On October 31, the 13th National Day of the Family Business was held at Nyenrode. ABN AMRO and Berk Accountants and Tax Consultants, the sponsors of the Family Businesses and Company Transfer chair held by Prof. Dr. Roberto Flören, organized the event. This year, the event’s theme was ‘The power of the family business’.
After the opening speech by Hans Koning, managing partner at Berk, Roberto Flören spoke to the audience about the different aspects that contribute to the strength of the family business. In spite of the current financial crisis, Flören is optimistic about the foundation of the economy in the Netherlands: the family business.
Flören began by discussing the hard facts: family businesses generate 40% of jobs in the Netherlands; account for 45% of the Gross National Product; and represent 55% of all companies operating in the Netherlands. In other words: the family business is an extremely stable and reliable factor that will keep the Dutch economy afloat during the current difficult times.
Flören then spoke about the attitude commonly held in the 1970s towards family businesses: “People found the family business to be an emotional and unprofessional organizational form that could only survive through a sale, transfer or stock-market flotation.” Today, in 2008, the appreciation for the family business has changed and grown considerably. The evidence of this may be found in the results from the FD-Nyenrode Monitor, a study that was conducted in June 2008 among more than 500 managers and companies. The respondents gave the family business a higher score than the non-family business in every area, varying from involvement and innovation to entrepreneurship and efficiency.
The power of family businesses
How can we explain the power of the family business? In Flören’s view, the strength lies in the following factors, where a comparison is made with non-family businesses.
1. Thinking long-term—so typical of the family business—ensures stability and continuity. The next generation’s interests are always a priority: “You have to pick the apples, but be sure not to uproot the trees, so that the next generation will have an even more beautiful orchard to work with.” This was compared with the often short-term policy adopted by non-family businesses, in which the reporting requirements demand that the business must turn a profit every three months in order to keep the stockholders happy. A family business usually doesn’t have any stockholders.
2. The high level of involvement on the part of the director of a family business: With an average of 3 years in the employ of companies listed on the stock exchange and 7 years in those not listed, the involvement of the director stands out in harsh contrast to the head of the family business, with an average term of employment of 22 years. The director, the head of the family business, becomes a sort of pater familias due to his many years of involvement with the company. The family feeling and the solidarity that arise as a result normally go beyond the ‘real’ family, also extending to the rest of the company's personnel. The care for this extended family is a top priority in the family business.
This is clearly visible during times of economic malaise, during which it has been shown that family businesses are always more willing to live from their own capital and keep their personnel for much longer, instead of reorganizing to lower costs.
3. The high level of involvement on the part of the stockholders, if there are any. Family businesses often have just a small group of stockholders of, at the most, 6 or 7 people who have invested for a longer period and who are closely involved with the company. Since this group is organized and stable, people start to trust these individuals. The family business is able to communicate with them fully, making it easier to consult with them on, for example, dividend adjustments during difficult times than it would be with a large group of anonymous stockholders.
4. Decisiveness. In the family business, people are usually able to act more quickly and make more efficient decisions due to the flat organizational structure (short reporting lines), lack of steering groups or committees, and the high level of involvement on the part of the personnel.
5. Passion and drive.
Last but not least, Flören mentions the passion and drive that, in his view, are so typical of family businesses. The family business is both family and career. Due to the often-strong regional connection, the personal interest, the social involvement and the general consideration for the company and the employees, a great passion for the ‘greater good’ dominates and is shared by everyone.
However, Flören concludes that there is also another side to all of these positive aspects. Family businesses also have their weaknesses, and as is often the case, their strengths can also be their weaknesses. The passion and drive can lead to overemotional decisions, the consequences of which may not always be overseen. The attitude “we have always done it like this,” from generation to generation, involves the risk of rigidity. The high degree of involvement and the director’s long employment term can also make the company vulnerable if the director suddenly drops out of the equation. The financing, the majority of which often comes from private capital, keeps the company upright during difficult economic times, but can also have a restrictive effect when times are good and the company wants to grow. Finally, due to conflicts or poor communication, the driving force behind the company, the family, can considerably thwart or damage the company and policy.
Mr Zeeman and the Minister of Economic Affairs
Jan Zeeman of Zeeman Textiel Supers told the audience about the history and development of his family business, and provided a humorous look into how things work within his business.
During his speech, he provided clear tips to the 350 family business owners in the room. A brief sampling:
“Stay focused and remain loyal to your beliefs, certainly if you are successful and the temptations of commerce and human contact continually force themselves on you; be disciplined about payments, build up a service record; sail close to the wind, but do be sure to satisfy your obligations. You must be modest, yet active.”
Maria van der Hoeven, Minister of Economic Affairs, closed the Day of the Family Business. In her speech, she praised Nyenrode for its research into family businesses. In her opinion, the business university is the only university that conducts structural research into family businesses, and the Minister said she intends to continue to encourage future research into family businesses at Nyenrode. Mrs. Van der Hoeven concluded by saying that she wished that more universities and colleges of higher education paid so much attention to research and offered more education on the topic of family businesses.