Family Firms Play a Crucial Role in the European Economy

This is an opinion article by an external contributor. The views belong to the writer.
Family Firms Play a Crucial Role in the European Economy

During my frequent strolls in Brussels I cannot resist to taste Astrid by Neuhaus, Avelanne by Leonidas, dragées Mountain by Callebaut – just to name a few. Of course I am not able to taste all of them as I am in “the chocolate capital of the world”.

They are true inventors, innovators and masters of irresistible tastes who make our lives so sweet. Belgians know them very well but do they have something special but a taste?

Maybe not at the first sight but you may discover that they are family-owned with recipes passing from one generation to the next. Does it really matter?

Angela Merkel – the Chancellor of Germany – said the following words about family firms on her website: “Family firms think in the long-term. They exist and intend to exist for a long time; this means they operate in a sustainable way”. This long-term orientation is crucial for them – this passing of recipes for confectionery from generation to generation or in general passing recipes for a successful business.

This is also crucial for economies: “Family firms account for half of the revenues and jobs in Germany but only a few of them are well-known in the general public. This could change during the times of crisis,” wrote Die Welt.

In a rough estimation, around 60% of all businesses in Europe are family business according to a European Commission’s expert group. They are both small and large companies employing between 40 % and 50 % of the total labour force. It seems that this is a quite huge group of enterprises that should not be left without support.

Family business can be characterized within three circles: families, businesses and ownership structure. The impact of the family on the other two circles determines the family nature of the company. This impact means that family businesses are more complex than their non-family counterparts and therefore require appropriate treatment.

Lessons learned

I have been wondering whether the member states offer any institutional or legal support for their family firms. During my research I have come across many interesting country-specific experiences. Here are only a few examples.

Spain was amongst the pioneers in this field with Professor Miguel Ángel Gallo at the forefront. It is impossible to list the whole contribution of Spain to family firms, but I would like to point out the development of family governance, succession and ethical issues. You may learn about it by accessing a large library including videos, following the blog of Professor Josep Tàpies, who holds the Family-Owned Business Chair, or attending any of their educational programs.

I also would like to mention Jesús Casado who is Director General of the Instituto de la Empresa Familiar and advocating on behalf of family businesses in Brussels by being the Secretary General of the European Family Businesses federation. We are glad to have him as the expert in our INT Group in the European Economic and Social Committee (EESC).

The second example comes from Ireland. You may wonder why Ireland? This is due to the Central Statistics Office in Ireland which issued the report on Family Business in Ireland. It was quite a long ago and related to services sectors only but the attempt is worth mentioning.

Please let me also refer to Poland in this respect. The Central Statistical Office of Poland has started a project to estimate and evaluate family firms. However, we will have to wait for final results until 2017.

This statistical part will be recapped with the European Commission and its call for proposals on statistics for family businesses. This is really an important step forward in quantifying family firms. Successful projects are estimated to start as of January 2016.

In Eastern Europe family firms are more and more recognized. I would like to mention Petar Mandjoukov – owner of the Balkan Bulgarian Television – who initiated FBN Chapter in Bulgaria and was the advocate of unifying the family firms in Central and European countries. We have Milena Angelova from Bulgaria on our INT team who is involved in drawing up our opinion on family businesses in Europe.

Another example – the family code which presumes spouses who share a property and run a business to be a family business. In e.g. Italy, family businesses may be also considered by civil codes. Malta is implementing a family business act – probably the first of a kind in the world.

New proposals

We are now heading to the European Economic and Social Committee to show its contribution to family firms. During a conversation with Jacek Krawczyk – President of the Employers’ Group at EESC – we were wondering why family businesses have such a low profile at the EU.

There are many advantages of having these firms: they care for tradition, quality, employ local people and withstand market turbulences. They are backbone of many economies so how can we help them in the EU. This led to the process of setting up a study group on 22 January 2015 to draw up the opinion on Family businesses in Europe as a source of renewed growth and better jobs.

Having in mind that the EESC’s role is to animate citizenship, we decided to organize a meeting with family businesses and their stakeholders at the Warsaw School of Economics. Then we added our expertise in this field and submitted the draft opinion to the INT/765 Group for a discussion.

After a thorough discussion, the opinion was submitted for a discussion and voting at the Section for the Single Market, Production and Consumption. The voting was in total favour with some voices arguing that the work should be continued. In concluding our discussions on this opinion we called on the Commission to carry out a number of measures to promote family businesses.

· A family business category to be included in European statistics (Eurostat) and for national statistics offices to gather data on family business in an effective way;

· Better regulation on the transfer of family businesses from one generation to the next, particularly from a tax perspective, with a view to reducing the exposure of these businesses to liquidity problems;

· The family organisational climate to be promoted, the hallmark of which is long-term employment;

· Innovation among family firms to be promoted, not least by means of innovative public procurement;

· Education to be developed and research promoted in the area of family entrepreneurship;

· Family farms to be supported and cooperative-based entrepreneurship redeveloped, particularly the type which brings together family businesses;

· Tax deductions to be introduced on reinvested profits, and opportunities for family businesses to increase their capital without granting voting rights;

· Active cooperation at EU level with organisations representing family businesses, e.g. within the framework of a permanent expert group.

Future generations

Elżbieta Bieńkowska, Commissioner for Internal Market, Industry, Entrepreneurship and SMEs, writes on her website that she welcomes the initiative and looks forward to specific proposals.

I would like to mention that in line with our work on that opinion, the European Parliament with Angelika Niebler as the rapporteur prepares a report on family businesses in Europe. This really reinforces our efforts. Maybe all future activities on behalf of family firms will be coordinated by a permanent working group as suggested by Niebler. We hope that our joint initiatives will highly expose family businesses in the EU countries and allow them to live through generations.

The great economist John Maynard Keynes coined the phrase “in the long-run, we’re all dead”. This phrase has become very famous. Some argue that it reflects Keynes’ indifference to next generations since he was childless. I think that the opposite is true.

In his essay on the “Economic Possibilities for our Grandchildren” he asked the following questions: “What can we reasonably expect the level of our economic life to be a hundred years hence? What are the economic possibilities for our grandchildren?”

It’s exactly the same questions that founders of family firms use to ask themselves. They are concerned about their children and grandchildren. We wanted to give them reassurance and hope for the future by drawing up the opinion on promoting family businesses.

The European Economic and Social Committee (EESC) is a consultative body of the European Union with members from economic and social interest groups in Europe. Its opinions are forwarded to the Council, the European Commission and the European Parliament.

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