followingway:

‘…mostrightsofdecisionarereservedfornaturalperson(s)whofoundedtheenterprise,or

suchnatural person(s)whohaveobtainedownership in theenterpriseor spouse, parents,

childrenor children’s childrenof thepersonsalreadymentioned, the rightsofdecisionare

direct or indirect, at least one member of family or kinship formally participated in the

operation. Stock-exchange listed companies canbe consideredas familybusinesses in the

6

casewhenthepersonwhofoundedthecompanyorpurchaseditorhisfamilydescendants

haveownershipoveratleast25%ofsharesrepresentsrightdecision’(CsáknéFilep2007:5)

InPolandthereisnolegaldistinctionbetweenfamilyandnon-familybusinessesandthereis

no consensuswithin the academic community either. Sułkowski (2004: 99) contextualizes

familybusinessesthroughtheownershiprelations,definingitasaneconomicentityinwhich

themajority of property and themanagement function are possessed by a family.More

recently, in 2011, Sułkowski andMarjański added the involvement as a further distinctive

feature,sayingthatincaseoffamilyfirms,ownershipcontrolormanagementisinthehands

of a single family and in its functioningmore than onemember of the family is involved

(Sułkowski–Marjański,2011:37).Otherresearchersstresstheimportanceofthesuccession

betweendifferentgenerationsasa‘differentiaspecifica’offamilyfirms(Niedbała,2002-cited

bySurdej,2015).Marjański(2012)addsthatcompaniesshouldbeconsideredasfamilyfirms,

iftheirownerisawareofthefamily’simpactonthecompanyandhe/sheintendstopassthe

ownershipandcontroltothenextgeneration.Thenation-widePolishsurvey‘PARP’in2009

usedthreecriteriatodistinguishfamilyfirms:1.at least2familymembersareengaged in

familybusiness;2.atleastonefamilymemberhasanimpactonmanagingeverydaypractices;

and3.familymembershaveasignificantownershipshare(majorityowners)(Surdej,2015).

In theUK,similarly toPoland, there isnosingleuniversallyaccepteddefinitionofa family

business (Devins, 2015). According to the Institute for Family Business (IFB, 2011) family

businesscanbeclassifiedusingthefollowingcriteria:‘Themajorityofvotesareheldbythe

personwhoestablishedoracquiredthefirm,ortheirspouse,parents,childorchild’sdirect

heirs, and at least one representative of the family is involved in the management or

administrationofthefirm.Inthecaseofalistedcompanythepersonwhoacquiredthefirm

ortheirfamilypossesses25%oftherighttovotethroughtheirsharecapitalandthatthereis

atleastonefamilymemberontheboardofthecompany’(Devins,2015:4).Formicrofirms,

subjectivecriteriaarealsoneeded.TheGovernmentDepartmentforBusinessInnovationand

Skills(BIS)defineitasabusiness,majorityownedbymembersofthesamefamily(BIS,2013:

6–citedbyDevins,2015:4).

There isneitherabroadlyaccepteddefinitionof,norsystematicdatacollectionon, family

businesses in Hungary. When defining the term ‘family business’ usually three different

7

aspects are taken into account, namely ownership, governance and participation in daily

operations.After1990thelarge,state-ownedcompaniesthatdominatedthestate-socialist

economy were replaced by micro-, small- and medium-sized enterprises and as a

consequence, a rather heterogeneous economic structure came into being. According to

Martin(2008)Hungaryrepresentsasegmentedmarketeconomy,wherethefollowingfour

basictypesoffirmsconstitutetheorganisationallandscape:state-owned,privatized,foreign-

ownedandnewlyestablished(denovo)organisations.Mostfamilyfirmsfallunderthelast

category,i.e.theyhavebeenfoundedinthelast25yearsandaremicro-,small-ormedium-

sizedenterprises.

Thesecondproblemwithfamilybusinessesisstronglyrelatedtothelackofawidelyaccepted

definition.Thisproblemisduetothelackofstatisticalsourcesconcerningfamilybusinesses.

ThereisnosystematicstatisticaldatacollectiononfamilybusinessesattheEuropean-level,

thereareonlyestimatesconcerningtheirprevalence.InherreportMandl(2008)providesa

comparative overview about the ratio of family businesses in the different European

countries.Thenexttablepresentsherdata.

8

Table 1. Share of family businesses in European countries (as a % of total enterprise

population)

Austria 80

Belgium 70

Cyprus 85-90

CzechRepublic 80

Denmark 95

Estonia 90

Finland 80-85

France 65

Germany 95

Greece 52

Hungary 70

Ireland 75

Italy 65-81

Latvia 30

Lithuania 38

Luxemburg 70

Netherlands 22

Poland 70-80

Portugal 70-80

Romania 50

Slovakia 80-95

Slovenia 60-80

Spain 85

Sweden 54.5

UK 65

Source:Mandl(2008:40-46)

9

Thedatapresentedaboveshouldbetreated,however,verycarefully,sincemostofthemrely

onexperts’estimationsand/orheavilydependontheofficialclassificationoffamilyfirms(if

any) thatvariesbetween thevariousEuropeancountries.Wemustconclude thatweonly

haveaveryinaccuratepictureconcerningtheprevalenceoffamilybusinessesinEuropein

general,andpintheUK,PolandandHungaryinparticular.Despitethedifficultiesthenext

chapterprovidesanoverviewabouttheeconomicweightofthefamilyenterprises.

WhendesigningtheINSISTresearch,theprojectteammembershadtofacethepreviously

mentioned difficulties, as well. Because of information shortages and inconsistencies

combined research methods were applied. Project team members carried out desk top

analysisbasedontheexisting(national)literatureandempiricalresearchinordertoprovide

a detailed picture about the importance of family business in the particular economies,

focusingonsuchissuesastheeconomicweightoffamilybusinesses,thesocio-culturaland

financial-legalenvironmentof family firms, thesuccessionprocessandsomepsychological

aspectsofmanagingfamilyenterprises. Inordertogaindeeper insight intothesuccession

process and to understand the company- and family-level micro-mechanisms shaping

ownershipandmanagementtransferpractices,eachparticipatingcountryhadtocarryout2

companycasestudieswiththesuccessioninfocus.Thecompanycasestudieswerebasedon

semi-structured, problem-oriented in-depth-interviews with different stakeholders

(owners/employers and employees) of family businesses, dealingwith issues, like rules of

entry and exit, commitment of the next generation, management practices, etc. The

Hungarianteamcompiled3,thePolishteam5andtheBritishteam2casestudies.

II.2.Shortdescriptionofthecompanycasesinvestigated2

BI-KA(HU):Establishedin1991,BI-KALogisticsprovidesdomesticandinternationalfreight

services and transportation, rail transportation, as well as transport of oversized, air,

container,marineordangerousgoods,warehouselogisticsservices,fullcustomsclearance,

cargoinsuranceandconsultancyinlogistics.Thebusinessisexclusivelybusiness-to-business

in nature and serves its’ customers in 30 countries,mainly in the Europeanmarkets. The

2 The descriptions are based on the company case studies compiled by the INSIST project team members.

10

companyiscontinuouslygrowing,andcurrentlyemploys103peoplewithaturnoverof16

million EUR, which means a 20.7% increase compared to the previous business year. To

improveprofitability,BI-KALogisticsplanstodoubleits’vehiclefleetin2015andconcentrate

more on freight services. In 2010, after 20 years of intensivework György Karmazin, the

founderof thecompany,wasexhaustedfromthe longworkinghoursandstartedtothink

aboutmakinganacademiccarrier.Herealizedthathecouldn’tstudyandleadthecompany

atthesametime.Attheageof44,hedecidedtostepbackfromtheleadership.SinceGyörgy’s

2childrenweretooyoungforthesuccession,hedecidedtosupportsomeonefromhisown

managementteambecomingthesuccessor.

DOMEX(PL):Thefounder,Tomaszinheritedtwofactorybuildingsandstartedtorunhisown

enterpriseinthemin1989.Thecompanyrentsapartments,officeandcommercialspaceand

operatesasadeveloper.Currentlythecompanyemploys20people.Theyareadministrative

employeesandmaintenanceteamworkers.Theyareallemployedwithfulltimecontracts.

The company helps them gain new qualifications through training and conference

participation.Thewifeanddaughtersofthedoyenarecompanyshareholders,butheremains

ashareholder.Hisaimistointroducehisfamilymemberstorunningthebusinesssothatwhen

hedecidestoleavethecompany,theywillknowhowthecompanyworksandwhatprojects

and issues areof key importance to company success.Aside fromher involvement in the

company, the doyen’s wife has her own business venture – a small bookshop. His older

daughtercompletedavarietyofstudiesandworkedforatimeattheuniversity,butoptedto

join the company. She runs the branch concerned with letting apartments. His younger

daughterrunsarestaurantlocatedinthecompanybuilding.Sheestablishedtherestaurant

herselfandworkstodevelopitfurther.

FeinWinery(HU):ThewinerywasfoundedbyTamásFein,whoworkedaseconomist,vintner,

corporateleader,bankaccountmanageratthattime.TheFeincoupledecidedtodevelopthe

winecellarandpresshousein1998.Theybought11hafieldandtheirestatewasbroadened

to21hain2002.FeinWinerywasofficiallyfoundedasLimitedLiabilityCompanyin2003.The

Fein familyproduces traditional, qualitywines. The territoryof the vineyard is 21ha. The

productionresultsanaverageof130000bottlesperyear.Thewinesproducedfromredgrape

11

varietiesaremerlot(5ha),cabernetfranc(4ha),bluefranc(4ha),kadarka(2.8ha)andsyrah

(1.2ha).Theyhaveviognier(1.1ha),pinotnoir(0.6ha),sagrantino(0.5ha),tannat(0.5ha),

andportugieser(0.3ha).TheFeinWinery’sdistributionchannelsareawinecompany3andits

ownsaleschannel.TheyoperatetenshopsinBudapestandfiveinothercities.Theirownsales

channel organizes wine tastings, dinners and an annual celebration. The founder and

manager,Tamásandhiswife,Zsófia,havetwosons,theelderoneisKároly,whowillbethe

successor.

Parodan(UK):Parodanisadesignandmanufacturingcompanythatproducesspecialpurpose

productionlinemachineryprimarilyfortheFoodandDrink,AutomotiveandMedicalsectors

of theeconomy.Theyhaveadiverseproduct range including robotics,ultrasonicwelding,

ultrasoniccutting,conveyingandadvancehandlingandcontrolsystems.Theirmainmarketis

domesticbusinesstobusiness,withthefoodandbeverageindustrycurrentlyaccountingfor

about60%oftheirturnover.HarryWood,theownerandfounderofParodanEngineeringLtd,

startedhiscareerasamaintenancefitter.Afterretirementage,hedecidedtoleavefromthe

company.Harryandhiswifearestillthemajorityshareholders.Allthreeoftheirsonshave

worked for the company at some point and two remain fully engaged, currently holding

directorshipsinthecompany.Since2012,thenewMD(Harry’ssonPaul)hasrestructuredthe

company,appointedaboardofdirectors,modernisedproductionandstabilisedthefinances

Pillar(PL):ThePillarcompanywassetupintheEightiesinKrakow,Poland,asamicro-business

offering small refurbishing and construction services. Martin and Helena founded the

businessattheageof35.Atfirstthecompanybaseditsexistenceonthehousingdeficitson

the Polish construction market, but in the Nineties its profile changed into a ‘classic’

developingbusiness: theybought landandbuilt apartments and commercial premises for

sale,mainlyinKrakow.Atpresentthecompanyemploys70people.Theyarehighlyqualified

specialists,whohavebeenwith the company formany years. Theowners have two sons

workingatthefirmandthecompanywillbeinheritedbythem.

3 With a number of award-winning wine store chain operates in Budapest and in other five towns for over 20 years.

12

Plantex (PL): PlantexHorticulture Farmhas been on themarket since 1981, and since its

beginning ithasbeendealingwith innovativeplantpropagation.Thecompanyoffershigh

qualityproducts:young,healthyplantsforfurthercultivationinnurseriesandonplantations.

Atpresent the farmemploys81peopleona regular, full-timebasis,andsellsaround4m

cultivarsperyear.Theplanthostsadministrationbuildings(150sq.m),laboratorywarehouses

(300 sq.m) and 1 500 sq.m of glasshouses. The village premises comprise a 1200 sq.m

productionhalland7500sqmetersoflandunderfoil.Thefoundershavethreedaughters.

Thetwoelderoneshavetheirownbusinessesandtheyoungestoneisabouttotakeoverthe

businesswithherhusband.

Podiums(UK):PaulMortonstartedoutasascaffolderworkingintheconstructionindustry.

In1977hesawanopportunitytocollaboratewithabusinesspartnertoestablishPodiums

Ltd. tohireout,and latersell, scaffoldingequipment.Duringalmost40yearsofoperation

PodiumsLtd.hasbeenthroughanumberofphasesofgrowthandconsolidation.Thecompany

website describes Podiums Ltd. as ‘a leading company that provides workplace access

solutions’.Thecompanydesignsandmanufacturesbespokeaccessequipmentandspecialised

tubular structures using aluminium, steel and fiberglass. The products are designed and

fabricatedtocustomers’particularrequirementsandtomeetprevailingindustrystandards.

PodiumsLtd.currentlyhasaturnoverofapproximately£4mp.a.,employs29peopleandhas

plans for furtherorganicgrowth intheshort tomediumterm.Aftera family incidentPaul

decidedtostepdownfromdirectmanagementandtodelegateleadershiptohisson,Tim.

QualityMeat(HU):AfterhavingbecomeunemployedduetothedissolutionoftheFarmers’

Co-op,thetwoownersKárolyKovácsandhiswifedecidedtobuyanoldslaughterhouseand

meatprocessingplantfromtheirsavingsin1992.Thecompanystartedtogrowandin2004a

newandmodernslaughterhousewasbuiltandthemeatprocessingunitwasalsorevamped.

The company's main line of business is meat processing and preservation. Every day an

averageof100to130pigsareslaughteredandprocesseddependingonseasonality.Thetotal

capacityoftheslaughterhouseis60,000pigsperyear.Thecouplehavetwosonswhojoined

13

thebusinessandgraduallytookoverdailymanagement.Thefounderonlykeptcontrolover

finances.

WAMECH(PL):PriortoestablishingtheWAMECHCompany,PiotrWąsikworkedasadesigner

in the Krakow-based Centre for Research and Development for Construction of Chemical

InstallationsinKrakowandlater,asanengineerintheTobaccoFactoryinKrakow.Hethen

moved to the private sector, joining a private developer, where he was responsible for

financialissues,customercare,costcalculationsandprojectimplementation.Theexperience

hegainedpreparedhimthoroughlyforrunninghisownbusiness.TheWAMECHCompanywas

founded in 1989. The companymanufacturesmachines which improve the economics of

productionprocesses inaccordancewith leanmanufacturingprinciples.Themain focusof

operations isonthedesignandproductionofroadtransportvehiclesand industrialtrucks

usedformaterialshandling.Fromtheverystart,thecompanyhasoperatedasafamilyfirm.

Piotr’sfather-in-lawistheengineerJózefKielar,whohelpedconstructthefirstprototypes.At

thebeginning,thebusinesswasbasedonPiotr’sownworkandthatoffamilymembers. It

took quite a while to establish a design team. Piotr’s wife, also an engineer, joined the

companytolookafterthecompany’sfinancesandtosupportherhusband.Piotrandhiswife

havethreechildrenandhavealwaysdreamtthatonedaytheirchildrenwouldtakeoverthe

company.Theownerstartedpreparationsforthesuccessionprocesssometimeago,butthe

process had to be speeded up due to his illness. In 2010, his son,Wojciech, became the

managingdirectorjustasthecompanycelebrated20yearsofoperation.

WITEKCentre(PL):DuringPoland’seconomictransformation,whichbeganin1990,Karolina

andherhusbandstartedatradingbusiness.Theystartedwithasmallshop(20sq.m)inthe

centreofKrakow,inwhichtheysoldchinaandglasscrockery.Astimewenton,theymanaged

toutilizeanotherpartofKarolina’sparents’property,whichextendedtheirbusinessactivity.

Growingdemandforthefurnituretheyweresellingencouragedthemtorentmoreandmore

retailspaceandtheircompanycontinuedtogrow.Thelaststageofbusinessdevelopment

involved building amodern retail centre in the vicinity of Krakow,which continues to be

expanded and developed. The company is active in the retail sector, selling furniture.

CompanyassetsweredividedbetweenKarolinaandherchildrenatanearly stage.Today,

eachofthemrunshisorherownbusinessindependently,asseparatelegalentities.

14

Table2.Maincharacteristicsofthecompanycasesinvestigated

*Managementtransfercompletedwithoutownershiptransfer

**Managementandownershiptransferunderprocess

***Managementandownershiptransfercompleted

Country Year of establishment No. of employees Sector/Activity Markets SuccessionParodan UK 1984 27 Engineering (design and manufacturing) National *Podiums UK 1977 30 Fabrigating Regional *DOMEX Poland 1989 20 Real estate Regional **Plantex Poland 1981 81 Horticulture Domestic/International *Pillar Poland 1980s 70 Construction Local ***WAMECH Poland 1989 77 Manufacturing (automotive) International ***WITEK Poland 1990 260 Retail trade (furniture) Regional *BI-KA Hungary 1991 4 Food (wine producing) Domestic/International *Fein vinery Hungary 1990 103 Logistics Domestic/International **Quality Meat Hungary 1992 45 Food (meat processing) Local **

15

III.RolesandImportanceoftheFamilyBusiness(FB)

III.1.RationalebehindtheSustainability(survivability)oftheFBandthe

NewChallenges

Halfacenturyago,managementscholarsdrewaratherpessimisticpictureofthefutureof

thefamilybusiness.Theyanticipated‘...thehereditaryprincipletofadefast,becauseofthe

greaterabilityofprofessionally-runpublicfirmstoraisecapitalandattracttoptalent.Infact,

familyfirmshaveheldtheirgroundand,inrecentyearshaveincreasedtheirpresenceamong

the global business’ (The Economist, 2014:2). Instead of this prognosis the FB is not only

presentbutalsoimprovingitspositionintheglobaleconomy.AccordingtotheFortune500

company list, the share of FB increased from15% in 2005 to 19% in 2014 in the global

economy.Inaddition,thewell-knownconsultingfirmMcKinseypredictsthat‘in2025,family

companiesfromtheemergingworldwillaccountfor37percentofallcompanieswithannual

revenuesofmorethanUSD1billion,upfrom16percentin2010.’4InthecaseoftheEuropean

economy,FBrepresents40percentoftheFortune500.

AccordingtothelatestEuropeanFBsurvey(EuropeanFamilyBusinessBarometer,2014),in

theEuropeaneconomy,morethan14millionFBsoperates,representingabout50%ofGDP

andofferingmore than60million jobs in theprivate sector. Themajority of them sell to

foreignmarkets.Interestinglyenough–contrarytowidelyheldpublicopinion–80%ofFBs

do not experience any difficultywith access to finance. In relation to the family business

strategyeverysecondFBconsidersstrategicchanges.Evaluatingthesourcesofthestrategic

strengthofthefamilyownedfirms,themostandleastimportantfivefactorsareasfollows

(EuropeanFamilyBusinessBarometer,2014:18):

4 http://www.economist.com/news/business/21629385-companies-controlled-founding-families-remain-surprisingly-important-and-look-set-stay

16

Table3.StrategicstrengthofFB

Fivemostimportantfactors Fiveleastimportantfactors

Focusingoncorebusiness:48% Abilitytowinbusinessandcustomerloyalty:20%

Fastandflexibledecisionmaking:46% Attractingandkeepingtalents:18%

Customerservice:45% Competitivepricing:15%

Employeesloyaltyandcommitment:42% Assertive/aggressivemarketing:9%

Familyownership:41% Size:6%

Within thenext year,more than two thirdsof FBsexpect changesboth inownershipand

management.Moreprecisely, one fifth (22%)of themplan topass theownershipof the

business to thenextgeneration (NxG),almostonequarter (24%)of themareplanningto

transfermanagementofFBtothenextgenerationandmorethanonefifth(23%)arethinking

ofappointinganon-familyCEObutkeepingfamilyownership/control.Howcanthisvisible

high performance of the FBs be explained in the long-run? Which factors explain their

sustainability?ThefactorsresponsiblefortheparticularsuccessoftheFBarethefollowing:

1:Thesefirms–independentoftheregionswheretheyareoperating(e.g.Europe,USA,Asia,

etc.) are better prepared – than several decades ago – to address the weakness of their

operations.

2:Agreatmajorityofthefamilyfirmsisinvestingheavilytotraintheirfutureleaders,sending

the family successors to business schools universities and in several cases world-leading

educationalinstitutionsinfieldsrelatedtotheiractivities.(Seetheevidencefromsomeofour

companycasestudies)5

3: There is a well-developed consulting industry specializing in helping FBs, e.g. the

intermediary-mentoring-coaching role in the succession process, and arbitrating-managing

personalconflictswithinthefamilytodiminishtheirharmfulimpactonthelong-termbusiness

perspectiveetc.

5 According to the survey of the FB by The Economist, „These days it is rare for a family boss to hand his job on an obvious dud… A growing number (particular in Germany) have become masters at moving family members from executive jobs to supervisory roles in the boardroom. ” (The Economist, 2014:2)

17

4:FBsandtheirmanagers–withsomeexceptionalcases–are“parsimonious”or,usinga

more recent term, they are adopting the lean-approach and long-term efficiency. At the

beginning of the 20th century, for example, Henry Ford often insisted that the customers

appreciatethequalityandpriceofitsproductsandnotthefancy-lavishheadquartersofthe

company6.Today,thisvalueisstillobservableandvisible:aFBisnotmotivatedbytheshort-

termcostefficiencybutthelong-termone:‘Theyaregoodatthinkingintermsofgenerations

ratherthanquarterlyresults:Rochemakeslong-termbetsondevelopingpharmaceuticals;the

MurdochandNewshouses have stuckwith printmedia in difficult times’ (The Economist,

2014:2). (See theempiricalevidence fromthe INSISTprojectcompanycasestudieson the

thinkingintermsofgenerationsinthesub-section4.2.)

However, they are not immune from the turbulent uncertain environment during their

operation.Ofcourse,manyofthemsufferfromtimetotimetheseriousshortcomingspartly

caused by such external factors as the fast-changing techno-economic and social-political

environmentandglobalization,aswithanyothercategoriesoffirms.Theinternalchallenges

such as trans-generational succession are specific to the FB. In relation to this, we are

encountering new challenges facing FB. ‘The ‘old-model’ often was labelled as “patient

capital”,andithassomesignificantadvantages,includingitsabilitytotakealongtermview,

and strong client relationships based on trust...but in today’s economic climate family

businessesacknowledgetheywillhavetoadaptfaster,innovateearlier,andbecomefarmore

professionalinthewaytheyruntheiroperations’(GlobalFamilyBusinessSurvey,2014:5).

III.2.ImportanceoftheFBintheCountriesInvolvedintheINSISTproject

ProvidingstatisticalevidenceontheroleandtheweightoftheFBinthenationaleconomies

surveyedintheINSISTprojectisratherproblematic.Thesedifficultiesarepartlyduetothe

lackofconsentregardingthedefinitionofaFBandpartlyduetothelackofsystematically

collecteddatacoveringtheprocessofsuccessioninthenewmemberstatesintheEU(see

sub-sectionII.1.).AsoneofthekeyAustrianexpertsofFBnoticed‘onbusinesstransfersand

successions – this seems to be an ‘on and off’ topic of the Commission. They have an

6 Ford, H. (1925) Ma vie et mon oeuvre, Paris: Payot,

18

establishedexpertgroup,whichwasveryactiveintheearlytomid-2000s,theninmyopinion

notactiveatall,butrecentlytherewasactivityagain’(Mandl,2015).

InHungary, there isnosystematicdatacollectionontheFB.Usingtheexperts’estimation

morethan70percentofthefirmsemploymorethaneverysecondworker.Familyandsingle

ownerfirmsrepresentmorethantwothirdsoftheSMEs(Petheő-Filep,2008:3-4).Ingeneral

the FB’s contribution to the economy is identified by the same indicator as for SMEs. In

addition,wehavetomentionthatthereisgrowinginternationalisationinthissectortoo.FB’s

presence in the internationalmarketsbelongs to the categoryof the traditional industrial

sectors(e.g.ZwackUnicumCo.Ltd.inthebeverageindustry,WeberLtd.inthetransportation

etc.) and in such high-tech sectors as IT (e.g. Kürt Ltd in the data security and recovery

technology,etc.).

PolandhasbetterrecentstatisticsontheroleandcompositionofFBsandtheirassociations

havemorediversifiedstrategiesintheirinterestrepresentationpolicythaninHungary.The

amountofPolishfamilyfirmsissimilartotheHungarianones:itrangesbetween70and80

percent.78percentof thembelong intothecategoryofmicro-,smallandmediumsized

enterprises(SMEs).FBsproduce10percentofthePolishGDPandemployonly21percentof

thePolishworkforce.InrelationwiththeinternationalisationofFBs,thepatternisalsorather

similartoHungary.Duetotheirsmallsize,agreatmajorityofthemfocusonthelocalmarket

and are content to offer products and services locally. However, Poland has several large

internationalplayers in theFBsector.Amongothers, it isworthmentioningthe following:

Mokateincocoaandcoffeedrinks(Mokryszfamily),manufacturing:plasticwindows(Placek

family)andintheautoindustry,theSolariscity-busmanufacturer(Olszewskifamily)which‘...

producesapproximately1300busesyearlyandthecompanyexports80percentofitsoutput’

(Surdej,A.2015:15).

Incomparisonwiththeformertwotransformationaleconomies(HungaryandPoland)where

thefamilybusinessstartedtodevelopinallsectorsoftheeconomyfromthe1990’sfollowing

almosthalfacentury“break”followingWWII, intheUKtheFBsector ismorematureand

statisticallymore systematically surveyed. (However, due todifferentdefinitions, research

and methodological tools these surveys produce the results are often non-comparable,

especiallyforalongertermperspective).AccordingtothesurveyoftheInstituteofFamily

Business(IFB)(2011),thissectorrepresentstwothirdsofallfirmsintheprivatesectoranda

19

greatmajorityoftheFBs(96.5percent)belongtothecategoriesofself-employedandmicro

firms.Inconnectionwithemployment,theFBemploysmorethantwofifths(40percent)of

theprivatesectorworkforceintheUK.Asasector,wemaysaythatinthefollowingactivities

FBsrepresenthigherasharethanthenationalaverage:“realestate,rentingandbusiness”,

“construction”,“wholesaleandretailtrade,repairs”,“manufacturing”,“agricultures,hunting

& forestry; fishing”, “hotels / restaurants” and “financial intermediaries”. The lowest –i.e.

lowerthanthenationalaverage–concentrationofFBsare insuchactivitiesas“transport,

storage & communications”, “other community, social and personal service activities”,

“education”and“healthandsocialwork”.

III.3.SuccessionasoneoftheKeyFactorsintheRestructuringintheFB

‘Data from the fifth EuropeanWorking Conditions Survey (EWCS) show that the share of

employeeshavingbeenaffectedbysubstantialrestructuringorreorganizationwithinthelast

threeyearsincreaseswithestablishmentsizeclass.Whileabout23%ofemployeesworkingin

microworkplacesand33%ofthoseemployedinsmallworkplacesreportrecentrestructuring,

the share is almost 60% for largeworkplaces’ (Mandl, 2013: 31). Ifwemakeadistinction

betweentheexternaland internal factorsresponsible forrestructuring intheSMEsand in

particularintheFB,wemaysaythattheexternalfactorsarerathersimilarforbothlargefirms

and SMEs. These commonexternal factors vary from changes in demand to technological

progress and global competition.However, the internal factors such as trans-generational

changes and implementing new managerial concepts and strategies stemming from the

successionprocessareratherspecifictotheFB.

Accordingtothelatest(2007)PwCstudy,surveyingoneandhalfthousandmanager/owners

in28EUcountries,almosthalfofthemhavetofacetheproblemsrelatingtosuccessioninthe

nearfuture.AstheUKreportstresses:‘successionissettobecomealargerissueasthe‘baby

boomer’ generation reaches retirementageover thenext fewyears” (Devins, 2015:11). In

Poland,accordingoneof the latestavailablepapers,almosttwothirds (58%)ofSMEsare

facing the issues of business transfer to thenext generation (NxG)’ (Kowalewska, 2011, in

20

Mandle,2013:17). In relation to theHungarian situation, it isworthmentioning the latest

informationoftheNationalMinistryoftheEconomy,accordingtowhichatleasthalfamillion

FBhavetoconfronttheprocessofsuccessioninthenearfuture.

21

IV.CharacteristicsoftheSuccessionProcessintheFB

IV.1.Social-culturalFeaturesoftheFB:specialfocusonthefounderrole

inthesuccessionprocess

IV.1.1TheCulturalInfluenceofLeadersinFBs

To understand the founder’s role in the succession process a retrospective standpoint is

worthwhileconsidering,namelywhatistheirroleincreatingtheorganisationanditsculture.

The role of the leader in any organisation has the opportunity to influence the corporate

culture.Thisisachievedbydefiningbehaviouralnormsanddecisionmakingmethodsaswell

asthroughdecisionswhichaffecttheorganisation’svaluesystem.Itseemsveryevidentfrom

the perspective of this research that founders of FBs can have a definitive impact on the

cultureoftheestablishedenterprise(Schein,1983;TriceandBeyer,1991).

PolicydiscoursealloverEuropeemphasisespoormanagementand leadershipskills in the

economyandparticularlyamongstSMEsandby implicationfamilybusinesses.TheLondon

SchoolofEconomicsWorldManagementSurvey(Bloometal.,2012)arguesthatonaverage

acrossmany countries, family businesses are theworstmanaged type of business. Other

researchers such as Bacon et al (2013) suggest a lack of skills associated with Human

Resources,especiallyregardingtheuseofbestpracticewhenfamilybusinessesarecompared

with non-family businesses. Whilst it may be tempting to make generalisations about

owner/manager personalities, skills or leadership styles it is important to recognise the

heterogeneitythatexistsamongstfamilyfirmsandthewidercontextsocio-economiccontext

thatinfluencesthecultureoffamilyfirms(Devins-Jones,2015).

Thebasisfortheleader’sshapingoforganisationalculturecanbethreefold,especiallywhen

foundingabusiness:

Leadersarerolemodels

22

Foundersasleadersexhibitthebehaviouralnormsintheeyesofthemembers.Consciously

or unconsciously they serve as rolemodels. The espoused values are sanctioned by their

actionsandbehaviouronadailybasisandthusbecomingbeliefssharedbyeverybody.

Leader’sdecisionsexplicitlyinfluencethevaluesystemoftheorganization

Herethosedecisionsareconsidered,whichcanserveasguidelinesforthemembersofthe

FBs,suchastherewardsystemandpersonalrecruitment.Whereastheleaderasarolemodel

canonlyinfluencethecultureimplicitly,withtheuseofthesedevices(s)heisabletoactively

guidethenormsandsharedvaluesinthedirection(s)hedesires.Bothleadershipinstruments

arefurtherdiscussedinthisstudyascriticalelements,inthecaseofFamilyBusinesses.

Thewaysdecisionsaremadebytheleader

Theapproachestodecisionmakingcouldbedefinedasexpectations,butcanbebuiltinas

methodstofollowaswell.Theirimportancecouldbetraced,whenthesemethodsoutlastthe

leaderandcanserveasasupportorconstraintforthesuccessorindecisionmaking.Decisions

regardingthechangeofstrategyandstructurearelikethat,andassuchhaveanenormous

influenceonshapingtheculture(Nahavandi–Malekzadeh,1993).

Further refining the cultural influential role of leaders, García and López (2001) set up a

classification of entrepreneurs’ habits taking their values and norms into account, which

dominantly influencethegoalsandstrategyandthereforecultureofFBs.Theirtypology is

basedontwostructuraldimensions:1.businessvaluedimension(firmvsfamilyorientation)

and2.psycho-socialvaluedimension(selfvsgrouporientation).

The above two dimensions can be found in the INSIST case studies, where themotifs of

founderswererathersimilar,butthevaluesofleadershipvarysignificantly.Inthebusiness

valuedimension,thetwoPolishcasestheideaofentrepreneurshiphasbeenafocalfamily

valuethroughgenerations.AtDOMEX,thereal-estatejointstockcompany,themotherofthe

founderhas ‘...alwaysemphasized toher son, theethosofentrepreneurship’ (Konopacka,

2015:3).

23

InthecaseofWITEK,thePolishfamilyholding,despitethestatesocialistsocialenvironment

‘...entrepreneurship has always been a part of the family’sway of life...they believed that

everyoneshouldmakehisorherownlivingandtaughttheirchildrenaworkethosfromtheir

earliest years, involving them in the family business. As the doyen of the family, Karolina

adoptedthemodelusedbyherparentstobringupherownchildren’(Konopacka,2015:1).

Thesecondpsycho-socialvaluedimensioncanbeseenintheHungariancasesofFEINandalso

BI-KAAlthoughtheentrepreneurshipvaluecanalsobetracedbacktotheancestorsofthe

founders,theirpresentinnerdriverseemstobeincreasinglyaregionalfigureheadrole(ie.

self),withallthesocialresponsibility(Gubányi,2015;Kiss,2015).InFein’scasethe‘...founder

manager is doing his best to integrate himself into the region and to gain trust from the

members of the region ‘(Gubányi, 2015:6).Also in the seconddimension, theUK cases of

PODIUMandPARODANdemonstratethevaluesof‘familiness’(i.e..group)embeddedbythe

founders (Devins-Marran, 2015; Wymer, 2015). However it is important to argue that

seeminglycontrastingvalues,caneasilybepresentandin-useinthefamilybusinessesand

serveasinformalregulations,whereproceduresarenon-existent.

IV.1.2.TheSocio-EmotionalDilemma:FormalDevelopmentProceduresorLoyaltyBased

HumanProcesses

Positiveemployeerelationshipsappeartobeanoutcomeoftheapproachtoleadershipthat

is a characteristic of many family businesses. Long-term business sustainability requires

retainingwell-trained staffwhobuy into the business and feel a sense of engagement or

'ownership'andsharetheobjectives(andsuccesses)ofthefamily.Thisrequiresthefamily

owners to recruit carefully, so the employees fit in with the team and the ethos of the

business,andtreatthestaffwelltoreinforcethesevalues.agreatercommitmenttotraining,

astrongertendencytoretainemployeesduringadownturn,higherwagesorlong-termnon-

pecuniarybenefitssuchashealthinsurance,andasmallersalarygapbetweenemployeesand

owner-managers(MillerandLeBreton-Miller,2005).

‘The empirical research by Baskiewicz and Nizialek (2014) has identified the differences

betweentheorganizationalculturesoffamilyandnon-familyfirms.Theemployeesoffamily

24

firmspointedtothepossibilityofabroaderspaceofself-development,initiativeandopenness

thaninnon-familyfirms’(BaskiewiczandNizialek(2014;inSurdej,2015:22).

Emotionsarerelatedtotheproblemof intra-familycommunication, -andespecially inter-

generationalcommunication-regardingthecommitmentofthefamilytothefirmandthe

prospectof succession.Qualitative studies show thatPolish family firmshaveproblems in

developing a perspective for future generations and are not especially efficient in

communicatingthevisionandstrategy.AsseenintheDOMEXcaseinPoland,thefounder

leader ‘plans to pass the operationalmanagement of the company to his successors, and

remain involved only in strategic decisions’ (Konopacka, 2015:5). The founder views

successionasanevolutionaryprocess,wherepatienceisbadlyneeded.

‘The empirical research shows that the employees of Polish family firms expect standard

benefits:decentsalaries (satisfactorysalaries), securityofemployment, including indefinite

periodsofemployment.Thatisthewaytheyappreciatebeingemployedwithindefiniteperiods

listedintheemploymentcontracts,whichgivethemathreemonthlicensingperiodandnota

licensingfromdaytoday.Infamilyfirmstheyalsolikeafriendlyenvironmentandinformality’

(Brzezinski,2014;inSurdej,2015:24).

Aspreviouslyarguedontheleader’sculturalshapingroleofdecisions,Sułkowski(2006)also

‘…stresses the fact that the remuneration rules in family business are shaped not only by

narrowfinancialcalculations,butaboveallbythevaluesystemoftheowner,hisperception

ofthesocialmission,hisresponsibilitytowardsotherfamilymembersandexternalemployees’

(Sulkowski,2006;Surdey,2015:25).

The contradictory dimension of FBs’ development has always been the dimension of

formality/informality.Largerorlongerfunctioningfamilyfirmshaveremunerationcodeswith

regardtoallemployeesandtheyevenextendsuchcodestofamilyemployees.Asmentioned

in the previous section as a criticism of FBs, small and younger family firms treat family

employeesandnon-familyemployeesdifferently,whichmightsubvertthefunctioningofthe

firm. The consciousmove from the informal loyalty- based culture to a formal efficiency-

basedoneisgeneratedbysecondgenerationsuccessorsasseeninthecaseofFEINwinery

(HU)andPARODANconstruction(UK),wheretheinternationallyexposedandwell-educated

children,usuallywithanMBA,striveformoreformalbusinessmodeldevelopmentincontrast

25

totheirparents’views.Inthesecasesthefocalvaluesoftheenterpriseareatstakewiththe

succession (Devins, 2015; Gubányi, 2015). As the successor manager Paul argues at

PARODAN:‘Wearemakingthatshiftfromowner-ledandmanagedtobeinganenterprisewith

aformalstructure,reportingandprocesses.Oncewe’vegotthatundercontrolthenetprofits

willincreaseandwecanexpandfurther’(Wymer,2015:6).

Thephenomenaofintertwinedspheresoffamilyvs.businessiswellrepresentedinallINSIST

casestudies‘…employeesoffamilyfirmspointedtotheproblemofequaltreatmentandequal

opportunitiesbetweenthemembersoftheowner’sfamilyandotheremployees.…inthefamily

firmsthewholefamilyendurestheproblemsofthefirmanddiscussesbusiness issuesover

breakfast, lunchanddinner’(Surdej,2015:22).Thelackofseparationofbusinessvs.family

timeseemsasmuchstrengthasaweakness.

ConsideringHandy’s(1993)organizationalculturaltypology(i.e.power,role,taskandperson

cultures)thepowertypecultureseemsthemostoccurringprevalentinFBs.Thiscultureis

bestillustratedasaspider’sweb.Theculturedependsonacentralpowersource,namelythe

leaderwhoisstillintenselypresentallthetime.(S)heisthecentralfigurewhoisconnected

totheotherpartsofthewebbyfunctionalorspecialistthread.Theorganizationverymuch

dependsonthepersonaltrustandbeliefsineachother,andintheleaderasaneffectiveand

competent person. There are few rules and procedures and not much bureaucracy. The

controlisexercisedbytrust,withchoosingthefamilyornon-familypeopleforthejobs.Such

power cultures arebasedonpridewhich is earned fromall the success the companyhas

achieved.Thebasics forthis feelingareestablished intheearlydays,whenthehandfulof

employeeshadbeenworkingovertimealmostconstantly.Hencetheespritdecorpshadbeen

developed.Originalmembersoftheorganization,whostartedtheir jobswiththefounder,

feelprivileged.Thisisclearlyanemotionalchallengeforthesuccessor,bes(he)afamilyor

non-familymember.Thebiggestdisadvantageofthiscultureisitssizewhichcanbecomethe

biggestconstrainttoformalorganizationaldevelopment.Thisculturelimitsthegrowthofthe

organization mainly because of the figure-head role of the leader. (S)he still has the old

organizationinmind,wheneverythinghasstartedandlifeatthecompanywasmuchsimpler

becauseoffeweremployeesandadifferentsocialandbusinessenvironment.Encouragedand

provedbythepastsuccesses,theleaderexpectsthesuccessortousethesameleadership

26

practices.Theorganizationoftenoutgrowsthefounder-leaderwhostillwantstocontrolall

processesfrommarketingtofinanceandmanufacturing.

IV.1.3.Thefounder’sParentingvs.Mentoringroleinthesuccessionprocess

Thereseemstobeaconsensusthatthefounderofabusinesshasaresponsibilityandarole

toplayinpreparingforsuccession.Havingasuccessionplanisafirstandimportantstepbut

one obstacle to thismaywell be the original business founder. Craig andMoores (2005)

suggestthatwithoutsuccessionplans,professionalizationofthefirmisseriously inhibited.

Thusinternalprocessesforfamilybusinesses(likeallbusinesses)mustbeincludedinstrategy

development. Arguably, what makes internal processes, particularly changing these

processes,more problematic in family businesses is the influence of the founder and the

preparationforsuccession.

‘To achieve effective inter-generational succession, there must be a balance between

'parenting'(i.e.apersonalapproach)and'mentoring'(i.e.amoredetached,business-focused

approach).Howevertheevidenceismixedwhenitcomestowhethertheprocessworksbest

whenthementorisafamilyornon-familymember’(DistelbergandSchwarz,2013,inDevins-

Jones, 2015:16).Mentoring as amajor assetwas demonstrated in the PODIUM (UK) case

where mentoring leadership has been institutionalized in the organisation even after

succession(Devins-Marran,2015).

AgreatrangeofconsciousplanninghasbeenobservedintheINSISTcasestudies.Atoneend

ofthescaleWAMECH(PL)where,duetodecadesofentrepreneurialgenreandself-reliance

embeddedinthefamily,allchildrenstartedtheirownbusinesssupportedbythefounderin

ordertodiversifythefamilyholding(Konopacka,2015).Anotherpositiveexampleseemsto

betheBI-KAcaseinHungary,wherethefounderhasretiredfrommanagementataveryearly

age(47years),andpassedthemanagementtoawell-mentorednon-familymemberofthe

managementteam(Kiss,2015).Attheotherendonthescaleofconscioussuccessionplanning

seems to be the QUALITY MEAT and the above-mentioned DOMEX case, where actual

successionisstillunplanned(Szentesi,2015;Konopacka,2015).

27

IV.1.4Challengesrelatingtothemultiplerolesofsuccessorsinthesuccessionprocess

Oneof thebiggest challenges facing the founderormanagerof the familybusiness is the

choice of the successor. ‘Lewandowska (2013) looked at the succession process from the

perspective of potential successors. The following problems occurred from the successors’

pointofview:

• An unwillingness of the incumbent founder/owner to talk about the succession

prospects,whichnegativelyimpactsonthemotivationofthepotentialsuccessor;

• Thisleadstothefeelingofbeingsuspendedandforcedtowaitforanunspecifiedperiod

;

• Thelackofaformalsuccessionplan;

• The perception of a lack of trust in the successor’s capabilities on the part of the

owner/founder;

• Thelackoffreedomtoindependentlyactasthepotentialsuccessorisovershadowed

bythefounder/owner;

• Thelackofhopeineventuallygettingthepowertomanagethefirm’.(Lewandowska,

2013;inSurdej,2015:22-25).

TherewasnotasinglecaseinanyoftheINSISTcasestudieswhere,equalrolescouldbefound

amongstthepotentialsuccessors.Themotifsweredifferent,althoughitseemsthatoneof

thecases,onlyoneofprogenieshasthemotivation,skillsandendurancetobecomethereal

successor.ThisphenomenaweremostevidentlytracedatFEINWinery(HU),PODIUM(UK)

andWAMECH (PL) (Gubányi, 2015;Devins-Marran, 2015; Konopacka, 2015). Involvement

variesthoughthroughouttheINSISTcases,fromsuccessorsbeingabsolutelydetachedfrom

the family business (WAMECH), through being contracted suppliers of services (FEIN) to

becoming Managing Directors and having brothers/sisters in other functional managerial

positions(PARODAN)(Konopacka,2015;Gubányi,2015;Wymer,2015).

28

Thedilemmasofthenextgenerationareakeyissueidentifiedintheliterature.Likebusiness

founders,successorsarealsoaccusedofbeingtheprimeculpritsinsuccessionfailure.Some

successorsareaccusedoflackingtheabilitytoreplacebusinessfounders,usuallybecauseof

a lack of suitable experience or an appropriate attitude towards taking over ownership.

ResearchundertakenbyKrausetal.(2011)suggeststhatsuccessorsarealsoplayingmulti-

entityrolesinthesuccessionprocess.Withoutknowing,quiteoftensuccessorsareexpected

to takeonthecombinedroleofa filial sonordaughter,experiencedbusinessowner,and

professionalmanageretc.Furthermore,fromthesuccessor'sperspective,manyofthemwant

toplaytheroleofanambitiousowner-managerandtobeincharge,whileatthesametime

wanting their parents to keep an eye on the business. With these mixing and often

contradictory roles to play and expectations to meet, it is an extremely difficult, if not

impossible,taskforsuccessorstopleaseeveryone,includingthemselves.Krausetal.(2011)

conclude that it is important for successors to bewell aware of their different roles and

conflictingexpectationsinthefamilybusiness.

The inability on the part of the founder to let go, and the difficulty for the successor of

operating in the shadow of the founder lead to conflicts, especially in second generation

businesses (Davis and Harveston, 1999; Bjornberg and Nicholson, 2012; in Devins-

Jones,2015:).Theabove-mentionedmultipleroleswerelessexplicitlyexpressedintheINSIST

cases,whereasthefounder’schallengeoflettinggoareimplicitlypresentinmanyofthecases,

likeQUALITYMEAT(HU),DOMEX(PL),WAMECH(PL)(Szentesi,2015;Konopacka,2015).

IV.1.5TheFamilinessimpactinthesuccessionprocess

Theprocessofsuccessioncanbethoughttoencompassthreedistinctstages(Stavrouand

Swiercz,1998): (i)pre-entry,wherethedesignatedorpotentialsuccessor(s) ispreparedor

'groomed'totakeover;(ii)entry,involvingtheintegrationofthesuccessor(s)intobusiness

operations;and,(iii) finally,promotiontoamanagementposition.Asmost INSISTcasesto

someextentaresuccessstories,itcomesasnosurprisethattheabove-mentionedthreestage

processwascompleted,thoughwithdifferingdegreesofmindfulnessandtransparency.

29

TosomeextenttheIFBresearchprovidessomeguidelinesandinsightsintowhattodoand

what not to do to support successful intergenerational transfer (Nicholson and Bjornberg

2007).Thereisalmostuniversalagreementthatawell-developedsuccessionplanisseento

becrucial(Sharmaetal.2001)insuccessfulintergenerationaltransferandsuccessioninthe

familybusiness.Goodpracticeincludespreparingthenextgenerationassoonaspossiblefor

succession,cooperationtodevelopandagreeaformalisedsuccessionplandevelopedwith

all family business stakeholders (including influential non-familymembers) and theuseof

experts, often external to the business, to navigate the complex and uncertainwaters of

relationshipsbetween familymembers, visionsandvaluesaswel as the reluctanceof the

oldergenerationtostepaside(Lansberg,1988,Sharmaetal.,2001).

WhatseemstobecommonintherelativesuccessstoriesoftheINSISTcases(PARODAN,FEIN)

is that, the founder(s) consciously educated their children for the expected leader role

(engineering/viticulture and/or business studies) and made them gain work experience

outsidethefamilycompanybeforehand(Devins,2015;Gubányi,2015).Inmostcaseswhere

in-companydevelopmentwas carried out, e.g. PODIUM (UK), child(ren) hadbeen rotated

acrossdifferentjobsandlevelsofoperationthroughouttheirlearningprocessoveranumber

of years. In the latter case the rare occurrence of external consultants in the succession

processprovedtobeasuccessfactor(Devins-Marran,2015)

As Morris (1997:386) noted, 'family business transitions do occur more smoothly when

successorsarebetterprepared,whenrelationshipsamongfamilymembersaremoreaffable,

andwhenfamilybusinessesengageinmoreplanningforwealth-transferpurposes' (Morris

1997;inDevins-Jones2015).

Polish entrepreneurs differ in their awareness of the succession problems. Some, more

mature,startthinkingaboutitandtrytodesignthepathbestsuitedforthem.Othersdelay

thinkingandpreparations.Noprecisedataexistsastothedistributionof features(Surdej,

2015).TheIFBguide(Drake,2009)suggeststhatitisintheinterestsofsuccessors(andthe

employer)toensurethattheemploymentrelationshipisconductedinthesamewayasthe

relationship with non-family members. ‘Familiness’ as a major asset ensures these fair

relationshipsinthecaseofPODIUM,whereaccordingtothesuccessor‘…therewereanumber

of other family groups represented in the business: employees who were mothers and

30

daughters,siblings,cousinsorhaddifferentfamilytiesworkedacrosstheorganization,helping

toreinforcethat'familyfeeling”andthisaspectoffamilinessappliestoeverybody.AsPaulat

PODIUMhasargued:“…peoplehavelivesoutsidethebusinessandthesecanhaveanimpact

upon thebusiness life…Wewill helpand supportpeoplewherewe can.’ (Devins-Marran,

2015:7)

IV.1.6Thesupportingroleofstrategicmindednessinthesuccessionprocess

Many of the inhibitors and enablers of the succession process are discussed in multiple

sections of this review.What seems evident from the literature is that effective strategic

planning is clearly onemeans to enable successful transition (Devins- Jones, 2015).What

seems a clear inhibitor from the INSIST cases is the lack of planned succession, which

sometimes was tagged as ‘organic’ (PARODAN, FEIN) or ‘evolutionary’ (Wymer, 2015;

Gubányi,2015).

Anotherseriousconstrainttothesuccessioncanbethefoundermanagerhim/herselfasa

paternalist leader, be it even ‘enlightened paternalism’ as is argued in the DOMEX case

(Konopacka,2015:5).Asopposedtotheparentingroleofthefounder,thementoringworkof

externalconsultantsunquestionablyservedaseffectivesupportforthesuccessors(Davins-

Marran,2015).

Forcasesatthestrategicandmanagerialleveltherewasalreadyaseparationbetweenthe

‘parentsandchildren’,ortheownerandthesuccessors,howeverthepresenceofthefounder

canseriouslyinfluenceeverydayswork(Konopacka2015).

Whatseemtobesignificantenablersfromthecasesaretheconsciouseducationandtraining

of the successor, regardless ofwhether they are family- or non-familymember (Parodan,

2015; Gubányi, 2015; Kiss, 2015). This includes formal education for gaining a wide

internationalperspective,ashappenedincaseofFEINWinery(Gubányi,2015)andalsoin-

companyintegrationthroughouttheyearsasinthecasesofPARODANandQUALITYMEAT

(Szentesi,2015).Inthiswaythesuccessorseemsanaturalchoiceforthenon-familymembers

aswellandtheculturalshockinrelationtofittingintotheorganisationalcultureisdecreased.

31

IV.2.„Survivability”oftheFB:Transferabilityofthe„Socio-Emotional

Wealth”(SEW)

IV.2.1.IntroductoryremarksontheconceptofSEW

Thisconceptstressestheimportanceofthenon-financialoutcomesoffamilymembersfrom

thebusiness and ‘... familymembers are said toattempt tomanage their business not to

maximize financial returnsbut to reserveor increase thesocioemotionalendowments they

derive from the business...they may work against the interests of non-family owners ...

preservingfamilycontrolof thefirmbyavoidingprofitable investmentsand initiativesthat

wouldthreatensuchcontrol’(Miller–LeBreton-Miller,2014:713).

SEWhasavarietyofoutcomes,bothpositiveandnegative,dependingverymuchonthesocio-

economicenvironmentofthefirm’soperation.Forexampleinastableandslowlychanging

marketcontextaconservativeorriskaverseattitudeandthedriveofthefamilytocontrolthe

business to secure position for the next generation could be beneficial. However, if the

contextisthatcompetitionisintense,pricepressureisconstantandtechnologicalchangeis

speedingupthenthisconservatismbecomes“dysfunctional”andmayresultinthe“strategic

stagnation”(Bertrand-Schoar,2006)ofthecompany.Inaddition,motivesorprioritiesofSEW

mayresult-especiallyinthelongtermperspective–insignificantpositiveoutcomes,suchas:

“...careforreputationinthecommunityandthussolicitoustreatmentofstakeholdersmay

createloyalpartnerswhocanactuallyhelpenhancefinancialperformance(Miller–LeBreton-

Miller,2014:714-715).

TobetterunderstandthevariousoutcomesoftheSEWidentifiedinthecompanycasestudies

oftheINSISTproject,itwouldbeproductivetouseMiller–LeBreton-Miller’s(2014)approach

whichmakesadistinctionbetweenthe“narrowandshort-term”and“broaderandlong-term”

dimensionsofSEW.Thefollowingtablesummarisesthecharacteristicsofboth“restricted”

and“extended”SWE:

Table4.ContrastingRestrictedVersusExtendedSEWPriorities

RestrictedSEW ExtendedSEW

32

TypicalSEW

priorities

Permanentjobsecurityandaccess

tobusinessresourcesforall

currentfamilymembers

Long-termwell-beingofmotivated

latergeneration,ableandwilling

tonurturethefirm

Focal

stakeholders

Immediatefamily Thefamilyovertime,thebusiness

andallitsstakeholders

Related

theories

Agencyandbehaviouralagency

theory,familyaltruism

Stewardshiptheory,stakeholder

theory,sustainability

Governance

arrangements

Familydominatedleadershipand

governance–regardlessof

capability

Competent,motivatedfamily

membersonly;balancebetween

familyandnon-familyexecutives

anddirectors

Strategic

outcomes

Strategicconservatismor

stagnation,sparseinvestmentin

thebusiness,riskversion,family

extractionoffundsfrombusiness

Generousinvestmentinproducts

andprocesses;continuous

reinvestmentinthebusinessand

itsrenewal

Commercial

outcomes

Inferiorgrowthandlongevity Superiorgrowthandlongevity

SEWoutcomes Nepotism,entrenchment,family

controloffirm

Familyprideintheiroffering(s)and

relationswithstakeholdersandthe

community

Source:Miller–LeBreton-Miller,2014:717

IV.2.2.SEWandattitudesoftherisk-taking:dominanceofthepro-growthFB

Attitudesoffamilyowners/managerstowardsthegrowthpotentialofthefirmrepresenta

corepartoftheliterature.Theseattitudeshaveanimportantimpactonthe“survivability”of

the FB and are rather often underestimated in the complex and long-lasting process of

succession. In relation to this, it isnecessary tomention the“loss”averse” / “riskaverse”

attitudeofFB,whichisreflectedinentrepreneurialbehaviour‘...toscrutiniseopportunities

33

verycarefullyandeschewdiversificationintothenewmarketareas,unlesscloselyrelatedto

theexistinglineofbusiness’(Devins,2015:23).Thislossaverseattitudedependsverymuch

onthescaleofresourcesavailablefortheentrepreneursandonthecompetitivepressure.

Thisvigilante,lossaversebehaviouroftheowner/foundermayresult–intheshortrun-in

growth- and innovation-resistant behaviour. However, from a long-term perspective this

“anxiousvigilance”shouldbe interpretedassupportingthewell-prepared,evidence-based

and tested exploitation of the opportunities via growth and/or innovation. Reviewing the

companycase studies,wemay identify thediversityof this “anxiousvigilance”or,usinga

moreappropriateterm,“patientcapitalist”attitudesofFBshapedbytheSEWprioritiesof

varioustypesofentrepreneursandgenerations.

Besidethisgeneralpatternfoundintheliterature,itisworthcallingattentiontothefollowing

twobroadcategoriesofentrepreneurs:‘opportunity’versus‘necessity’entrepreneurs.Inthe

caseofthe“opportunity”entrepreneurs,the‘...mainmotifisthedesirefor‘independence’

andadesireto‘workforthemselves’(Mascherini-Bisello,2015:13).Intheothercase,theso-

called ‘necessity entrepreneurs ... are pushed into entrepreneurship because they have no

otheremploymentoptions’(Mascherini-Bisello,2015:13).

IntheINSISTprojectcountrieswemayidentifyvisibledifferences intherateof ‘necessity’

versus ‘opportunity’ entrepreneurs betweenHungary, Poland andU.K. Due to the radical

political-ideologicalandeconomicchanges i.e. theshift fromstate-socialismtothemarket

economyinthetwotransformationalcountries,alargesegmentoftheworkforcethatwas

formerly employed by the state or cooperative owned firms lost their jobs and became

unemployed.Thesepeoplebecamethe‘forcedentrepreneurs’.Bothinthepastandpresent,

thispatternofentrepreneurshipexistsbutitsprevalencedependsverymuchontheradical

changesinthelabourmarketcreatedbyintensivecontinuousre-structuringintheeconomy.

Lookingatthepercentageof“necessityentrepreneurs”inthethreecountriessurveyed,their

shareinthegroupoftheadultentrepreneursismuchhigher–almostdouble–inHungary

andPolandthanintheU.K.Comparingthegroupsofadult(35-64years)andyoung(18-34

years)entrepreneurs,thedifferencesremainbetweenthesecountries.Surprisinglyenough

thereisarelativelyhighamountofyoung“necessityentrepreneurs”inPolandincomparison

eventoHungary.Inthecategoryofadults,theshareof“necessityentrepreneurs”inHungary

34

andPolandissimilar.HoweverintheU.K.theshareofthiscategoryofentrepreneursisbelow

theEU-28average,asshowninthefollowingtable:

Table5.TheShareof‘Necessityentrepreneurs’intheINSISTCountries-2013

Countries 35-64yearoldentrepreneur 18-34yearoldentrepreneur

Hungary 37% 23%

Poland 38% 42%

U.K. 21% 14%

EU-28average 28% 17%

Source:Mascherini-Bisello,2015:14

Whenconsidering“necessityentrepreneurs”,itisnecessarytomakedistinctionsinthecase

of Hungary and Poland between the generationswho started FB in the aftermath of the

collapseofstatesocialismatthebeginningof1990’sandthenewgenerationwhoischoosing

the carrier of an entrepreneur in the FB due to disillusionment with the other types of

employment (e.g. working at large public or private firms with insufficient autonomy or

promotionopportunitiesetc.).

Thecaseof theHungarian foodprocessing (QualityMeatLtd.)andthePolishconstruction

companies (Pillar Ltd.) illustrate well both the first and second type of “necessity

entrepreneurs”.Inthefirstcase,theowner-founderlosthisjobattheagriculturalcooperative

duringtheearlymassprivatisationmovementthattookplaceintheearly1990’s,Inthesecond

casetheoldersonofthePolishPillarconstructioncompanyowner/founderwasdissatisfied

with the employment practice at an international company operating in Poland. ‘My old

workplace,theco-operative’sslaughterhouseandmeatprocessingplant,closeddown.ButI

did not want to be in others’ employment. I thoughtmore ofmyself than to give upmy

independence.MywifeandIhadalittlemoneysavedandwestartedourmicro-enterprisein

1992’(Szentesi,2015:5).InthePolishconstructioncompanycase,theoldersonbelongingto

thesecondgenerationofentrepreneurswasdissatisfiedwiththelargeinternationalcompany

employmentpracticeandleftitforthefamilyfirmofhisparentsandbecameasuccessortoo,

alongsidetheyoungersonwhohadpreparedtobeentrepreneurfromhischildhood:

35

‘Theownercouple,MartinandHelenafirstrealizedtheyshouldstartconsideringandplanning

thesuccessionwhentheiroldersonstartedworkingforaninternationalcorporationwhilestill

beingastudent.Theyweresurprisedhedidn’ttakeacareerinthefamilybusinessforgranted.

Onlythendidtheparentsdecidetoplanandimplementasuccessionprocess.Theystarted

talkingwithbothsonsabouttheirpossiblefuturerolesinthefamilyfirm.Theseconversations

about engaging them in the future development of the company lasted for two years.

Eventually,thesonsagreedwitheachotherandwiththeparentstoundertakecooperation

withtheirfather.Itshouldbementionedthattheoldersonwasabitdisappointedwiththe

workatthelargeglobalcorporationandthatwasthemainreasonforchanginghismind.In

themeantimehegainedsignificantbusinessexperiencebyworkingforthecorporationand

obtainedanMBAmanagementdegree’(Gorowski,2015:5).

TheriskavoidanceattitudeoftheFB–wheretheowner-founderislabelledasa“necessity

entrepreneur”–relatetotheshort-termperspectiveofthebusiness.However,ifthis“anxious

vigilance” attitude is coupled with a long-term perspective of business, it is not at all

contradictorywiththepossiblegrowthorinnovationstrategy.Quiteonthecontrary,thisrisk

cautiousattitudemayhelp in the carefullyprepared futuredevelopmentof the firm. This

strategy dominates the overwhelmingmajority of the company case studies in the INSIST

project.

Growthorinnovationstrategieswereidentifiedinallthecompanycases–withtheexception

ofHungarianQualitymeatLtd.-.Thegrowthandinnovationdrivenfirmsinthecompanycase

studysamplebelong–withoutexception-inthecategoryofthe“opportunityentrepreneurs”.

ThestrategyoftheseFBfirmsischaracterisedby“longer-terminvestmentinbusiness,rather

thanpursuitofshort-termprofitsfordividends”(Devins,2015:23).

Wefoundwithinthesamecompanycaseexamplesforboth“risk-averse”and“pro-”growth”

attitudesthatreflectedrestrictedandextendedSEW.ThisisthecaseoftheBritishParodan

Engineering,whenthecompanygrewunderthemanagementoffounder/ownerH.Woods,

he ‘... tended toput friendsand familymemberson thepayroll ... this sometimes led toa

mismatchbetweentheskillsrequiredandtheskillsavailableinthebusiness,(but)itdidcreate

averyloyalworkforcewithlowstaffturnoverandstrongmorale’(Wymer,2015:8).Whenhis

sonPaul,thesucceedingManagingDirectortookcontrol,he‘...hasaveryclearvisionforthe

companybasedonincreasingcapacityandprofitability.Heiskeentoensurepeoplearehired

36

fortheirskillsandabilitiesandnotjustbecauseoftheirrelationshiptothefamily...heneeds

toensurehehas the rightpeople inplace to realise theambitiousgrowthplans’ (Wymer,

2015:9).Companycasestudiescharacterisedbypro-growthorgrowthaversestrategiesare

presentedinTable6.

Table6.Companycasestudiesandthetypesofdevelopmentstrategies

Countries Pro-growthstrategy Growthaversestrategy

Hungary BI-KALogisticsLtd.

FeinWinery

QualityMeatLtd.

Poland PlantexCase

PillarLtd.

TheWITEKCentre

TheWAMECHCompanyLtd.

DOMEXLtd.

-

UK PodiumsLtd.

ParodanEngineering

-

Inanothercase,György,theownerintheHungarianBI-KALogisticsLtd.,‘...hasamotto,that

‘ifitisnotgrowing,itisdecreasing’.Hedefined5KPIsthatGabriella(hersuccessorinmanager

general)hastoreachquarterly.Inthelasttwoyears,shehasexceededeventheseambitious

requirements.Incomeimprovedby20%andbusinessresultsimprovedby56%in2013’(Kis,

2015:3).

Asresultofthisgrowthstrategy,BI-KALogisticsLtd.isplanningtodoubleitstransportfleetin

2015.ThePolishPlantexCase,whichwasfoundedatthebeginningof1980’s,ischaracterized

by strong growth performance in the high-tech horticulture sector, too. ‘In 1990,when a

market economy was introduced in Poland, the company started developing more

dynamically.Themilestonesindevelopmentwere:

37

1. 1997-constructionofamodernlaboratoryenablingsterilepropagation,equippedwith

technologicallyadvancedairfiltersandotherhigh-techequipment,

2. 2003–purchaseof3-.5haoflandneartheCity,inVillage

3. October 2008 onwards – implementation of GLOBALGAP®, a certified programme of

qualityassurance.Thisisasystemofoverallgoodagriculturalpracticesaimingtoprotect

thecustomerandenvironment.’(Paszkowska,2015:1).

Agrowthstrategymayfocusongettingandkeepingpositioninthenichemarketofthehigh-

qualityspecialisedproduct.ThisisthestrategyoftheHungarianFeinWinery:

‘FeinWineryhasnoaspirationtoreachadefiniteproportionofrevenuescomingfromexports,

howeverFeinwinescouldbe found in the famous restaurantsacrossEurope like the three

MichelinstarrestaurantFatDuckinLondon.Theinternationalmarketpresenceservesasa

benchmark of quality. Direct orders are built on personal recommendations therefore

reputationandqualityhasahighimportance’(Gubányi,2015:4).

AsimilargrowthstrategycharacterisestheBritishPodiumsLtd.shiftingfromproductsofother

firmstoproductdevelopment,manufactureandinstallation.Asaresultofthenewstrategy

boththeproductivityandprofitabilityofthebusinessimprovedsignificantly.

‘ItwasatthistimethatPaul(ownerandmanagingdirector)developedanewstrategicplan

forthebusiness.Theexternalmarketwaschanging,withfeweropportunitiesfordistributors

ofaccessplatformsandspecifiesofwork.Thiswasbeingdrivenbytechnologicalchangesand

thewideavailabilityofonlineinformationforclientstouse.Paulbegantochangethefocusof

thebusinessfromsalesofothercompanies’productstothedevelopmentoftailoreddesign,

manufactureand installationofspecialistaccessplatformsolutions.Withhissontakingan

activeroleinmanagingtheoperationalpartofthis,thebusinessmovedawayfromsalesand

serviceandPaulbegantoconsolidatethebusiness.Thebusinessbecamemoreknowledge-

intensivewithadesignofficebeingestablishedandthedevelopmentofsystemsforproducing

bespoke solutions nomatter how simple or complex. The result of the change in strategic

direction has been a significant improvement in the productivity and profitability of the

business’(Devins-Marran,2015:4-5).

Riskaverseorstrategicconservatism is locatedontheotherextremepointof thescaleof

SEW. This strategy is represented by the Hungarian Quality Meat Ltd. According to the

38

researcherwhomadethiscasestudy,theriskaversestrategyoftheowner/foundershould

beexplainedbyhisfearoflosingcontrolasthecompanygrowsinsize:

‘...thecompanyhasnoplansforfuturegrowth.They(boththeowner/founderandhistwo

sonsassuccessors)wouldliketokeepthepresentsizeofthecompany...theydonotplanto

opennewshopsinanothertown.Theywouldnothaveenoughtimetochecktheoperationof

the new shop(s) and they do notwant to employ another senior staffmember’ (Szentesi,

2015:4).

IV.2.3.PsychologicalownershipasaspecialmentalrelationshipintheFB

Thepsychologicalownershipreflectsboththeowner/manager’sandthepotentialsuccessors’

wayofthinkingormentaldimensionsinrelationtothebusiness,familyandthecommunity

inwhichtheFBisembedded.Forexample,theowner/founderoftheHungarianQualityMeet

Ltd.stressedseveraltimesduringinterviewstheimportanceofdirectness,honestyandtrust

andhetreatedhistwosonsassuccessorsthroughthislens:

‘IamastraightmanandIexpectitfromothers,too.Thereissomethingofmeinbothmysons.

KárolyJr.istougherandmoreconsistentthanLászló,inwhomIdiscoveredmymoreemotional

side’(Szentesi,2015:12).

IntheBritishPodiumsLtd.casefortheowner/manager,thekeyroleoftheexperiencedand

knowledgeable “core” staff (non-family key employees) and their identity with the firm

becamevisibleduringthedifficultperiodofconsolidationandre-structuringofthebusiness

activity.Thiswasthekeymotifinimplementingan“EmployeeStockOwnershipPlan”(ESOP)

fortheirkeyemployeeswhichoperatesasapowerfulincentivetool.

‘Akeyelementofthisplanwastostrengthenthetieswithexistingmanagersworkinginthe

business…Foravarietyofreasons(notleastachievingeffectivetaxefficiencyfortheowner,

employeesandthecompany)anEmployeeBenefitTrustwasestablishedtotransfer10%of

thebusinesstoeightkeyemployees.Whenthecompanymakesaprofit,themanagersshare

intheprofitequallyunderthisscheme.The“EmployeeBenefitTrust”actsasanincentivefor

managers to help make the business more successful and encourages retention, whilst

maintainingtheprincipleoffamilyownership’(Devins-Marran,2015:4-5).

39

The Polish Plantex Ltd. is operating a highly-advanced micro planting plant, where the

extremelyrichprofessionalexperiencesofthefounder/mangerguaranteethesafeoperation

ofthefirmandatthesametimedemonstratethekeyroleofthefamilytiesinthecollective

learningprocessresultinginastrongprofessionalidentityofthefamilymembers.

‘Thewholefamilyperceivethefamilybusinessasabedrockandsourceoftheirprofessional

identity.That’swhythepositionofAntoni,thefounderandownerissostrong.Notonlyhas

hebuiltasoundbusinessbutthefamilyadmireshimforenormousprofessionalknowledge,

expertiseandwillingnesstoshareitwiththenewgeneration.Hisleadershipstyleisstrongand

individual,buthehasnoproblemswithdelegatingorsharingresponsibilities.Ifthereisany

reluctancetowardsundertakingmanagerialduties,it’sduetothesuccessors’unwillingnessto

takeoverratherthananybarriersonAntoni’sside’(Paszkowska,2015:8).

The Hungarian Fein Winery Ltd. case study is a good illustration of, how the FB firm is

developing awide national-international network and social responsibility to improve the

economic performance of the local economy. Social responsibility is “transferred” and

“maintained” by the familymembers (e.g. wife or, successor son) and not limited to the

activityofthefounder/owners.However,hisexampleisanimportantdriverindevelopinga

strongidentitywiththecommunityofthewinebusiness.

‘Thefoundermanager,Tamáshasbeguntoestablishasocialnetworkandtakeresponsibility

forthelocalcommunityafterfoundingthefamilycompanyin2003.Invariouswinerelated

organizationsthefoundermanagerplaysacentralrole.Anexcellentexampleofthisinitiative

istheso-calledEtalon,ablendoffourwinemakers'winesfromtheregion…’(Gubányi,2015:

6).

IV.2.4.SocialsystemintheFB:advantagesofthetrustbasedrelations

AccordingtotheliteratureoftheFBoneofthemostimportantadvantagesofthefamilyfirms

isthehighlevelofsocial-culturalcontrol–basedontrustrelations–whichbindtogetherboth

familyandnon-familyemployeesinacommonpurpose.7Thetrust-basedrelationsarethe

7 Trust and its anticipated positive impacts became rather popular in recent Hungarian economic literature. However, there are few attempts to develop and use concepts and indicators based on the consent of the community of social scientists. Our knowledge is even more limited on the time-consuming learning process of trust building by social actors in the field investigated (e.g. preparation of the succession process,

40

sourcesoftheexceptionalstrengthofFB,whichoftenhelpthefirminnavigatingduringthe

periodsofsevereeconomicdifficulties.Thus,itisnecessarytoindicatethelonganddifficult

processoftrustbuildingandconsidertherisksassociatedwithitsfasterosion.

Inthefollowingsection,weintendtodemonstrateboththepositiveimpactsofthetrustbased

strongtiesandalsotheirnegativesideeffectsresultingfromaviolationoftrustwithinthe

businesspractice.AccordingtotheexperiencesofPolishFBsfoundintheliterature,‘...close

relatives(e.g.parentsandoffspring)haveheightenedinter-personalemotionsbecausethey

caredeeplyabouteachother’sfeelingsandabouthowtheyareperceivedbyeachother.These

emotionallinkscanpresentadvantagesforfamilyfirms,astheycaninculcateloyalty,mutual

understandingandtrust,buttheycanalso leadtomisunderstandingsandhaveanegative

impactontheperformanceofafamilyfirm’(Surdej,2015:20).

Thetrustbasedstrongsocial-culturalcontrolintheFB–asBritishexperiencesindicate–has

alsoanegativesideofthecoinwhen,“self-conflictingmessages...amongfamilymembers

throughongoingsocialinteraction...givingrisetotheconfusion,frustration,disappointment,

rivalryandemotionaltraumathatiscommonlyexperiencedbybusinessfounders,successors

and other stakeholders, including family members and non-kin employees.” (Devins,

2015:27).

Polish family firms operating in the engineering and metalworking sector, adopted the

followingsocial-psychologicalcontract:‘Thecompanyhasitsowncodeofbehaviourandall

employeessubscribeto it.Thebasicprinciple inthecompanyrelatestotreatingemployees

with respect. This includes providing proper remuneration, opportunities to gain new

qualificationsand support in timesofpersonalhardship. Familymembersare close toand

supportiveofeachother.Allof themsubscribetothevaluesdescribedabove’ (Konopacka,

2015:6).

developing common entrepreneurial actions, etc.). Due to lack of space and time, we intend only to outline some basic characteristics of the trust building process. Tolerance of one another’s interests and endeavours is only one component of trust. „This mutual respect for one another’s interests can be called ’moral competence’. It’s abiding presence along with a second component – the partners’ professional competence, including work discipline – guarantee the long-term advantages of trusted relations. A third dimension of trust was time, which is in effect tantamount to testing the participants’ moral and professional competence and is seen as a period in which relations are based on mutual dependence, as opposed to unilateral dependence” (Kuczi-Makó, 1997:183).

41

UsingtheexperiencesofthePolishliteraturereview,‘...afamilyfirmshouldavoidambiguity

betweentreatingnon-familymembersasiftheyareco-ownersintimesofsacrifices(expecting

fromthemwagerestraints)andtreatingthemasdependentworkers intimesofprosperity

(not sharing with them the benefits/profits)’ (Surdej, 2015:25). This kind of ambiguity of

owner-managers’ expectations in relation tonon-familymembersmaydestroyoneof the

most importantfeaturesofthefamilybusiness:thetrust-basedsocialrelationsandstrong

commitmentofemployeestowardsthefirm’targets,andtheymaybereplacedbyshort-term

financialtransactions.

IV.2.5.SurvivabilityofFB:theKeyImportanceoftheTransferringGenericHumanValuesand

EmbeddedKnowledge

SurvivabilityoftheFBcouldbeinterpretedasasetor‘...acombinationofhuman,socialand

financial capital, working in a way that distinguishes family from non-family businesses’

(Devins,2015:24).

Inidentifyingthevariouscomponentsofthehumanandsocialcapitalitisworthstressingthe

importanceofsuchvaluesasopenness,motivationtodevelopandeagernessto learnand

thereforesupportthebeneficialeffectoflifelonglearninginregardtothesurvivabilityofthe

firm.Thecompanycasesillustratewellhowtheyfunctioninbusinesspracticeinshapingthe

complex and time-consuming process of succession. In the case of the Hungarian BI-KA

logisticsLtd,fortheowner,‘...corehumanvaluesareopenness,learningbehaviour,theneed

for development, respect and humility,acceptance of others,andbeyond thematerialistic

world,howtogive.NowIamabletogive,butforthisIneedamanagementteamwhooperate

thesystem.Iftheyrunthecompanyproperly,Iwillbeabletolivethislifeinlinewiththevalues’

(Kiss,2015:4).

Thecontinuouslearning–formaltrainingand‘learningbypracticing”-aredecisivefactorsin

guaranteeingthesustainabilityoftheBritishPodiumsLtd.too.‘Learninggenerallyplaysakey

role in the sustainability of the business, and Podiums Ltd. supports the professional and

technicaldevelopmentoftheirworkforce,providingtimeoffworktostudyandpayingcourse

fees where appropriate. However, much of the learning is on the job, with coaching and

42

mentoringbypeersand leadersakeyelementofwork-relatedandpersonaldevelopment.

Progression is supported in the business with, for example, welders moving on to design

positionsandshop-floorworkersbeingpromotedtosupervisionandmanagementpositions’

(Devins-Marran2015:6).

Therichtheoreticalandpracticalknowledgeofthefounder/manageranditssmoothtransfer

tothenextgeneration(NxG)ororganisational(collective)learningarethekeyfactorsinthe

successfulsuccessionprocessinthecaseofthePolishPlantexLtd:

‘Knowledge transfer is absolutely the key issue ... Antoni (founder/manager) willingly and

enthusiasticallykeepspassinghisincrediblybroadknowledgetohisfamilysuccessors,while

theyarekeentolearnanddevelopitaswellastheycan.Allthefamilymembershavebeen

taught fromchildhoodandhave itdeeply ingrained in theirmindsthatwhateachof them

learnsorfindsoutbelongstothefamilyandmaycontributetotheirprosperity’(Paszkowska,

2015:9).

In another Polish case, theWAMECH Ltd founding owner ‘...has always underscored the

importanceofsuchvaluesashonesty,reliabilityandrespectforanotherpeople inbusiness

activities.Respectingthesevalueshelpedhimtogainthetrustandrespectofhisemployees’

(Konopacka,2015:6).ArathersimilarvaluesystemcharacterisestheotherPolishcase,WITEK

Centre:‘InKarolina’sfamily,universalvalues,suchasrespectforotherpeople,theirdignity

and opinions, have always been very important. This has helped ensure good relations

between family members, the people managing the companies and their employees’

(Konopacka,2015:5).

PsychologicalownershipmaynotonlystrengthenbothsocialandpsychologicaltiesintheFB

but result in a strong professional identity held by the family members too through the

collectivelearningtakingplaceinthefamily.Thefamilyidentityisfurthercementedbythe

strongtieswithbothprofessionalandlocalcommunities,too.Itisnecessarytocallattention

topositiveimpactsoftheEmployeesStockOwnership(ESOP)schemeamongthekeynon-

familymembers.Accordingtotheexperiencesof theBritish“PodiumsLtd.”company, this

kindofsocialinnovationmayintensifythecommunityfeelingandloyaltyofthenon-family

memberstoo.

43

AllcompanycasestudieswithoutexceptionindicatedthecoreimportanceofSEWfactorsand

thesmoothtransferofgenericvalues(i.e.honesty,openness,correctness,reliabilityetc.)and

knowledge between founder/managers and their successors. These are the assets to be

passedtothenextgeneration:‘...transferringthephysicalentityofthebusinessitselfmaybe

lesscrucialthanthetransferofitscorevalues,suchasentrepreneurialspirit,orofcreating

opportunitiesingeneralforthenextgeneration,whichcanbefacilitatedbythebuildingupof

family(socio-emotionalwealth)throughbusiness...’(Devins,2015:24).

Risk taking or adverse attitudes, psychological ownership, social systems and values and

knowledgetransferrepresentthemultifacetedcharacteroftheSEWthatshapesthecomplex

andtimeconsumingprocessofsuccession.Assessingtheirdiverseoutcomesinlightofthe

company case study findings, it isworth stressing again the role of the radically changing

social-economicenvironmentbothlocallyandglobally.Itisratherriskytoassessbeneficialor

harmfuleffectsofSEWwithoutknowingthecontextofbusinessoperation.Notdenyingthe

well-knowncompetitiveadvantagesoftheFBderivedfromits„patientcapital”nature(e.g.

dominanceofthelongerview,stableclientrelationsbasedontruthetc.)wehavetoinsist

that ‘…in today’seconomic climate familybusinessesacknowledge theywill have toadapt

faster,innovateearlier,andbecomefarmoreprofessionalinthewaytheyruntheiroperations’

(GlobalFamilyBusinessSurvey,2014:5).

IV.3Organisational-collectivelearning:anunderestimateddimensionin

thesuccessionprocess

Infamilyfirmsoneofthemostcriticalfactorswithregardtoeffectivesuccessionisknowledge

transfer between generations. The knowledge transfer is far from being unidirectional;

learning may take place between all generations and within generations, as well. It is

importanttostressitsfairlyinformalcharacterandrelationtothesocializationprocess,e.g.

themainly unconscious incorporation of rules, values, behavioural roles andmodels, etc.

Learning is, however, a complex phenomenon. Besides the complexity of approaches and

theoreticalmodelsLeeatal(2004)callattentiontosomeissuethatareofcentralimportance

44

in the literature. Two of themwill be presented in the following section: the problem of

concept’learning’andformal/informalcharacterofthelearningprocess.

Inthelasttwodecadestwobasicparadigmsoflearninghaveemergedintheliterature.The

standardparadigmof learning (Hager, 2004) describes learning as anacquisition process

(Sfard,1998).Thetraditionalorstandardparadigmhingesontheimplicitassumptionthat

knowledgeisanobjectiveentityexistingexternallytothelearnerwhoisableto„acquire,

internalize,possessandtransfer”it(Sfard,1998:5).Inthelearningprocesssuchknowledge,

concepts, ideas, skills, information, facts,meanings,etc.areacquired thathavenotbeen

possessedbythelearnerearlier.Thismodelputstheemphasisonindividuallearningandon

the rational, cognitive aspects of learning (Engeström, 1999) The acquisition paradigm

stressestheimportanceofabstract,context-independentandtransferableknowledge.Inthe

cognitiveapproachtheintellectual,reflexiveelementsoflearningareofcentralimportance

andthenon-verbal,context-dependentandimplicitwaysoflearningareirrelevant.

Theotherbasic approach to learning is the so-calledparticipation paradigm (’learningas

participation’) (Sfard, 1988, Lee et al., 2004). It is connected to the socio-constructivist

approach of learning and describes learning as a process of becoming a member of a

communityofpracticethroughsocialinteractions(Lave–Wenger,1990,Duguid–Brown,

1991,Lave,1991). Inthisperspective learning isanorganicprocesswhich isoftenanon-

intendedeffectofotherhumansocialactions.Learningtakesplaceinaconcretecontextof

practicalsituationsandisbasedonthecooperationofthedifferentactors(Leeetal.,2004).

Theparticipationparadigmisstronglyconnectedtotheterm’communityofpractice’that

wasdefinedbyWenger(2006:1)as’groupsofpeoplewhoshareaconcernorapassionfor

somethingtheydoandlearnhowtodoitbetterastheyinteractregularly’.Communitiesof

practicearesuchcollectiveentitieswherecommunitymemberscreateanddefinecollective

competencesandidentitiesbasedontheirmutualrelationstoeachother(Wenger,2000).

IntheirseminalworkLaveandWenger(1991)presentedtheprocessofhownewcomersor

novicestoinformalgroupsbecomelegitimatemembers.Thisprocessisnotrestrictedtothe

acquisitionof task-relatedknowledge, skills andcompetences,butparticipantsalso learn

howthegroupworksandinwhatwaytheycanparticipate.Learninghereisnotacognitive

45

butasocializationprocess,wherenewcomersmovefromaperipheralpositiontoacentral

one(Tynjälä,2007).

In the acquisitionmodel the learner acquires external knowledge and at the end of the

learningprocessheorshewillpossessit.Incontrasttothat,inparticipationtheorylearning

isequaltotheparticipationprocess itself.Thebasicdifferencesofthetwoparadigmsare

presentedinthefollowingtable:

46

Table7.Twobasicmodelsoflearning

Source:Sfard1998:7

Theparticipationparadigmhighlights the importanceof learningprocesses connected to

situated, often tacit and non-codified knowledge which is an important aspect in

understandingthecomplexcharacterofworkplacelearning.Withrespecttobothparadigms,

Engeström(2004)callsattentiontothefactthatknowledgeandskillsthatcanbeacquired

duringthelearningprocessareoftenunstable,preliminarilynotdefined,andinmanycases

arebeingconstructedevenasaresultoflearning.Hesuggestsintroducinganewparadigm

of learning. This third model describes the learning process in which new knowledge is

constructedbythemutualinteractionbetweenthelearners,thelearningprocessandthe

externalenvironment.Hecallsthismodelthe’learningasconstruction’paradigm.Thiskind

oflearningisofparticularimportanceininnovation,whentheenvironmentisunstableand

the participants do not possess any preliminary information about the outcome of the

learningprocess.Themodeltriestocapturethedynamicsbetweenthelearnersandtheir

environment exceeding both the outcome-oriented and socialisation-focused other two

models.

Theotherbasicissueoflearningistherelationbetweenformalandinformallearning.Formal

learning means a process within organised frameworks, where the teaching material is

preliminarilydefinedaswellasthecriteriaofsuccess.Theteacherisaprofessionalperson

here and the acquired knowledge is formally acknowledged at the end of the process

(Tynjälä,2007).Formallearningisstronglyconnectedtotheacquisitionparadigm.Informal

learningisrelatedtopracticalactivities,worktask-relatedexperiencesanddailyroutines.

The learning process is not preliminary designed and is based on the participants’

cooperation.Thelearningoutcomeisonthewholenotacknowledgedinformaldocuments

Learning as acquisition Learning as participation

Individual enrichment Goal of learning Community building

Acquisition of something Learning Becoming a participant

Recipient (consumer), (re-)constructor Student Peripheral participant, apprentice

Provider, facilitator, mediator Teacher Expert participant, preserver of practice/discourse

Property, possession, commodity (individual, collective)

Knowledge, concept Aspect of practice/discourse/activity

Having, possessing Knowing Belonging, participating, communicating

47

(Leeetal.,2004).Eraut(2000)emphasisesthatadistinctionshouldbemadeaccordingto

thelearners’intentions.Informallearninginworkplacesettingscanbeaprocessbasedon

explicitlearningintentions.Therearesomecases,however,whenlearningisanon-intended

consequenceofotherhumanactivitiesandtakesplaceunconsciously.Thisisimplicitlearning

representsthemannerinwhichmosttacitskillsareinternalised.

Withrespecttolearningandknowledgedevelopmenttheliteraturepublishedinthelastten

yearsintheUKcallsattentiontotheinformalityoflearningandknowledgetransferthrough

problemsolvingandnetworksinsmallerfamilyfirmsasarecognisedfeatureofmanySME’s

intheUK(BIS,2012–citedbyDevins,2015)

WithrespecttointergenerationallearningandknowledgetransferinfamilyfirmsinHungary

Gere(1997)foundthatthestrengthoftheHungarianfamilybusinessesare:theunconditional

transmissionof thepracticeandknowledge; the commitmentof the familymembers; the

relationshipwiththecustomers;easydecisionmakingprocesses;safetyandtheexperiencing

ofcommonpride.Bálint(2006),however,explainsacase,wherethefatherhasnottakenhis

potential successor son to any negotiationswith him, so itwas really hard for him to be

acceptedbythepartnersasasuccessor.Itishelpfulatthebeginningwiththehelpofanolder

mentortodesignastructuredsuccessionplanwithmilestones,toseehowthesuccessorcan

getreadyforthetakeoverofthecompany.Inanidealcase,thedevelopmentofthesuccessor

issupportedbyamentor.Theidealmentorissomeone,whoworksatthecompanyforalong

timeinahighpositionandisreadytosharetheexperienceandsomecriticism.CsáknéFilep

(2012) recommends involvingexternal advisors in successionplanningandmonitoring the

firm. Italsohelps iftheyestablishaSuccessionBoardoffamilymembersandmanagers. It

seemsthatinHungarylatelyaneedforexternalhelpemerged.Ifthesupportinginfrastructure

isdevelopedormatureenough, theknowledgeofanexternalprofessional,aswellas the

objectiveinterpretationandreflectionsmayhelptoavoidthemisrepresentationofobjectives

thatmayoccurwithpersonalinterpretationalone.

Basedontheexperiencescollectedfromourcasestudies,thefollowingpictureemergeswith

regard to learning and knowledge transfer. Knowledge is transferred between andwithin

generationscontainingvarious,mainlynon-codedelements.Bothprofessionalandleadership

skillsareofparticularimportance.Thesetypesofknowledgeareinmostcasestacitandare

48

accumulatedandstoredcollectively.Thecharacterofthelearningprocessisinformalandthe

dominantmodeoflearningisparticipation,accordingly.Learningisaninformalsocialization

processthatoftenstartsinearlychildhood.Asmentionedearlier,thefamilybusinessisan

integratedpartoftheidentityformationofthefamilies.Successfulfamilybusinessowners

cancreateanatmospherewherechildrenareemotionallyattachedandthatservesasabasis

formakingcommonnarratives,whicharethebuildingblocksofthefamily’sidentity.Family

history that is transmitted over generations, like in case of the Fine vinery, creates the

foundationsofthose(family)valuesthatmakechildrenidentifythemselveswiththefamily

andmeansanattractivepatternforthesecondgenerationsteppingintothebusiness.The

core family business-related values identified in the case studies are the following:

independency;ensuringthewealthofthefamily;beingproudofbuildinganindependentlife;

mutualsupportofeachother;andacommitmenttofamilyaffairs,emotionalsecurity,etc.As

referred to earlier, secondgenerationmembers,while being children, are socialized in an

environmentwherea familybusinesshasalwaysbeenapartofevery-day life,sochildren

unconsciouslylearnthatbusinessisanintegratedpartoffamilyaffairs.Familymeetings,like

commondinners for instance,remain importantareasofknowledgetransferand learning,

evenwhenchildrenhavegrownupandjoinedthefamilybusiness.Familymemberscanshare

their experiences, thoughts, and visions with each other, and possible conflicts can be

managed during these events. Social interactions taking place at these meetings also

contributetothecreationoftherulesandnormsregulatingthebehaviouroffamilymembers

towards each other and to the non-familymembers. The Polish Plantex serves as a good

example:‘Thesuccessionprocessissupportedbythewholefamily.JoannaandJangetalotof

helpandadvicefromtheparents,butalsofromthesistersandbrothers-in-law.Mostofthe

currentdecisionsandproblemsarediscussedonaday-todaybasis,viatelephoneandduring

familymealsandgatherings’(Paszkowszka,2015:3).

Asforthedevelopmentofprofessionalskills,itseemstobetypicalthatsecondgeneration

membersbecomefamiliarwiththeactivitiesofthefamilyfirmevenduringtheirchildhood

yearswhen they helped out in the business duringweekends and/or holidays. There are

variationsastotheextenttowhichsecondgenerationmembersarepressedbytheparents

to continue theirprofession,but a commonpractice seems tobe to involve thepotential

49

successorsevenintheirchildhoodyearsinthebusinessashelpersinordertomakethefamily

businessandtherelatedprofessionattractivetothem.

Withregardtoprofessionaltrainingandworkexperiencetherearetwotypicallearningand

carrierpaths.Inthefirstcasesuccessorsstarttheirprofessionaleducationand/orworkinglife

outside the family business. It is sometimes spontaneous, sometimes encouraged by the

founders’generation.As thecaseofPodiums, (UK) illustrates: ‘Paulhas twosons,bothof

whomstudiedatuniversityandinitiallypursuedtheircareersoutsidethefamilybusiness.Joe

has become a freelance graphic designer and currently works in London. He provides

professionalservicestoPodiumsLtdincludingthedesignofthecompanywebsite.Heisabout

toembarkontheproductionofacompanyfilmtocommemoratethe40-yearanniversaryof

the founding of Podiums Ltd. Tim is directly involved in the strategic and day-to-day

managementof thecompany.Hehas takenan interest in thebusiness fromanearlyage.

ThroughouthischildhoodTimspentschoolholidaysandweekendsinthebusinesshelpingout

andgettingtoknowit.HewenttouniversityandstudiedProductDesign,withayear-long

placementback in the family firm.AfteruniversityTimspentsometime inAustralia, inhis

words'playingrugbyandgrowingup';whenhereturnedtoEnglandheworkedinsalesfora

yearforacompanyintheEastMidlands.WhenavacancyforadrivercameupatPodiumsLtd.

hedecidedtoworkinthefamilybusiness.Hehasworkedthereeversince,takingonavariety

ofroles,learningthroughexperienceandprogressingthroughthecompany’(Devins-Marran

2015:6).

Whensuccessorsdecidetojointhefamilybusinesssuchformalandinformalmethods,like

learning on the job, mentoring and coaching by the founders, peers or other colleagues

becomethedominantmodeoftheirpersonaldevelopment.IncaseofParodanLtd(UK)

‘BothRobandPaulhavehadperiodsofworkingforothercompanies–fortheirownpersonal

developmentandtoescapethepressuresofthefamilybusinesssetting–butultimatelyboth

returned,settledintotheircareersandcommittedtoafuturewiththefamilyfirm.Danny,

the youngest son has had two distinct spells of employment at the family firm, both for

relativelyshortperiodsoftimeandhedecidedtodevelophiscareerelsewhere.(…)Asthe

twoolder sons settled into the business,Harry started to delegatemore responsibility to

them.ThecompanyhadaveryinformalorganisationalstructureformanyyearswithHarry

50

takingaveryvisibleroleasleaderofboththeoperationsandstrategicdirectionofthefirm.

As the business grew and the span of controlwidened, Harrywas advised by a business

consultanttodevelopamoreformalstructureandtoprovideopportunitiesforhissonsto

progressinthebusiness.Overaperiodoftimebothsonsmovedfromhourly-paidentry-level

jobstosalariedmanagementpositions’(Wymer,2015:5).

In most cases we investigated the founder started his/her business after collecting

experiencesinhis/herprofessionatvariouscompanies.Inthisrespect,theHungarianFein

wineryrepresentsadifferentpattern.Thefounderstartedhiscarrierasaneconomistand

workedinvariouspositionsbeforeoptingforawinery.Hisyoungerson(thesuccessor),on

thecontrary, isprofessionally trainedandstudiedviticultureabroad.They represent two

differentperspectivesthataresometimesdifficulttobeharmonised.Asthefoundersays:‘I

amaneconomist;Icanspeakforeignlanguagesandhavetravelledtheworld.Ihavecollected

experiencesasamerchant,managerandchangeagent.InthelongrunIseetheeconomy

fromabroaderperspectivethanwinemakersdo’(Gubányi,2015:6).

Besidestrongemotionaltiesbetweenthefamilymembers,learningasacquisitionisalsothe

basis for identificationwiththefamily.Thefounderstarted introducinghissontothe local

social-organisationalenvironmentofthefirmandattemptedtotransferhisnetworkingskills

tothesuccessor.Ontheotherhand,thefounderalsoencouragedthesuccessortosetuphis

owninternationalbusinesses,whileatthesametimewantingthesuccessortoseethefamily

wineryasameansforthefamily’ssurvival.Theintergenerationalcooperationanddifferent

expectationsarethesourceofcompetitiveadvantageandcreativity.‘Thefoundermanager,

hiswife and their son are strong personalities, but they fully trust each other. All of their

discussionsarefocusedonprofessionalorstrategicissues,suchaswhentheyexperimentwith

theblendingofwines.Thisisatime-consumingbutfruitfulprocess.Theyhavedifferentideas

andvisionswithregardtothevariouspathsleadingtothestrategicgoals. Itcanbetraced

backtothedifferencesofage,experiencesandprofessionalbackground.Theyhavedeveloped

theirownculturefordiscussionthathelpsthemtolearnfromeachother’-asstatedbyaclose

friend about the learning style of the Fein family (Gubányi 2015). During these informal

debates thesuccessorand the founder’swife represent theprofessionalaspectswhile the

founderthestrategicandbusiness-relatedones.Whenattemptingtocreatebalancebetween

the two viewpoints a collective learning process takes place where the stakeholders can

51

incorporate those social skills that help them to initiate mutual understanding and

commitment.Thisisaveryimportantpreconditionfortheclusteringoflocalwineproducers

-oneofthestrategicgoalsofTamás,thefounder.

Formalknowledgetransferisoneofthekeyissuesinasuccessfulsuccessionprocess.Inthe

case of the PolishWOMECH company, the education and knowledge development of the

successorwasanintegratedpartofsuccessionplanning.‘Inadvancingthesuccessionprocess,

thedoyenhasalwaysbeenkeentomentorhischildrenandsupporttheminareasrelevantto

managingthecompany.(…)Theyoungestsondecidedtogetinvolvedinthefamilybusiness.

Inconsultationwithhisfather,hepreparedaplanforhissuccessioninthecompany.Thefirst

stepoftheplaninvolvededucation.Thisinvolvedgainingpracticalexperienceinworkingin

othercompanies,mainlyabroad,throughinternshipsandon-the-jobtraining.Theassumption

wasthatthepersontakingoverthecompanyshouldbeagraduateoftechnicalandbusiness

managementstudiesandbefluentinforeignlanguageswithpracticalexperienceofworking

inothercompanies.Theplanhasbeenrealizedsuccessfully.Aftergraduatingfromcoursesthat

his father thought essential, the son started systematically taking over responsibilities and

ownership of the company.When he became a 51% shareholder of the company, he also

becameitsmanagingdirector.Theshareshadbeentransferredtohimformally,allowinghim

tobecomeaco-ownerofthecompany’(Konopacka,2015b:5).

KnowledgetransferinFBisoftenanaltruisticprocessuntingedwithpreliminarycalculations.

Itisanecessaryinvestmentinthefutureaccompaniedbytheriskthatthesecondgeneration

memberscandecidenottojointhebusinessdespitealltheeffortsmadebythefounder(s).

Knowledgetransfernotonlyservesbusinessgoals,butitmayalsocontributetotheemotional

wealthofthefamily-cementingthetiesbetweenfamilymembers.ThePolishPlantexcase

illustrateswell this function of knowledge transfer and teaching in the family. ‘Knowledge

transfer is absolutely the key issue in this case. Antoniwillingly and enthusiastically keeps

passinghisincrediblybroadknowledgetohischildren,whiletheyarekeentolearnanddevelop

it aswell as only they can. Thewillingness to transfer knowledge to younger generations

withoutanyconditionsorcalculations isprobably thecrucialkey toa fruitful successionof

PlantextoJoannaandJan;asuccessionthatiscurrentlyinprogress.Itisalsooneofthemost

importantelementsinmaintainingagoodatmosphereandfriendlyrelationsinthefamily.All

thefamilymembershavebeentaughtfromchildhoodandhaveitdeeplyincorporatedintheir

52

mindsthatwhatevereachofthemlearnsorfindsoutbelongstothefamilyandmaycontribute

totheirprosperity.Likefather,likechildren’(Paszkowska,2015:6).

IV.4.ManagingFamilyBusinessesandsuccessionprocess

Inthissectionwewilldiscussthreeissuesthatareofparticularimportanceinmanagingfamily

businessessuccessfully. In thecaseof family firmstwooverlappingsub-systemsshouldbe

balanced.Familygoals,suchasemotionalstability,harmony,reputation,etc.runparallelwith

business-relatedgoals,likesurvival,growthorprofitability(Sharmaetal.,2013).Familyfirms

followdifferentstrategiesinseekingthebalancebetweenthesedimensions.Thefirstissue

that we will discuss in more detail is therefore the management of family and business

relations, focusing on involvement of family and non-family members, governance and

management.Afurtherspecialissueisthemanagementofhumanrelationsinfamilyfirms,

since“familiness”,i.e.themixtureoffamilyandbusinessroles,mayimpactupontheowners’

attitudestowardstheiremployees.Thethirdissueinfocusisthestrategiesandpracticesin

managingthesuccessionprocessitselfthatmayvarybetweenthedifferentfirmsdepending

ontheirstrategicgoals,theowners’experiencesandvalues,andthecommitmentofthenext

generations.

IV.4.1.Managingfamily-businessrelations

During their life-cycle, most businesses have to face the problems concerning growth.

Leadershipandmanagementhavetocopewithmoreandmorecomplex issuesand inthe

case of family firms a further difficulty emerges, namely the complex and sometimes

contradictory relation between family and business goals. It is also worth stressing the

importanceofpersonalinteractionswithinthefamilyorbetweenfamilymembersandnon-

familymembers. Themanagementof family firms is in a specific situationwhen trying to

balancerationalbusinessmotiveswithemotionalaspectsoffamilylife.

Theeffectivenessoffamilyfirmmanagementheavilydependsontheextentfamilymembers

areinvolvedinownershipandmanagement.Anotherimportantaspectoffamilybusinesses

is themanagementof tensionsand contradictionsbetween family andbusiness.Both the

53

family and business are complex social systems with different specific logics, values and

intereststhatcanoverlapeachotherandalsobeinconflict.Ward(1987)makesadistinction

between four basicmodels concerning family versus business orientation of family firms.

‘Familyfirst’enterprisespreferfamilygoals,‘businessfirst’enterprisesyieldbusiness,‘family

business’enterprisesseekbalancebetweenthetwoand‘floatingenterprises’havenofocus

eitheronfamilyorbusinessissues.Accordingtoempiricalevidencethosefamilyfirmsperform

outstanding in the longrunthatperformwell inbothdimensions (Sharmaetal,2013).As

Devins (2015:13) puts it, ‘…businesses with tight family ownership and management

structuresaremorelikelytoreportfamily-objectivesasahighpriority,whilefirstgeneration

businessesorthosewithalowerproportionoffamilymanagerswerelesslikelytoreportthe

same.’ The embeddedness of family owners in the family affairs strongly influences their

family-orbusiness-orientation:themorefamily-ownersareembeddedinthefamily,themore

family-orientedtheirmotivationswillbe(Le-Breton-MillerandMiller,2009).Thisisespecially

true in the casewhen the family business is a relatively closed system; there is a lack of

externalperspectives(e.g.fewexternallyrecruitedmanagers,oralackofexperienceoffamily

membersoutsidethebusiness).

Family- or business-orientation of family firms depends on the founders/owners core

motivations.When analysing Polish family firms, Sulkowksi (2004) classified the examined

enterprises in this respect:Thereare firms thataimatcreating family traditions.Theyare

focusedononetypeofactivityandtheyaccountfor50%offamilyfirmsinPoland.Thesecond

iscomposedofthosefirmsthatareorientedtogenerateprofitforthefamily.Themajorityof

theseare small andmediumsized companies that are flexible andagile,movingbetween

sectorsdependingontheirperceivedprofitability.Thethirdgroupisthefamilycorporations,

e.g.large,capital-richfamily-ownedenterprises.

InPolandresearchhasbeencarriedoutinselectedregionsprovingthatthereareremarkable

differencesbetweenthefirstandsecondgenerationwithregardtoinvolvementinthefamily

firms.Thefirst(founder)generationtakesleadershipwhilebeingowners,whilstthesecond

generationworksinthecompaniesbutdoesnotshareintheownership.Inthevastmajority

ofcases,evenifemployeesfromdifferentgenerationsarerepresentedinthecompany,they

arenotallowedtoparticipateinthedecisionmakingasowners/foundersseemtomaintain

54

theseprerogativesforthemselves.Thisreflectstherelativelyauthoritarianmanagementstyle

ofPolishentrepreneurs(Surdej,2015).

Thereis,however,acommonfeatureofthefirmsinvestigated.Independentofthefounders’

originalaspirations,familybusinessesareanintegratedpartofidentityformationinfamilies.

Identity is based on a shared cognitive and emotional narrative that serves as a tool to

strengthenfamilytiesandalsoworksasaninterpretativeframeworkhelpingtounderstand

theexternalworld. Itsomecases it iscreatedconsciously, inothercases it is theresultof

spontaneousactions.Feinwinery isagoodexampleofthetraditionmakingcompanywith

consciouseffortsmaderegardingidentityformation.Thefounder’sfatherwasthepresident

ofanagriculturalco-operativeandactedasasociallyhighlyreputableandinfluentialperson.

Hisandhisfathers’storyserveasthebasisofthefamilynarrativeabouttraditionsthathave

beentransmittedovergenerations.Secondgenerationmembers,whilebeingchildren,are

socialized inanenvironmentwhere the familybusiness is alwayspresent. They learn that

‘parents are equivalent to the firm’, even when the founder tries to separate family and

businessmatters. Here the role of thewife inmaking a balance between the family and

business dimensions of family lifemust be stressed. Inmost of our caseswhen a couple

decidedtostartrunningthefamilybusinesstogether,oncechildrenwereborn,thewifehad

tostepbackand,atleastpartly,giveuptheircareersinthecompanyinordertotakecareof

them.ThecaseofParodanLtd.illustratesthisprocesswell:‘ParodanEngineeringwasstarted

primarilytoprovidesecurityandafuturefortheWoodFamily.Harrywasverymuchthehead

of the family business with his wife Elizabeth playing a key role in the development and

administrationofthecompanyandensuringthingsransmoothlybothatworkandathome.

Paulrecallsthatasachildthesonssawthecompanystaffas‘partofthefamily’,withtheir

fatherbeingheadofthefamilyandtheirmotherbeingthe‘motherhen’wholookedafterall

thestaff.EvenwhenthecompanywasincorporatedandeachWoodparentowned50%ofthe

business,thecompanywasalwaysviewedas‘theirdad’s’byboththesonsandtheemployees’

(Wymer,2015:8).InthecaseoftheHungarianQualityMeatboththefamilyandorganisational

culturewerecreated“spontaneously”bythefounders.Thesuccessorssortofgrewintoit.As

thefounder,Károlyputsitlikethis:‘Wealwaysknewhowtoaccommodateourpleasurewith

ourpurse, so Imanaged tomake them [the children]understand that in thisbusiness the

55

workingtimeisnot8hoursadayandtheworkingweekislongerthanfivedays’(Szentesi,

2015:6).

Anotheraspectisthatoffamily-businessbalance.Itshouldbementionedherethatitisthe

involvement of non-family members in the management of the company that strongly

influences the company’sperformance.Asmentionedearlier, it is important to stress the

distinction between ownership, i.e. the capital and assets the family possesses in the

company, and governance, i.e. the extent to which family members are represented in

decision-makingbodies and the involvementof familymembers ineverydaymanagement

activities. It isworthmakingadistinctionbetween family-controlledand family-influenced

firms.Somefamilieswilltakearoleintheday-to-dayrunningofthebusinesswhilstothers

willtakeamorehands-offapproachandinvolveprofessionalnon-familymanagers(Devins,

2015). The successful cooperation of family and non-familymembers depends on various

factors,notleastthewaythetwostakeholdergroupscanaccepteachother’ssocialnorms

andvalues.

Inourcasesmorecombinationswereidentifiablewithrespecttofamilycontrolandinfluence

and involvement of both family members and non-family members in governance and

management.Thefollowingtablesummarizesourexperiences:

56

Table8.FamilycontrolandinfluenceintheINSISTcompanycases

Ownership/Governance Management

Podiums

(UK)

Sharedownershipbetweenfamilyand

managerswithfamilymajority.

Sharedmanagementwithfamily

andnon-familymembers.

Parodan

(UK)

Founderandhiswifearemajorityand

successorsareminorityshareholders.

Afterrestructuringmanagement

wentfromthehandsoffamily

memberstonon-familymember

managers.Onlyproductionis

controlleddirectlybythefamily.

DOMEX

(PL)

Thefounder,hiswifeandhisdaughter

shareownership.Themanagement

boardofthecompanyconsistsofthe

familydoyen,hiswifeandtwo

daughtersandapersonfromoutside

thefamily.Theboardmeetsevery

monthtodealwithongoingbusiness

issues.

Sharedmanagementbetween

familymembers.

Plantex

(PL)

Thefounderandhiswifekeep100%

ownershipandshareneitherwith

familymembersnorwithexternal

stakeholders.

Managementissharedbetween

familymemberswithnoexternal

partners.

Pillar(PL) Familyownershipwiththepossibilityto

involveexternalinvestors.Thefounder

passedhisownershipgraduallytotheir

sons.



partners.

WAMECH

(PL)

Sharedfamilyownership. Thefounder’seldestsonbecame

themanagingdirector.

WITEX(PL) Ownershipissharedbetweenthe

founderandthechildren.

Eachfamilymemberrunstheir

ownbusinesswithinthecompany

group.

57

Quality

Meat(HU)

Thefounderskeep100%ownership

andshareneitherwithfamilymembers

norwithexternalstakeholders.Next

generationhasnoownership.



partners.

BI-KA(HU) Thefounderkeeps100%ownership

anddonotshareneitherwithfamily

membersnorwithexternal

stakeholders.Nextgenerationhasno

ownership.

Founder-ownerretiredfromdaily

managementroutinesand

delegatedresponsibilitytoanon-

familymanager.

Fein

Winery

(HU)

Thefounderskeep100%ownership

anddoshareneitherwithfamily

membersnorwithexternal

stakeholders.Nextgenerationhasno

ownership.


familymembersandanexternal

partnerisplannedtobeinvolved

inadministration.

Accordingtoourresearchexperiencestherearetwocriticaldimensionsof familybusiness

governance andmanagement: the relation between familymembers (especially between

generations)andtherelationbetweenfamilyandnon-familymanagers.Oneofthetoolsof

the founders’ control over both family members and non-family members is ownership.

Sharingownershipwiththemembersofthenextgenerationas(potential)successorsisalso

asymbolicgesturethatsignalsthesymbolictransitionfromchildhoodtoadulthoodandcan

strengthenthechildren’s’commitmenttothefamilybusinessand,throughthis,moreloyalty

andbearingresponsibilitycanbeexpected.InthisrespecttheHungariancasesareinteresting,

sincethefounders’generationdoesnotshareownershipwiththesuccessors,eveninalesser

extent.Itreflectsapaternalisticleadershipstylewhereexercisingcontroltakesplaceinthe

formofstrongdirectcontrol.InthecaseofQualityMeatthefoundercoupleexpressedopenly

thattheirownershipwouldbetransferredtotheirsonsonlyaftertheyhavefullyretired.At

theemotionallevelitmayleadtopersonaldependenceandcompulsiontoconform,atthe

organisational level, restricted autonomy, low-level trust and commitment. In the case of

QualityMeatfamilytiesareverystrong;althoughthechildrenalreadyhavetheirownfamilies

58

theyspendasignificantshareoftheirfreetimetogether.For instance,theyorganiseeach

yearacommonsummerholiday.

Theother important issue is themanagementof relationsbetween familyandnon-family

members.Accordingtotheexperiencesgainedfromthecasestudiesthisproblemoftentakes

shapeintheconflictbetweentheownerandmanagerialroles.Oneofthemainmotivations

ofthefoundersistoensureasecureincomeforthefamily,andthefamilybusinessservesas

abasisforthat.Thisperspectivesometimesmayleadtoconflictwiththemanagerialapproach

thatfavoursrisktakingandgrowthevenattheexpenseofshort-termsecurity.Thisproblem

can only be solved with the mutual commitment of owners and managers and requires

intensivecommunicationandtheabilitytotakeonothers’perspectives.Astheownerofthe

HungarianBI-KAputsit:’Weareworriedaboutwhatwehavecreatedsinceitisthefruitofour

work.Itensurestheexistentialbasisofthefamily.Ifwesawsomethingthatwouldthreaten

ourexistence,wewouldimmediatelyintercede’(Kiss,2015:7).Thisattitudeisalsoillustrated

byPaulMorton,founderofPodiumsLtd.intheUK,who,‘havingexperiencedtheuncertainties

associatedwiththefinancingofthebusinessintheearlyyears,includingpersonalguarantees

andamortgageonthefamilyhome,iskeentoplacethebusinessandthefamilyonafirm

financial footingandhe is farmorerisk-aversenowthan inthepast.Paulhasplannedthe

transferofwealthtothenextgenerationlargelythroughpropertyholdingsandinvestments,

madegraduallyovertheyearsandheldinaseparatecompany’(Davins–Marran,2015:6)

IV.4.2.HumanResourcesManagement

TherearetwobasicapproachesconcerningHRMpracticesinfamilybusinesses.Accordingto

thefirstoneitisassumedthat‘familybusinessestendtohavebetterrelationshipsbetween

uppermanagementandemployees,particularlyintermsofjobsatisfaction,employeeloyalty,

staff turnoveretc’ (Devins,2015:14).Thisapproachstresses that ‘familiness’,e.g.applying

familybehaviouralpatternsinbusinesslifecanbeastrengthoffamilyfirmswhencompared

to non-family enterprises. According to the second approach, such HRM practices can,

however, lead to negative consequences as well. As mentioned earlier employing family

memberscanbeanadvantagebecauseofthehighertrustlevelandmanagement’srangeof

possibilitiesforexercisingcontroloverfamilymemberemployees(especiallyincaseofclose

59

relatives),butitmayeffectnepotismandcreatea“glassceiling”,limitingtheopportunitiesof

promotionfornon-familymembers(Surdej,2015).

Inourcasestudieswecouldidentifysome‘family-like’patternsinthefamilybusinesses’HRM

practices, suchaspersonal relationswithemployees,empathyandpatience towards their

problems (e.g. in case of sickness or poor timekeeping), mutual commitment, emotional

involvement,etc.Itseems,howevertobethecasethatfamilypatternsarenotautomatically

appliedinrelationshipswithinfamilybusinesses.Insomecasesthefoundersstartedworking

withpeopleinaverysimilarsocialsituation,e.g.labourmarketentrantswhilsthavingyoung

childreninthecaseoftheHungarianBI-KAorpeoplemaderedundantduringtheprivatisation

oftheco-operativeincaseoftheQualityMeat.Similarlifesituationsresultedindensesocial

interactions,commoninterestsbeyondtheworkplaceandcreatedthebasisforcommunity

building.DuringtheinterviewstheseFBleadersexpressedtheirsocialresponsibilitytowards

theiremployeesandtheirfamilies:theyseethemselvesratherasacommunitythanjustpure

company leaders. Itmay sometimes lead to internal conflicts, aswell, as illustrated in the

followingexampleofBI-KA:‘WhenIdecidedtoretirefromdailymanagementanddelegate

theresponsibilitytomysuccessor,itwasaquestionofwhethertheemployeesarecommitted

tomeorthecompany’(Kiss,2015).

Theother patternwe could identifywas the personal commitment of the FB founders to

applying family-likeHRMpractices. In thecaseofParodanLtd in theUKaconsciousearly

strategywasto‘putfriendsandfamilymembersonthepayroll-especiallythoseinneed(for

exampleemployingfriendswhohadbeenmaderedundantorwererelatede.g.theirson’swife

etc.). Whilst this sometimes led to a mismatch between the skills required and the skills

availableinthebusiness,itdidcreateaveryloyalworkforcewithlowstaffturnoverandstrong

morale’ (Wymer, 2015:4). In the other case in the UK, the Podiums Ltd has initiated an

interestingandefficientmodelforincreasingthecommitmentofitsworkforce:‘Foravariety

of reasons (not least achieving effective tax efficiency for the owner, employees and the

company)anEmployeeBenefitTrustwasestablishedtotransfer10%ofthebusinesstoeight

keyemployees.Whenthecompanymakesaprofit,themanagersshareintheprofitequally

underthisscheme.TheEmployeeBenefitTrustactsasanincentiveformanagerstohelpmake

thebusinessmore successfulandencourages retention,whilstmaintaining theprincipleof

familyownership’(Devins–Marran,2015:5).

60

IV.4.2SuccessionplanninginFB

Themostnaturalwayoffamilyfirmsuccessionistheintergenerationalownershiptransfer

thatensurescontinuingfamilycontrol.Statisticalevidence,however,suggeststhatinmost

casesthesuccessionprocessfails.Therecanbeseveralreasons;alotofpersonal,emotional

andstructuralfactorscanactasaninhibitorofsuccession,fromtheunsuitabilityofsuccessors

throughgovernancefailurestotheunfavourablefinancialandtaxationenvironment.Oneof

themost importantpreconditionsofavoidingfailures inthesuccessionprocess isplanning

andcreatingaformalorinformalstrategythatcanensureearlywarningsignsofproblematic

successionandtherebycopewiththemeffectively(Milleretal.,2004).

IntheUKsuccessionplanningandintergenerationaltransfermeansanongoingchallengefor

theeconomyandthesociety.Adistinctioncanbedrawnbetweenownershiptransition(i.e.

thenextgenerationreceivesorbuysequityinthebusiness)andmanagementtransition(i.e.

thenextgenerationtakesoverrunningthebusiness),whichoftenoccurtogether,although

researchtendstofocusmoreonthemanagementthanownershiptransition(Nordqvistet

al.,2013–citedbyDevins,2015).Surveyevidenceconsistently suggests thatmany family

firmsareillpreparedforsuccessionandtransition.‘Successionissettobecomealargerissue

asthe‘babyboomer’generationreachesretirementageoverthenextfewyears’(Devins2015:

11).

AsreferredearlierinthePolishcase,Lewandowska(2014)examinedthesuccessionprocess

fromtheperspectiveofpotentialsuccessors.Thefollowingproblemshavebeenreported:

- ‘Unwillingness of incumbent founder/owner to talk about the succession prospects,

whichnegativelyimpactsonthemotivationofthepotentialsuccessor;

- Thisleadstothefeelingofbeingsuspended,forcedtowaittoolongforanimprecisely

specifieddate;

- Thelackofaformalsuccessionplan;

- The perception of a lack of trust in the successor’s capabilities on the part of the

owner/founder;

61

- Thelackoffreedomtoindependentlyactasthepotentialsuccessorisovershadowed

bythefounder/owner;

- Thelackofhopeineventuallygettingthepowertomanagethefirm’(Surdej2015:23).

In the case of Hungary we do not possess systematic information about the Hungarian

succession process of family businesses. Csákné Filep (2012) conducted a representative

survey among thoseHungarian SMEs thatwere facing succession challenges in 2011 (not

exclusivelyfamilybusinesses).Accordingtoherresults49.3%offamilybusinessownershave

successionplanswithouthavingwrittenthemdown,3.9%ofthemhaveawrittenplan,18.8%

thinkthatsuccessionisanautomaticprocessand28.6%ofthefamilyfirmshavenoideaabout

succession.Basedonanon-hierarchicalclusteranalysisshedistinguishedfivebasictypesof

successionstrategiesofHungarianSMEsinvolvedwithsuccessionissues.Theclustersdonot

representexclusivelyfamily-ownedbusinessesbutalltheSMEsthathavebeeninvolvedinthe

research.Categories3,4and5,however,coverthedifferenttypesoffamilyfirms:

1.Businessesofindependentpartieswithnovision

Those firms that are owned by independent parties, inmost cases by former colleagues,

independentprofessionalsand/orexternalinvestors,belongtothiscategory.Inthesefirms

neither close, nor distant relatives have a share and the owners have no visions of the

company’sfuture.

2.Businessesofformercolleagueswithavision

These firms aremainly owned by former colleagues who have a strong vision about the

successionprocessaftertheretirementofthefounders.Themosttypicalsuccessionplanis

thesaleofthecompanytotheotherowner(s).

3.Kinshipbusinesses

Inthecaseofthesefirmsownersarerecruitedfromthewiderfamily(distantrelatives)and/or

friends, acquaintances, external professionals and other investors. They typically employ

familymembers.Theirsuccessionsvisionisclear.Theywanttokeeptheownershipwithinthe

(wider)family.

62

4.Maritalbusinesses

Inthiscasethecompanyisownedbythefamilymembers,especiallybyspousesbutdistant

relatives also may have a share. Spouses typically work in the company as employees.

Ownershipofthecompanybythechildrenisnottypical.Regardingthesuccessionthemain

strategyhereistopreservefamily-ownershipbut,ifnecessary,todelegatethemanagement

toanexternalpartyortosellthecompany.

5.Nuclearfamilybusinesses

Those familybusinessesbelong to this categorywhere theownershipandmanagement is

planned to be preserved in the hands of the small familymembers. (The ownership goes

mainlyfromtheparentstothechildren.Ownershipofthecompanybychildrenistypical.)In

this case external, non-family member parties are excluded from both ownership and

management.Spousesoftenactivelytakepartintheday-to-daymanagementoperations.

Accordingtotheresultsofthesurveytherearesignificantdifferencesbetweenthedifferent

typesof familybusinesseswithrespecttothevariousdimensionsofsuccession,ascanbe

seeninthefollowingfigure:

Figure1.Specialitiesofsuccessionindifferenttypesoffamilybusinesses

Source:CsáknéFilep(2012:151)

63

Maritalfamilyfirmsseemtodifferfromtheothertwotypes(Nuclearfamilybusinessesand

Kinshipbusinesses)quitesignificantly.Intheircasethemostimportantchallengeistofindthe

personwhocanactasanappropriatesuccessor.Thesuccessor’sageandworkexperienceare

ofgreaterimportancetothemthanincaseoftheothertwofamilybusinessmodelswhilein

theircasetheprobabilityofan‘external-to-family’successor’sengagementisthehighest.

Bálint(2006)conductedasurveyamongarepresentativesampleofHungarianfamilyfirms

operatinginvarioussectors.Themostimportantfactorsthatinfluencesuccessiondecisions

andtheprocessitselfarethefollowing:

- thesizeofthecompany:thebiggerthecompany,thestrongerthewishtopreserveit

withinthefamily,

- businessprospects:companiesover7billionHUFp.a.(~22.5million€)preferthesale

tobetofamily-basedsuccession,

- theageofowner/entrepreneur:theyoungertheowner,thehighertheprobabilityof

saletoexternalparties,

- thesuccessor’scompetences,

- competition in the sectors: the more intensive the competition, the bigger the

pressureontheownertosellthecompanytoexternalparties.

Thetypeofsectorisakeyissuewithregardtosuccessionmotifs.Inthechemical,construction

andretailtradethedominantpatternisthesaleofthecompany,whileinthefoodindustry

thefuturevisionisconcernedwithfamily-basedownershiptransfer.Inthecaseoftheservice

industry the sale to other owners or to management is the dominant option. Export-

orientationisalsoanimportantaspectofthesuccessionprocess,incaseswheretheshareof

exportsexceeds50%oftotalrevenuesaletoexternalpartiesispreferred(Bálint,2006).

Ourcasestudiesshowdifferentpictureswithrespecttosuccessionplanning.Thereweretwo

basicmodesofsuccessionidentified.Thefirstwaythatcanbelabelledastypicaliswhenthe

successorcomesfromthenextgeneration.Theothermodeiswhensuccessorisnotafamily

64

member. In the latter the founder preserves ownership control but retires from the daily

managementof the company,e.g. the firm is transformed froma family-controlled intoa

family-influencedone.Inthefirstmodetherearealsodifferentwaysofownershiptransfer.

Thenexttablesummarizesthedifferentwaysofsuccessionwithregardtoplanning:

Table9.SummaryofsuccessionplanningstrategiesoftheINSISTcompanycases

Podiums

(UK)

Thesuccessorsinitiallypursuedtheircareersoutsidethefamilybusinessbut

oneofthemdecidedtojointhecompanyandtheotheronesupportsthe

familybusinessfromtheoutside.Thefounderdidnotpresstheirchildrento

takeoverthebusinessbutensuredfamiliaritywiththefirmevenintheir

childhood.Successiontakesplacegraduallyandfinancialadvisorsare

involved.

Parodan

(UK)

Thethreesuccessorshadthepossibilitytobecomefamiliarwiththe

companybuttheywerenotforcedeitherdirectlyorindirectlytobeinvolved.

Allofthemgatheredexternalworkexperiencesandreceivedanopportunity

tojointhecompanyatalowpositioninordertolearnandprovetheirability.

DOMEX

(PL)

Thefounderplanstopasstheoperationalmanagementofthecompanyto

hissuccessors,andremaininvolvedonlyinstrategicdecisions.Hisolder

daughtercompletedavarietyofstudiesandworkedforatimeatthe

university,butoptedtojointhecompany.Sherunsthebranchconcerned

withlettingapartments.Hisyoungerdaughterrunsarestaurantlocatedin

thecompanybuilding.Sheestablishedtherestaurantherselfandworksto

developitfurther.

Plantex

(PL)

Successionisaconsciouslyinitiatedprocesswithaformalplan.The

successionprocessisplannedforabout5-7yearsandnowit’sthesecond

yearofitsimplementation.Thefirsttwoyearshavebeendevotedto:

1. reorganizing/clarifyingthejobdescriptionsofthesuccessorsandnon-

familyemployees;

2. introducingthesuccessorstothedecisionmakingprocessesand

strategicplanning;

3. rentinganew,betteraccountingofficethatwouldbemore

competentandhelpfulinthesuccessionprocess

4. employingaLegalAdvisorwhospecializesincompanysuccessions.

He’salreadyhelpedtodrawthesuccessionplanandnowassistsin

modifyingitaccordingtonewdevelopments.

Pillar(PL) Thefoundersareexpectedtoensurecontinuityandkeepthefirminthe

handsofthefamily,butthechildrendidnottakeforgrantedacareerinthe

familybusiness.Itwasasurprisetotheparentsandtheythendecidedto

planthesuccessionprocess.Theyconvincedtheirchildrentotakeoverthe

65

companyandagradualsuccessionprocessstartedonademocraticbasis

ensuringequalrightsfortheparticipants.Inordertoavoidinternalconflicts

competencesandresponsibilitiesofeachsuccessorarewrittendownand

continuouslyreconsidered.

WAMECH

(PL)

Theownersofthecompanyhavethreechildren.Sincetheirteenageyears,

theparentshavetriedtotalktothemaboutapossiblefuturewiththe

companyandpotentialsuccession.Theparents’priorityhasbeentoprovide

theirchildrenwithanall-roundeducationandgivethemtheopportunityto

seetheworld,sothattheywillenterthelabourmarketwithknowledge,

experience,anopenmindandself-esteem.Theeldestsondecidedtostart

hisownbusinesswithfriendsfromuniversity.Theowners’daughterchose

medicineasherwayinprofessionallife.Theyoungestsondecidedtoget

involvedinthefamilybusiness.Inconsultationwithhisfather,heprepareda

planforhissuccessioninthecompany.Thefirststepoftheplaninvolved

education.Thisinvolvedgainingpracticalexperienceinworkingatother

companies,mainlyabroad,throughinternshipsandon-the-jobtraining.After

graduatingfromfacultiesthathisfatherthoughtessential,thesonstarted

systematicallytotakeoverresponsibilitiesandownershipofthecompany.

Whenhebecamea51%shareholderofthecompany,healsobecameits

managingdirector.Theshareswereformallytransferredtohim,allowinghim

tobecomeaco-ownerofthecompany.

WITEK

(PL)

Thefounderhasdevelopedthecompanybyadoptingherparents’philosophy

thateveryonehastomakehisorherownlivingandlearntobeself–reliant.

Whenherchildrenbecameadultsandwerereadytostarttheirownbusiness

activity,shedividedthecompanybetweenthem.Eachfamilymemberis

independentandmusttakecareofhisorherownbusiness.Thefounderstill

ownsseveralproperties,buthasdrawnupawillinwhichshehasassigned

propertiestohersuccessors.

Quality

Meat

(HU)

Successionisaconsciouslydecidedbutneverplannedprocess.Delegationof

managementdutiesandinvolvementofsuccessorstookplacegradually.

Successorswerenotpressedtosupportthefamilybusinessduringtheir

childhoodandstudiesbutfamilyvalueshavebeenstronglysuccession-

66

oriented.Thesuccessionprocessistightlycontrolled;thefounderhasnot

fullyretiredfromdecisionmakingandkept100%ownership.

BI-KA

(HU)

Thefounderconsciouslydecidedtostepbackandtransferthecompany

managementtoanon-familymember.Hekepttheinfluencethrough

ownership.Managementtransferisaplannedprocesswithscheduled

milestonesandtheinvolvementofexternaladvisors.

Fein

Winery

(HU)

Ownershiptransferisnotintendedyet;atthemomentmanagementofthe

businessisshared.Thesuccessorisnotdirectlyforcedbutissocialised

throughfamilyvaluestocontinuethebusiness.

Threemainfactorswereidentifiedthatinfluencethesuccessionstrategiesoftheinvestigated

companies. The first decisive factor is the characteristic of ownership transfer. It can

accompanythemanagementtransferandresponsibilitydelegationasagradualprocess.The

otheroptioniswhenfoundersdonotshareownershipuntiltheyhavefullyretired.Itisamore

controlledway of succession. The other aspect is the formal or informal character of the

successionprocess.Thescalevariesbetweenpreliminaryplannedtofullyspontaneousmodes

ofmanaging succession. The third aspect is atwhat level the successor is involved in the

management transfer. It can take place graduallywhen successors have to start at a low

positioninthecompanyandgothroughaninternalcareerandlearningprocessortheother

way,when the successor immediately starts ina leadingposition. In this respect it is also

interestingwhetherheorshecollectedworkexperienceoutsidethefamilybusinessthatcan

serveasanexternalknowledgesourceandabasisforhis/herlegitimacy,aswell.Thevarious

combinationsofthedifferentaspectsmayleadtoheterogeneousoutcomesintermsofthe

successionprocessbutitseemsthatautonomyofthesuccessorisakeyissuewithregardto

thecharacteristicsoftheprocess.Itcanbearguedthatthegreatertheautonomyisgivento

thesuccessor(e.g.managementtransferaccompaniedbygradualownershiptransfer)theless

tensionandinternalconflictscanbeexpectedduringthesuccessionprocess.

V.PolicyEnvironment,FinancialandLegalRegulation

67

V.1Institutionalenvironment:VarietyofDensityintheINSISTProject

Countries

Despitetheeconomicimportanceandlargenumberoffamilybusinessestheyarerarelyinthe

mainfocusofpoliticalinitiatives.Familybusinessissuesareusuallyhandledunderthegeneral

SME’ssupportsystem.Thefollowingtablesummarizesfamilybusinessrelatedinstitutional

settingsofINSISTProjectmembercountries:

68

Table10.Familybusinessrelatedinstitutionalsettings

Institutionalsetting/

CountryUnitedKingdom Poland Hungary

Governmentlevel

DepartmentforBusiness

InnovationandSkills

HerMajesty’sRevenueand

Customs

MinistryofRegional

Development

MinistryofLabour

MinistryofEducation

PolishAgencyforthe

Developmentof

Entrepreneurship(PARP)

RegionalPARPpartners

LocalInstitutionsaccredited

withPARP

PrimeMinister’sOffice

MinistryofHuman

Capacities

MinistryofAgriculture

MinistryforNational

Economy

SpecialistAgencies

InstituteforFamily

Business(IFB)

FamiliesinBusiness(FIB)

ScottishFamilyBusiness

Association(SFBA)

InitiativeofFamilyFirms(IFR)

AssociationofFamily

EnterprisesinHungary

(AFE-H)

HungarianAssociationfor

ResponsibleFamily

Enterprises(FBN-H)

SEEDFoundation

ResearchCentresin

HigherEducation

LondonFamilyBusiness

Institute

CaledonianFamilyBusiness

Centre

LancasterUniversityCentre

forFamilyBusinesses

UniversityofStrathclyde

ForumforFamilyBusiness

RegentsUniversityLondon

(GlobalManagement–

pathwayinFamilyBusiness–

MA)

LondonSchoolofBusiness

andFinance(Professional

CertificateinEntrepreneurial

andFamilyBusiness)

- -

Source:Own compilation based on ERASMUS + INSIST Project national reports (Devins - Jones, 2015:39-45,

Surdej,2015:28-30,Gubányietal.,2015:20-28)

69

Fromthetableitcanbeseenthatatgovernmentinstitutionsinthecountriessurveyedthere

are some similarities. There is no Ministry for Family Businesses in any of them and

responsibilities for entrepreneurship and business affairs are divided between several

ministries (Devins - Jones, 2015:39-45), (Surdej, 2015:28-30), (Gubányi et al., 2015:20-28).

Specialistagenciescanbefound inall threecountriesandcanbeconsideredas important

supporters of family businesses. Table 10 highlights an important difference between the

British,HungarianandPolishinstitutionalsetting.InUKnumerousFamilyBusinessResearch

Centreexist contrary toHungaryandPoland.Theprivate sectoralsoprovides support for

familybusinessesviaconsultancyandaccountancyservicesinallthreecountries.IntheUK

and Poland Family Offices support family businesses in managing their assets, while in

Hungarywecan’tfindFamilyOfficesyet.TypicallyprivatebankershelpwealthyHungarian

familiestohandletheirfinancialinvestments.

V.1.1Legalregulations

ThecountriesparticipatingintheINSISTprojecthavesimilarlysoundandstablelegalsystems

andnationalreportsdonotrevealanyproblematiclegalareas(Devins–Jones,2015:39-45),

(Surdej, 2015:28-30), (Gubányi et al., 2015:20-28). The company cases confirm the

appropriatenessoflegalframework:

‘Inherview,thesuccessionprocessdoesnotposeanyfinancialorlegalriskstothecompany

asshehasalreadydividedthecompanybetweenhersuccessors,enablingthemtobuildtheir

ownindependenceandgatherappropriateexperiencerelatedtorunningbusinessoperations.’

(Polish–WitekCentre,Konopacka,2015:4)

‘Theownerhasnotidentifiedanylegalbarriersintheprocessofsuccession,butconsidersthat

changing theorganisational formof businessmust beundertakenwitha view toassuring

financial security of the company and the interests of his family.’ (Polish – TheWAMECH

CompanyRegisteredPartnership,Konopacka,2015:5)

Family business succession requires changes in the family business management and

ownershipstructurewhichhavelegalimpacts.Thefollowingtablesummarizesthetypesof

legalissuesrevealedincompanycases.

70

Table11.Legalregulationrelatedwiththesuccessionprocess

Legalissues UnitedKingdom Poland Hungary

Establishmentofa

newcompany

ParodanEngineering TheWITEKCentre FeinWinery

BI-KALogistics

Changethelegal

formofthefamily

business

PodiumsLtd. DOMEX–JointStock

Company

BI-KALogistics

Changeinownership

structure

ParodanEngineering

PodiumsLtd.

TheWAMECH

Company

PillarLtd.

Preparingawill DOMEX–JointStock

Company

TheWITEKCentre

Source:Owncompilationbasedon company cases (Devins–Marran,2015:2), (Gorowski, 2015:7), (Gubányi,

2015:1-2), (Kiss, 2015:1), (Konopacka, 2015:5, The WAMECH Company), (Konopacka, 2015:2,4, The WITEK

Centre),(Konopacka,2015:2,6,DOMEX),(Szentesi,2015:1),(Wymer,2015:1,6)

Themainreasonfortheestablishmentofanewcompanyistosupportthesuccessor(s) in

startingtheirownbusinessandbuildtheirownindependence.Somefamilybusinessesare

established with limited liability while others with full and unconditional liability. As the

business grows, the operations becomemore andmore sophisticated and so the owners

usuallytendtochangethefamilybusinesslegalformtoalimitedliabilityfirm.Thisisusually

motivatedby:businessgrowth,thegrowingcomplexityofoperationsandtheimminenceof

succession.

71

V.1.2.PatternsofOwnershipandManagementTransfer:DegreeofSynchronisation,Its

InstantversusGradualCharacter

Thechangeofownershipstructureisanaturalresultoffamilybusinesssuccession;theretiring

generationpassestheownershiptothenextgeneration.Dependingonthevaluesoftheolder

generation,thefamilystructureandmotivationsthemethodofownershiptransfer(onetime

orgradual)canvary.IncaseofWAMECCompanythetransferofthemanagementandthe

ownershipofthecompanyweresynchronised:

AtParodanEngineeringparentsdecidedtograduallytransfertheownershipofthebusiness:

‘Harryandhiswifehavemadeprovisiontograduallytransfertheownershipofthebusiness

bypassingafurther3.5%ofsharestoeachsoninthebusinessuntilatimewheneachson

holds40%withtheparentsretaininga20%share(10%each).However,recentlyHarryand

ElizabethhavetakenlegaladviceandnowplanthatPaulandRobwillreceiveastagedtransfer

of90%ofthesharesandwillalsoinherittheremainingsharesupontheirparents'deaths.’

(British-ParodanEngineering,Wymer2015:2,6)

Preparingawillmayfacilitatethesuccessionprocessandhelpstoavoidturmoilinthefamily.

Research suggests small business owners aremore likely tomake awill than the general

population(Brooker,2007:4).Thereasonfor it is thatbusinessownersare incontactwith

professionaladvisorswhoinformthemofthenecessityofhavingawill(Gaffney,Rhysand

Jones,2013:110).

InallthreeERASMUS+INSISTProjectmembercountriestheinheritancetaxsystemisrather

favourableforfamilybusinessesbutusuallyeveryfamilybusinessrequiresuniquesolutions,

thereforetheyareadvisedafterclarifyingtheirfutureplanstoaskforthehelpoflegalandtax

expertstofindthemostsuitablelegalandtaxsolutions(Devins–Jones,2015:39-45),(Surdej,

2015:28-30),(Gubányietal.,2015:20-28).

V.2FinancingFB:MoreResilientBehaviourinPeriodofTough(Crisis)

Times

72

Thefinancialperformanceoffamilybusinessesdiffersfromnon-familyones.Kachaneretal.

(2012:104-106)highlightedthatduringgoodeconomictimesfamilycompanieshaveslightly

lowerearnings, butduringdownturns theyoutperformnon-familybusinesses. Theyargue

thatthereasonforthischaracteristicisfamilybusinessesfocusonresilience,notshortterm

performancewhichinfluencesthefollowingstrategicchoices:familybusinessesarefrugalin

goodtimesandbad,carrylittledebt,keepthebarhighforcapitalexpenditures,acquirefewer

companies,arediversified,internationalised,andaregoodinretainingtalent.

Despite familybusinessperformanceand survivabilityduringa recessionbeinga frequent

researchtopic, therearenoclearandreliableresults.Companycasesdonotgive indicate

whetherthefamilybusinesses’performanceandsurvivabilitychancesarehigherthantheir

non-familycompetitorsbutgiveinsightsintotheirstruggles:

‘ ... in times of hardship, suchas during the recession, theWoodparents andPaul all put

personalresourcesintothebusinesstokeepitgoingandavoidreducingstaffnumbers.Indeed,

theparentsinvestedtheirhomeandpensionsagainstthebusinesstoensureitsurvivedforthe

nextgeneration.Theseexperienceshavehelpedtoshapethevaluesandprioritiesofthenext

generationandPaulhasresolvedtoputthebusinessonafirmfinancialfooting.In2014he

wasabletorenegotiatethecompany’sbankingarrangementstoreleasehisparents’equity

fromthefirmwiththeborrowingnowbeingagainstthebusinessratherthantheirpersonal

assets.’(British-ParodanEngineering,Wymer,2015:8)

‘Agreedequalremunerationforfatherandsons,thesuspensionofpaymentsintimesofacrisis

has developed the sense of responsibility and solidarity among them.’ (Polish – Pillar Ltd.,

Gorowski,2015:8)

‘Duringtheeconomicdownturn,bothofthesonsstillatthecompanyweregifted5%ofthe

shares by their parents as a reward for staying with the business.’ (British - Parodan

Engineering,Wymer,2015:2)

V.2.1Sourceofstartingcapital:‘bootstrapping’practice

Atthestartmostofthebusinesseshaveincompletefinancialdataandplans,theavailable

collateralisinsufficient,andsoitisverycommonthatatthebeginningafamilybusiness’sonly

73

sourceoffinanceistheprospectiveowners,theirfamiliesandfriends.Companycasesalso

supporttheimportanceoffamilyassetsatthefoundingofthefamilybusiness.Inthecaseof

FeinWinerythefoundermanagersupportedfinanciallytheoperationintheearlystagesof

thebusinessandevenlaterhispersonalwealthwasthemainsourceofinvestment:

‘The founder manager, Tamás wanted to give a position to Péter, thus he financed the

operationofthefamilyvineyardsandPétermanagedit.Inthisperiodthefoundermanager

workedaseconomist,vintner,corporate leader,bankaccountmanager.…Tamásprovided

financialsupportandinvestmenttothebuildingofthefamilyestate.’(Gubányi,2015:19)

OneofthemostprominentHungarian logisticcompaniesBI-KALogisticswasalsofounded

with thehelpof the founder’sparents-in-law (Hungarian-BI-KA Logistics,Kiss, 2015:1).At

QualityMeatLtd.theearlystageswerealsofinancedfromfamilysavings:

‘Thefirsttaskatthestartwastoprovidethefoundingcapital.Thecompanywassetupfrom

savingsandintheearlyperiodtheytriedtooperatebykeepingcostsverylow.Theymoved

forwardwithsmallsteps,alwaysreinvestingtheprofitsanddevelopingtheirassets.’(Szentesi,

2015:14)

In the case of such family businesses which are already operating the major sources of

financingare reinvestedprofit, short-termbank loansand the savingsof familymembers,

relativesorfriends.8

Polish researchers in the following table summarized themain sourcesof capital in family

firms:

Table12.Sourcesofcapitalinfamilyfirms

Longtermcapital Shorttermcapital

8 Global advisory firm KPMG in its recent report analysed high-net-worth individuals (HNWI) role in family

business financing. HNWIs are usually close friends or relatives of family business owners. They share family

businesses long term view, and are trusted, flexible partners. HNWIs are usually high-level experts who

contribute with their advice and expertise to family business development (KPMG, 2014:8-11). The term

HNWI is rather used in a large company context but some similarity can be discovered among relatives’ and

friends’ financial support for micro and small family businesses and HNWIs activity in large company

financing.

74

Reserves Shorttermbankloans

Longtermbankloans Recurrentloans

Creditguarantees Tradecreditfromsuppliers

Leasing Tradecreditfrompurchasers

Franchising Factoring

Bonds Loansfromnon-bankinginstitutions

Subsidies Shorttermfinancialobligations

Resourcesfromstructuralfunds Loansfromfamilyandfriends

Loansfromfamilyandfriends

Source:A.Skowronek-Mielczarek,Małeiśrednieprzedsiębiorstwa,źródłafinansowania,WydawnictwoCHBeck,

Warszawa2005,s.31.inSurdej,A.(2015)NationalReport(LiteratureReview),Erasmus+INSISTProject,Krakow:

KrakowUniversityofEconomics,March,p.28

As reported by the European Family Business Barometer financing their operations and

growth is not an issue for family businesses. 80%of them confirm that they do not have

difficultieswith funding. Theirmost preferred financing are bank debts and use of equity

(EuropeanFamilyBusinessBarometer,2014:14,16).Companycasesalsosupportthefamily

businessespreferencetowardbankloansandequityfinances:

‘Thechildrencontinuedtorentcommercialspacefromtheirmother,payingfor it fromthe

income earned in their business activities. Thanks to this arrangement and the income

generatedfromherownbusinessactivity,Karolinawasabletopayoffthebankloansshehad

takentobuildtheretailcentre.’(Polish–WitekCentre,Konopacka,2015:4)

Howeverbankloansareconsideredasconservativefinancialmethodsandanunfavourable

economicclimatecancausedifficulties:

‘Intheyears2009-2012thecompanysufferedfromaseriouscrisisofthePolishrealestate

market.Sincethegroupactivitieswerelargelyfinancedbybankloansthecompanywasunder

toughpressurefromthebanksthatimposedtightdeadlinesforloanrepaymentsbutdueto

thesolid foundationsof the familybusinessmodelandconsistentlycarryingoutpreviously

75

adoptedpolicies,thecompanymanagedtosurviveandsince2014theenterprisehasreturned

tothepathofdynamicdevelopment.’(Polish–PillarLtd.,Gorowski,2015:1)

In familybusinesses (especially in smallerones) thebusinessand the family's financesare

often mixed. The most common reason is that the liquidity imbalance can be solved by

reallocationofeitherthecompany’sorthefamily’sresources.Mandl(2008:55)statesthatif

familyandbusinessfinancesarenottreatedseparatelyfamilylifeeventssuchasmarriage,

divorce,birthofchildren,retirementanddeathmayaffectthefinancialstabilityofthefamily

business.However,beforejudgingfamilybusinessesformixingfamilyandbusinessfinances

it is worth examining Yilmazer and Schrank’s (2010:402) comparison of intermingling and

bootstrapping(whichisconsideredasaveryeffectivebusinessfinancingmethod).

76

Table13.Interminglingandbootstrapping:SpecialFinancialToolsforFB

BOOTSTRAPPING

INTERMINGLING

Useofownerresourcestobenefitthe

business

Loansfromrelatives

Cashfromrelatives

Personalsavings

Useofpersonalcreditcard

Householdpropertyusedascollateralfor

businessloans

Familylabouratnopayorbelow-market

rates

Managerhasanotherjobandtakesno

payfrombusiness

Managerforegoespayforatime

Businessuseshomespaceandutilities

Useofbusinessresources

outsidethebusiness

Loansfrombusinessto

relative

Businesscashusedtohelp

householdcash-flow

problems

Businesspurchasesitems

usedbythefamily

Businesspaysfamilyat

higherthanmarketrate

Businessassetsusedas

collateralforfamilyloans

Ownersdrawings

Businessstrategiesrelatedtocustomer/

supplier/communityresources

Accountsreceivablemanagement

methods(e.g.,speedupinvoicing,choose

customerswhopayquickly,cease

businesswithlateornonpayers)

Sharingorborrowingresourcesfrom

otherfirms(sharedspace,equipment,

employees)

Delayingpayments(suppliers,taxand

employees)

77

Minimizingofresourcesinvestedinstock

throughformalroutines

Useofsubsidies

Source:YilmazerT.–SchrankH.(2010:402)

Thecomparisonhighlightsthatinterminglingandbootstrappinghaveoverlappingareasand

thereforeonecan’tclearlycriticizetheinterminglingoffamilyandbusinessfinances.

V.2.2Financialcharacteristicsoffamilybusinesses

Familybusinesses(especiallySMEs)financialdecisionsareaffectedbythefollowingfactors

(Csákné,2012:17):

• businessdecisionsprimarygoalisnotexclusivelyprofitability,

• simultaneous presence of family and business financial needs requires careful

coordination,

• favourablehandlingoffamilyneedsattheexpenseofbusinessneeds,butwecanalso

experiencethepostponementoffamilyinvestmentsforthesakeofbusinesstoo.

The following table summarizes the main financial issues of family businesses, their

specialities and those family business’ characteristics which affect family firms’ financial

behaviour.

78

Table14.Relationbetweenpracticeoffinancingandfamilyroleinbusiness

Issue Practiceoffinancing Familyattitudetobusiness

Parallelfinancingoffamilyand

familybusiness,financing

succession

•interminglingoffamilyand

businessfinancing

•usingfamilyassetsas

collateral

•thefamilybusiness

representsasignificantportion

oftheownerfamily’swealth

•successionrequirescareful

financialplanningand

preparation

•desiretokeepthefamily

businessownershipand

managementwithinthe

family

•commitment

•long-termapproach

•ensurethefamilyfinancial

independence

•importanceofmaintaining

goodreputation

•Riskavoidance

•paternalism

•interminglingoffamilyand

businessaffairs

•familydominanceinthe

managementofthe

business

•refusalofemployingnon-

familymanagers

•nepotism

Financialmanagement,

borrowingandindebtedness

•avoidingfinancialrisks

•lesssophisticatedfinancial

management

•preferenceofdebtfinancing

overequityfinancing

•lowerdebtratiothaninnon-

familyfirms

Sourceofcapital,external

(non-family)capitalraising,

sellingthefamilybusiness

•maximumusageoffamily

resources

•rejectionofexternal(non-

family)capitalraising

•definingthevalueoffamily

businessisdifficult

Source:Csákné(2012:17)

Inallthreecountrieswecanfindexampleswherefinancesarecontrolledbyfamilymembers.

Trusthastobethekeyintheexplanationofthischaracteristic.Financialmanagementofthe

companyisoftenataskdedicatedtowomen,especiallyinsmallerfamilybusinesseswhere

79

usuallythefounder’swifehasakeyroleinvolvingthebusiness’sdailyfinances.(SeeAnnex1).

Wivesoftentrainthemselvestoeffectivelysupportthefamilybusiness:

‘Thefounder’swifehasbeensupportingherhusbandsincetheverybeginningofthecompany

and has herself been engaged in the family business. She9 learned book-keeping and

accounting in order tohelpher husband in running the company.’ (Polish – TheWAMECH

CompanyRegisteredPartnership,Konopacka,2015:7)

Furtherresearchonfamilymembers’roleinthefamilybusinessfinances,mappingareasthat

familybusinessestendtokeepforthemselvesmaygiveinterestingresults.

V.2.3Financialaspectsofsuccession:conflictingviewsofpredecessorandsuccessor

Succession, i.e. the act of transferring thebusiness itself to thenext generation, is a very

importanteventinthelifeoffamilybusinesses.Wiktor(2014:66-68)pointsoutthatfamily

businessownersplanningbusinesssuccessionneedtofocusontiming,transitionandtaxes.

Family business succession is a complex management challenge with significant financial

aspects.Leadershiptransferwithinthefamilyrequiresmoresophisticatedfinancialsolutions

thanacompanysalewherethebuyerpaystheagreedpriceandthenbecomestheownerof

thecompany.Ifthefamilybusinessownerdecidestokeepthefirmwithinthefamilycareful

financial planning isneeded todefine the future incomeof the founder (one timemoney

withdrawal, regular income from the business),whosemost important personalwealth is

probablythefamilybusiness(Csákné,2012:19).Foradetailedanalysisofthetypicalbusiness

transferoutcomes,theirfinancialneedsandpossiblesourcesseeAnnex2.

Companycases,ofcourse,donotcoveralltypesofbusinesstransferoutcomes.Theyfocus

onthemostpreferredsolutionwhenthebusinessownershipandmanagementiskeptwithin

the family. The results obtained from Parodan Engineering company case suggest that

financialproblemswithinthecompanymaybecomeaburdenforsuccession:

‘A succession planwas implied but never discussed in any detail by Harry. As he reached

statutoryretirementage,Harryhintedatsteppingbackfromthebusinessbut itwasnever

9 Originally she is an engineer.

80

openlydiscussedwithhissons.SometimesRobandPaulwouldhearaboutvariousscenarios

fromthirdpartyadvisorsandclientsbutaclearplanwasneverformulatedandcommunicated.

Paul surmises that this reluctance by his father was due to the financial pressures of the

businessandthelackofclarityforitsfuture.’(British-ParodanEngineering,Wymer,2015:5)

Financial management can be an important area where the predecessor and successor

approachesdiffer.AshappenedatParodanEngineeringsuccessors(oftenasalessonlearned

fromtheeconomicdownturnstartedin2008)aremorerigorouswhenitcomestofinancial

control:

‘Throughoutthemajorityofhistenure,Harrytookakeenerinterestintheproductionprocess,

thepeoplethecompanyemployedandtheperceptionofthebusinessinthelocalcommunity

andspentlittletimeonfinancialmatterssuchascashflow,onlydedicatingtimetofinances

when there was a serious problem. However, in the last five years of his ownership this

changedandthe financialpressures thebusiness faced (not leastbecauseof theeconomic

downturn) became a huge burden onHarry and undoubtedly affected his health. Perhaps

havingobservedhisfather’sapproachtofinancialmanagement,Paulisfarmorecommercially

oriented,withambitiousgrowthplansandakeeneyeforfinancialdetailsthatcanmakea

significant difference to the bottom line performance of the company.’ (British - Parodan

Engineering,Wymer,2015:7)

One of themost challenging tasks of business transferwithin the family is to arrange its

financialaspect.Thefinancialsolutionshouldbesatisfyingtotheretreatingfamilymembers

withoutrequiringtoomanyresourcesfromthesuccessorsorthecompany.Thesolutionat

PillarLtd.canbeconsideredasbestpractice:

‘As far as the process of ownership transfer was concerned, the founder, Mr Pillar was

graduallypassingoverhisparentcompanysharestohissonsin25%stocktranchesperyear.

Theownerpassedallthesharestohissonshavingonlykeptwithinhispersonalpropertythe

minorityshareholdingofoneofthepartnershipsthatdealswithrentingmunicipalflats.From

the economic point of view, taking financial control over the company didn’t require any

resources fromthe successorsother than theirownwork for thecompany.Both sonshold

equalstakesinthecompany,sononeofthemisabletoformallysolelycontrolthegroup.The

fatherremainsanemployeeofthecapitalgroupandreceivesamonthlysalaryequaltothe

81

salaryofeachofhissons.Alladditionalincomeisre-investedintheactivitiesofthecapital

group.’(Polish–PillarLtd.,Gorowski,2015:7)

Thefutureofthefamilybusinesseshighlydependsonthesuccessofgenerationaltransfer.

Planning the financial aspects of business transfer requires creativity, foresight and

developmentofuniquesolutions(Csákné,2012:19).

82

VI.Concludingremarks

TheFBisnotonlyheavilypresentintoday’seconomybutitimprovesitspositioninthefuture

globaleconomytoo.Theshareofthissectorwillincreaseto37percentin2025from16per

centin2010.Inaddition,morethantwothirdsoftheFBreportedgrowthinthelastyearand

15percentofthemplantogrowaggressivelyoverthenextfiveyearsaccordingtothelatest

internationalPwCsurvey(2014).ThesituationissimilarintheEUtoo:thissectorisemploying

morethan60millionpeopleandproducinghalfoftheEuropeanGDP.IntheINSISTproject

countries,theshareoftheFBvariesbetween65percent(U.K.)and70–80percent(Hungary

andPoland)accordingtoantheexpertassessment.

The project started with a survey of the national literature of the FB in the countries

participatingintheINISTproject.Theliteratureishighlydisparate–richerintheUKandthen

inPolandandrathermediocreinHungary–andthereisnogenerallyagreeddefinitionofFB.

InspiteoftheweakimpactoftheeffortofanEU-levelexpertgroup(2006)recommendinga

commondefinition,somecommondefinitionalgroundhasbeenidentified.IndefiningFBthe

followingthreedimensionsshouldbetakenintoaccount:ownership;governancestructure;

andthefamilymembers’participationinthedailyoperationofthebusiness.Inaddition,the

statistical data on the FB are not collected systematically and are inconsistent making it

difficulttoprovideadetailedandcomparablepictureontheeconomicandsocialweightof

theFBintheINSISTprojectcountries,too.

Toovercometheseshortcomingsofinformationandknowledge,theinternationalconsortium

membersdesignedandappliedacombinedresearchmethodology.Project teammembers

carriedoutanationalliteraturereviewfocusedonthetopicofsuccessionandmade–atleast

two–companycasestudiesinvarioussectorsofthenationaleconomies.

In relation with the social-cultural environment of the FB, it is necessary to stress the

distinctiveroleofentrepreneurialvaluesbasedontwostructural factors:1:businessvalue

dimension (firm versus family orientation), 2: psycho-social value dimension (self- versus

group-orientation). Contradictory features of the FBs’ development has always been

originated its formal / informal regulations. The consciously-planned move from the

informality-loyaltybasedcultureofthefounderstoaformalisedefficiency-basedstructureis

usually initiated by the second generation. Internationally exposed and well-educated

83

children–usuallywithbusinessstudies(MBA),etc.strivefordevelopmentofamoreformal

businessmodel,doubledgovernance structure in contrast to theirparents’more informal

paternalisticleadershipstyle.

Havingasuccessionplan isaprimaryand importantstep indesigningsuccession.Without

carefulplanningforthesocializationofthefuturesuccessorthesmoothtrans-generational

changesareatstake.Inthisrespect,theremustbeabalancebetween‘parenting’(i.e.afamily

careorfamilymentoring)and‘non-familymentoring’(i.e.amoredetached,businessfocused

approach). A variety of patterns were observed in the INSIST company case studies. The

following three patterns were identified: 1. Management transfer completed without

ownershiptransfer,2.Managementandownershiptransferunderprocess,3.Management

andownershiptransfercompleted.Education/trainingofsuccessor-whethertherearefamily

ornotfamilymembers–isanimportantfacilitatorinthesuccessionprocess.

Beyondthefinancialandeconomicsurvivalofthefirm,theFBintendstosustainandtransmit

tothenextgenerationtheso-called‘socioemotionalwealth’(SWE)orendowment,too.Inthis

respect,itisworthmentioningthatthe‘pro-growth’strategy–andtherelatedSEWtransfer

–dominatesthecompanycasessurveyed.ExceptionalstrengthorgrowthpotentialoftheFB

derivesfromitsuniquetrust-basedsocialrelations.However,theexperiencesoftheINSIST

countries-similarlytotheinternationaltrend–revealedboththepositiveoutcomesoftrust

(e.g.demandingsacrificesfromthenon-familymembersintimesofcrisis)anditsmisusetoo

(familyownersforgettingtocompensatetheirnon-familymembers intimesofgrowth). In

order to avoid this emerging double standard in social relations, FB had to support and

transfernotonlythegenericorcorehumanvalues(e.g.correctness,reliabilityetc.)fromone

generation to another but also design and keep an ongoing incentive system and power

relationsora“secondgoverningstructure”(besidethefamilyone).

Knowledge transfer and collective learning are one of the most critical issues both in

successfuloperationofFBandfromtheperspectiveofthesmoothsuccessionprocess,aswell.

Bothprofessionalandleadershipskillsareofparticularimportanceintheknowledgetransfer.

Thesetypesofknowledgeareinmostcasestacitandaccumulatedcollectively.Thedominant

modeof learning isparticipation:aprocessofbecomingamemberofaFB throughsocial

interactions. Learning in this case is an informal socialization process that is strongly

84

connected to the identity formation of the family. Successful families create positive

narratives thatare thebuildingblocksof the family’s identityandcanbe transferredover

generations.Informalfamilymeetingslikedinnersorholidayvacationsaretheplaceswhere

familymemberscansharetheiropinionsanddiscussexperiences.Thesesocialeventsalso

contributetothecreationofrulesandnormsregulatingthebehaviourof individual family

memberstoeachotherandtothenon-familymembers.Theyalsoplayacrucialroleinthe

developmentof trust-basedsocial relations.Knowledge transfer is far frombeingapurely

business-orientedactivity; it also contributes to the ‘socioemotionalwealth’of the family,

cementing the ties between familymembers. There are two typicalways of learning and

collectingworkexperiencesinthesuccessionprocess.Inthefirstcase,successorsstarttheir

professionaleducationand/orworkinglifeoutsidethefamilybusiness. Inthesecondcase,

thesuccessorcommenceshisorhercareerimmediatelyattheFB.

InmanagingFBandsuccessionprocess,thecompanycasestudiesrevealedthreeimportant

managerial issues:1.managing thebalancebetween family andbusiness goals, 2.Human

resourcemanagement (HRM) and 3. succession planning. Regarding the balance between

familyandbusiness,theowners’motivationsrangefrom‘makingtradition’totheotherend

ofthescale,whenfirmsmerelyserveasthebasisforthefamily’sexistence.Increatingthis

balance the roleof thewifemustbe stressed. Inmost cases,whenparental andbusiness

duties are in conflict, thewife stepsback and, at leastpartly, giveup their careers in the

company inorder to fulfil familyduties.Other important issue is the involvementofnon-

familymembersinthemanagementoftheFB.Itisworthmakingadistinctionbetweenfamily-

controlledandfamily-influencedfirmsdependingoftheownershipandgovernancestructure

oftheFBs.

InHRMpracticeFBstendtousefamiliarmethodse.g.applyingfamilybehaviouralpatternsin

HRMpracticessuchaspersonalised–face-to-face-relationswithemployees,empathyand

patience towards their problems, mutual commitment etc., but it does not happen

automatically. It is theresultof thefounder’s individualchoiceoranorganicprocess (“co-

creation”) that develops when the founder and employees start the business together.

Successionisinfluencedbythreebasicfactors.Thefirstoneiswhethersuccessionisextended

tobothownershipandmanagementtransferorrestrictedtothelatter.Secondly,succession

planningplaysadecisiverole.Thescalevariesbetweenthepreliminaryplannedtothefully

85

spontaneousmodeofmanagingsuccession.Thethirdaspectiswhethersuccessorshaveto

startasarank-and-fileemployeeinthecompanyandgoupthroughaninternalcareerladder

andlearningprocessoriftheyimmediatelystartinaleadingposition(e.g.CEO).

Institutionalenvironment,legalandfinancialregulationshavebothconverginganddiverging

patternstoo.DespitetheeconomicandsocialimportanceoftheFB,itsactivityisrarelyonthe

agendaofpolicymakers.Instead,thepolicyinitiativesfocusontheSMEsandtheirinnovation,

exportandemploymentcreation roles. In relationwith the institutionaldensityof theFB,

visible differences exist between the Hungarian, Polish and British contexts: in the UK,

numerousFBResearchCentresexistincomparisontoHungaryandPoland,wherethereare

none.

ThecountriesparticipatingintheINSISTprojecthavesimilarlysoundandstablelegalsystems,

thenational literaturereviewsdidnotrevealanyproblematiclegalareas.Accordingtothe

casestudyexperiences,themostfrequentlegalissuesrelatedtothesuccessionprocessare

thefollowing:establishmentofanewcompany;changesinthelegalformsoftheFB;changes

inownershipstructure;andpreparingawill.Inallthreeprojectcountriestheinheritancetax

systemisratherfavourableforFB,butusuallyrequiresunique,customertailoredsolutions.

Theyareadvisedafterclarifying their successionplans toask for thehelpof legaland tax

advisorstofindthemostsuitablesolutions.

At the start,mostof theFBsdon’thaveelaboratedandwell-designed financialplans, the

availablecollateralisinsufficient,andsoitisverycommonthattheowners,theirfamiliesand

friendsoffersourcesoffinance:thispracticeiscalled‘bootstrapping’.Duringtheoperation,

themajorfinancialsourcesfortheFBareasfollows:reinvestedprofits,theshort-termbank

loansandsavingsoffamilymembers,relativesorfriends.InFBs–especially inthesmaller

ones–thebusinessandthefamily’sfinancesareoftenmixed.Themostcommonreasonis

that the liquidity imbalance can be solved by reallocation of either the company’s or the

family’s resources. The family business financial decisions are affected by the following

factors:1.businessdecisions’primarygoalisnotexclusivelyprofitability;2.thesimultaneous

presenceoffamilyandbusinessfinancialrequirescarefulcoordination;and3.thefavourable

handlingoffamilyneedsattheexpenseofbusinessneeds-althoughitshouldbenotedthat

86

we can also experience the postponement (delay) in family investment for the sake of

business,too.

Succession,businesstransfertothenextgeneration,isaverycrucialmomentinthelifeofa

FB. Business is a complex management challenge with significant financial impacts.

Leadership/management transfer within the family requires more sophisticated financial

solutionsthanthecompanysalewherethebuyerafterpayingtheagreedpricebecomesthe

ownerof thecompany. If theFBownersdecide tokeepthe firmwithin the familycareful

financialplanning isneededtodefine the future incomeof the founder, (onetimemoney

withdrawal, regular income from the business) whosemost important personal wealth is

probablythefamilybusiness.

87

References

AmannB.– Jaussaud, J. (2012)FamilyandNon-FamilyBusinessResilience inanEconomic

Downturn,AsiaPacificBusinessReview,Vol.18,No.2,April2012,pp.203-223.

Asaba, S. (2013) Patient Investment of Family Firms in the Japanese Electric Machinery

Industry,AsiaPacificJournalofManagement,2013-31,DOI:10.1007/s10490-012-9319-

3,pp.697-715.

Astrachan, J.H.– Jaskiewicz,P. (2008)EmotionalReturnsandEmotionalCosts inPrivately

Held Family Businesses: Advancing Traditional Business Valuation, Family Business

Review,vol.XXI.,no.2.,pp.139-149.

Bacon,N.–Hoque,K.–Siebert,S.(2013)FamilyBusinessPeopleCapital,InstituteforFamily

Business.London.

Bálint,A.(2006)Merretovábbközépvállalkozások?Stratégiailehetőségekavállalkozásátadás

folyamatában, PhD értekezés, Budapest: Budapesti Corvinus Egyetem (Medium-sized

enterprises:wheretogo?PhD-dissertation)

BIS(2012)GrowthAccelerator.DepartmentforBusinessInnovationandSkills.London.

Bogáth,Á.(2013)Acsaládivállalkozásokbanmegjelenősajátosságok.Vállalkozásfejlesztésa

XXI.században.Budapest(Specificitiesoffamilyenterprisesinthe21thcentury)

Breton-Miller,L.–Miller,D.(2009).Agencyvs.stewardshipinpublicfamilyfirms:Asocial

embeddednessreconciliation.EntrepreneurshipTheoryandPractice,33(6),pp1169-91.

Brooker,S.(2007)FindingtheWill–AreportonWill-WritingBehaviourinEnglandandWales.

NationalConsumerCouncil.London.

Brown,J.S.–Duguid,P.(1991)OrganizationalLearningandCommunitiesofPractice:Towards

aUnifiedViewofWorking,Learning,andInnovation.OrganizationScience2(1),pp.40-

57

CsáknéFilepJ.(2012):Acsaládivállalkozásokpénzügyeineksajátosságai/Specialitiesoffamily

businessfianancing,Vezetéstudomány/ManagementReview,XLIII.évf.,9.szám,pp.15-

24.

Davis, J. A. (1982) The Influenceof Life Stageon Father-SonWorkRelationships in Family

Companies,(doctoraldissertation,HarvardUniversity)

88

Devins, D. (2015) Review of Family Business Research on Succession Planning in the UK,

NationalReview,Erasmus+INSISTProject,Leeds:LeedsBecketUniversity,p.66

Devins,D.–Marran,A.(2015)PodiumsLtd.,BritishCaseStudy,ERASMUS+INSISTProject,

Leeds:LeedsBecketUniversity,p.9.

Eddleston,K.A.,Kellermanns,F.W.,Floyd,S.W.,Crittenden,V.L.andCrittenden,W.F.(2013)

‘Planningforgrowth:Lifestagedifferencesinfamilyfirms’,EntrepreneurshipTheoryand

Practice,Vol.37,No.5,pp.1177-1202

Engeström, Y. (1999) Innovative learning in work teams: Analyzing cycles of knowledge

creationinpractice.In:Engeström,Y.–MiettinenR.–Punamaki,R.-L.(eds.)Perspectives

onActivityTheory.Cambridge:CambridgeUniversityPress,pp.377-404.

Engeström,Y.(2004)TheNewGenerationofExpertise:Seventheses.In:Rainbird,H.–Fuller,

A.–Munro,A.(eds)WorkplaceLearninginContext.London:Routledge,

Eraut,M.(2000)Non-formallearningandtacitknowledgeinprofessionalwork.BritishJournal

ofEducationalPsychology,70,pp.113-136.

European Family Business Barometer (Amore confident outlook), (2014) EFB – European

Family Businesses – KPMG Cutting Through Complexity, December, p. 27.,

www.europeanfamilybusinesses.eu

TheEconomist(2014)FamilyFirms(Businessintheblood),November1st,pp.1-6.

TheEconomist(2014)Familycompanies.Relativesuccess.(Thereareimportantlessonstobe

learnedfromthesurprisingresilienceofFamilyfirms),November1st,pp.1-3.

TheEconomist(2015)Samsung–TheSoftSuccession,May23rd,pp.53.54

Fernandez-Aráoz C. – Iqbal S. – Ritter J. (2015): Leadership Lessons from Great Family

Businesses,HarvardBusinessReview,April2015,pp.83-88.

Fletcher, D. (2008) Overview of Family Business Relevant Issues – Country Fiche – U.K.,

Overview of Family Business Relevant Issues, EU FP – European Commission, DG

Enterprise and Industry, Project Co-ordination: KMU – Austrian Institute for Family

Business,p.20.

89

Gaffney-Rhys, R. and Jones, J. (2013): Where there is a will there is a way. Attitudes to

inheritance planning among small business owners. International journal of Law and

Management,Vol55,No2,pp103-122.

Gere, I. (1997) Családi vállalkozások Magyarországon, in: Családi vállalkozások

Magyarországon,kutatásizárótanulmány,Budapest:SEEDAlapítvány(Familybusinesses

inHungary–researchreport)

GlobalFamilySurvey–UpCloseandprofessional:thefamilyfactor,(2014),PriceWaterhouse

Cooper,p.39.www.pwc.com/familybusinesssurvey

Gómez-Mejía,L.R.–HaynesK.,-Nunez-Nickel,M.–Jacobson,K.–Mayano-Fuentes,J.(2007):

Socioemotional wealth and business risks in family-controlled firms: Evidence from

Spanisholiveoilmills,AdministrativeScienceQuarterly,Vol.52,Nr.1,pp.106-137.

Gorowski, I.(2015)PillarLtd.,PolishCaseStudy,Erasmus+INSISTProject,Krakow:Krakow

UniversityofEconomics,p.9.

Gubányi,M.(2015)FeinWinery–HungarianCaseStudy,Erasmus+INISISTProject,Budapest:

BudapestBusinessSchool–FacultyofFinanceandAccounting,May,p.19.

Gubányi,M.–Csákné,F.J.–Kiss,Á.–Csizmadia,P.(2015)NationalReportonFamilyBusiness

inHungary,Erasmus+INISISTProject,Budapest:BudapestBusinessSchool–Facultyof

FinanceandAccounting,March,p.36.

Habbershon,T.G.,–Williams,M.L. (1999)A resourcebased framework forassessing the

strategicadvantagesoffamilyfirms.FamilyBusinessReview,12,1–25.

Hager, P. (2004) Lifelong learning in the workplace? Challenges and issues. Journal of

WorkplaceLearning,Vol.16Iss:1/2,pp.22-32

IsaacG.(2014):CreatingaPlanforRealizing‘Trapped’Wealth,FamilyBusiness,November-

December2014,pp.18-27.

Kachaner,N.–Stalk,G.–Bloch,A.(2012)WhatyoucanlearnfromFamilyBusiness(Focuson

resilience, not short-termperformance),HarvardBusiness Review,Novemer, pp. 103-

106.

Kiss,Á. (2015)BI-KALogistics,HungarianCaseStudy,Erasmus+ INISISTProject,Budapest:

BudapestBusinessSchool–FacultyofFinanceandAccounting,May,p.8.

90

Konopacka,A.(2015a)DOMEX–JointStockCompany,PolishCaseStudy,Erasmus+INSIST

ProjectKrakow:KrakowUniversityofEconomics,p.9.

Konopacka,A.(2015b)TheWAMECHCompany:ProducerofIndustrialTrade–PiotrandAblina

Wasik Registered Partnership – Polish Case Study, Erasmus + INSIST Project Krakow:

KrakowUniversityofEconomics,p.9.

Konopacka,A.(2015c)TheWITEKCentre,PolishCaseStudy,Erasmus+INSISTProjectKrakow:


Kowalewska, A. (ed.)- Jagusztyn, K. T. – Zimmerman, P. – Szut, J. (2011) II szansa dla

prezdsiebeiorcow,Raportzbadan,Warsaw:PolskaAgencjaRozwojnPrzedsiebiorczosci

KPMG(2014):Familymatters-FinancingFamilyBusinessgrowththroughindividualinvestors

Lambrecht,J.–Donckels,R.(2006)Towardsabusinessfamilydynasty:alifelong,continuing

process,In:Poutziouris,P.Z.–Smyrnios,K.X.–Klein,S.B.(eds)HandbookofResearch

onFamilyBusiness.Cheltenham:EdwardElgarPublishing

Lave,J.–Wenger,E.(1990).SituatedLearning:LegitimatePeriperalParticipation.Cambridge,

UK:CambridgeUniversityPress.

Lee,T.–Fuller,A.–Ashton,D.–Butler,P.–Felstead,A.–Unwin, L.–Walters,S. (2004)

Learning as Work: Teaching and Learning Processes in the Contemporary Work

Organisation.LearningasWorkResearchPaper,No.2,CentreforLabourMarketStudies

UniversityofLeicester,p.41

LewandowskaA.(2014),Metodologia,7kroków,www.sukcesja.org.pl/metodologia

Mandl,I.(2013)RestructuringinSMEsinEurope,Eurofound,Luxemburg:PublicationOffice

oftheEuropeanUnion,p.108

Mandl,I.(2008)OverviewofFamilyBusinessRelevantIssues,EUFP,EuropeanCommission,

DG Enterprise and Industry, Ctr.no.: 30-CE-0164021/00-50, Final Report, Wienna:

AustrianInstituteforSMEResearchinCo-operationwithWVO-EHSLBrusselsandTurku

SchoolofEconomics,p.79

Martin, R. (2008) Post-socialist segmented capitalism: The case of Hungary. Developing

businesssystemstheory.HumanRelations61(1):131-159

91

Miller,I.L.,Miller,D.,andSteier,L.P.(2004)TowardanintegrativemodelofeffectiveFOB

succession.EntrepreneurshipTheoryandPractice,28(4),pp305-28.

MillerD.–LeBretonMillerI.(2014)DeconstructingSocioemotionalWealth,Entrepreneurship

TheoryandPractice,July,2014,pp.713-720.

Nordqvist,M.(2011)‘Understandingstrategyprocessesinfamilyfirms:Exploringtherolesof

actorsandarenas’,InternationalSmallBusinessJournal,Vol.30,No.1,pp.24-40

Paszkowska, R. (2015) Plantex, Case,Polish Case Study, Erasmus + INSIST Project Krakow:


Pedder,R.–Deans,C.(2014)EuropeanFamilyBusinessTaxMonitor(Comparingtheimpact

of tax regimes on family business), European Family Business (EFB) – KPMG, p.

23.(www.europeanfamilybusiness.eu;www.kpmgfamilybusiness.com)

Petheő, A. – Filep, J. (2008)Overview of Family Business Relevant Issues – Country Fiche

Hungary, Budapest: Corvinus Unvivesity of Budapest – Small Business Development

Centre (SBDC), Overview of Family Business Relevant Issues, EU FP – European

Commission,DGEnterpriseandIndustry,ProjectCo-ordination:KMU–AustrianInstitute

forFamilyBusiness,p.17.

PolicyBriefonSeniorEntrepreneurship (EntrepreneurialActivities inEurope)OECD (2012)

Luxemburg:PublicationsOfficeoftheEuropeanUnion,p.27

Puri,M.–Robinson,D.T.(2013):TheEconomicPsychologyofEntrepreneurshipandFamily

Businesses,JournalofEconomics&ManagementStrategy,Vol.22.Nr.2.,2013,pp.423-

444.

PWC(2007)Makingadiffernce.ThePricewaterhouse-CoopersFamilyBusinessSurvey.2007/8

Sfard, A. (1998) On two metaphors for learning and the dangers of choosing just one.

EducationalResearcher,27(2),pp.4-13.

Sharma,P.–Blunden,R.–Labaki,R.-Michael-Tsabari,N.-RiveraAlgarin,J.(2013):Analyzing

FamilyBusinessCases:ToolsandTechniques,CaseResearchJournal,Volume33,Issue2,

p.1-20.

Sułkowski Ł. (2004),Organizacja a rodzina.Więzi rodzinnew życiu gospodarczym, TNOiK,

Toruń

92

Sułkowski,Ł.–Marjański,A.(2009),Firmyrodzinne,Poltext,Warszawa

Surdej, A. (2015) National Report (Literature Review), Erasmus + INSIST Project, Krakow:

KrakowUniversityofEconomics,March,p.34

Surdej,A.(2015)FamilyFirmsChangetheFaceofCapitalism(AninterviewwithProf.Jozef

Horak–DirectorofFamilyOwnedBusinessInstituteatSeldamCollegeofBusiness,Grand

ValleyStateUniversity),Krakow:KrakowUniversityofEconomics,March,p.4.

Szentesi,I.(2015)QualityMeatLtd.(GoodPracticeintheSuccessionProcess),HungarianCase

Study,Erasmus+INISISTProject,Budapest:BudapestBusinessSchool–FacultyofFinance

andAccounting,May,p.12.

Tynjälä, P. (2007) Perspectives into the learning at the workplace. Educational Reseacrh

Review,3,pp.130-154

Vecsenyi, J. (2009)Kisvállalkozások indításaésműködtetése/Startingandoperatingsmall

businesses,AULAKiadó,Budapest

Wymer,P.(2015)ParodanEngineering,BritishCaseStudy,ERASMUS+INSISTProject,

Leeds:LeedsBecketUniversity,p.10.

Ward, J. (1987)Keeping theFamilyBusinessHealthy:How toPlan forContinuingGrowth,

Profitability,andFamilyLeadership.SanFrancisco,CA:Jossey-Bass

WiktorJ.R.(2014)TheFamilyBusiness:PreservingandMaximizinganInvestmentinthePast,

Present,andFuture,JournalofTaxationofInvestments,Vol.31,Nr.2,2014Winter.pp.

65-79.

Wenger,E.(2006)Communitiesofpractice:abriefintroduction.Self-publishedreport

Yilmazer T. – SchrankH. (2010) TheUse ofOwner Resources in Small and FamilyOwned

Businesses: Literature Review and Future Research Directions, Journal of Family &

EconomicIssues,2010-31,DOI:10.1007/s10834-010-9224-1,pp.399-413.

Zuromski, R. (2008) Overview of Family Business Relevant Issues – Country Fiche Poland,

InstitytBbadannadPrzedsiebiroczosciaiRowwojemEkonomicznym(EEDRI),Overview

ofFamilyBusinessRelevant Issues,EUFP–EuropeanCommission,DGEnterpriseand

Industry,ProjectCo-ordination:KMU–AustrianInstituteforFamilyBusiness,p.16.

94

Annexes

Table15.Familymembers’roleinfinancialmanagement

Companycase UnitedKingdom Poland Hungary

PillarLtd. Founder’selderson

FeinWinery Founder’swife

TheWAMECH

Company

Founder

Managementboard

Founder’swife

Founder’sdaughterin

law

QualityMeatLtd. Founder

Founder’swife

ParodanEngineering

Founder’swife

Founder’sson

(managingdirector)

Non-familyfinance

director

Source:Owncompilationbasedoncompanycases(Gorowski,2015,Gubányi,2015,Konopacka.2015,The

WAMECHCompany,Szentesi,2015,Wymer,2015

95

Table16.Typicalbusinesstransferoutcomes-Financialneedsandtheirpossiblesources

Financialneed Sourceoffinance

Managementtransfertorelatives

Changeofcompanyform:advisers,lawyers,fees,

taxes

Retainedprofits

Bankoverdraft

Changeofgroupstructure:advisers,lawyers Retainedprofits

Bankoverdraft

Retiredfamilymembers:

- onetimebenefits

- regular(fixedorvariable)incomes

Retainedprofits

Salesofexistingassets

Bankoverdraft

Bankloan(dependingontheamountandthe

profitabilityofthecompany:short,medium

orlongtermloan)

Ownershiptransferwithsaleagreement:priceof

thecompanypaidinoneamountorininstalments

Retainedprofits




orlongtermloan)

Newownerpersonalproperty

Gifting:feesandtaxes Retainedprofits

Bankoverdraft

Compensationoffamilymemberswhodon’tget

ownership

Retainedprofits




orlongtermloan)

Thenewgenerationoftenplanstomakechangesin

thecompany:newinformationandreporting

system,newpositions(newemployees),new

processeswhichcangenerateadditionalfinance

Retainedprofits

Bankoverdraft

Delegationofmanagementtonon-familyexecutives

96

Changeofcompanyform:advisers,lawyers,fees,

taxes

Retainedprofits

Bankoverdraft

Improvementofreportingsystem Retainedprofits

ImplementationofITsystems Retainedprofits

Hireinternalauditor,internalauditdepartment Retainedprofits

Qualityassurance Retainedprofits

Financialaudit Retainedprofits

Newemployees Retainedprofits

Ownerseducation Retainedprofits

Educationofnon-familyCEO Retainedprofits

Advisers,lawyers Retainedprofits

Mergerwithanotherbusinessandeitherretiring;orsteppingaside

Companyevaluation Retainedprofits

Improvementofthereportingsystem Retainedprofits

Disassociationofcompanyandfamilyproperty–

feesandtaxes

Retainedprofits


Exitingthefamilybusiness(Sellingtheownership)

Companyevaluation Retainedprofits

Improvementofthereportingsystem Retainedprofits

Disassociationofcompanyandfamilyproperty–

feesandtaxes

Retainedprofits


Closingthefamilybusiness

Paymentofliabilities Retainedprofits

Salesexistingassets

Severancepay Retainedprofits

Salesexistingassets

Warrantyobligations Retainedprofits

Salesexistingassets

Wealthmanagement Retainedprofits


Source:Owncompilation

97

ThisprojecthasbeenfundedwithsupportfromtheEuropeanCommission.

TheEuropeanCommissionsupportfortheproductionofthispublicationdoesnot

constituteendorsementofthecontentswhichreflectstheviewsonlyofthe

authors,andtheCommissioncannotbeheldresponsibleforanyusewhichmaybe

madeoftheinformationcontainedtherein.

BGE Budapest LAB · comparative research.1 This report is the synthesis of the research work...

Documents

Transcript of BGE Budapest LAB · comparative research.1 This report is the synthesis of the research work...