CEO @ US Profiling Institute | Ph.D. in Management and Personality psychology
Most companies in the world are family-owned, which is good as their goal is long-term and stable and not short-term and quick profit. A large proportion of family-owned companies are therefore the result of the fact that these companies wish to survive on the market in the long-term.
Research from 2015 by Ernst & Young and the Faculty of Economics in Ljubljana show that as many as 83% of companies in Slovenia are family-owned; they contribute 67% of GDP and employ 70% of the active working population. This is such a powerful factor for the economy and it is not dealt with by any public institution, and the state is also blind to this precious source of prosperity and stability. Research corroborates my findings that there is no tradition of family-owned companies in Slovenia: as much as 57.5% of the family-owned companies are managed by the first generation, with the second generation managing 37.1% of such companies and the third generation running 5.4%. However, more than 74% of companies are more than 20 years old.
Most family-owned companies are involved in wholesale (19.4%) and construction (18.8%). Considering that the managers of 39% of family-owned companies are older than 50, we can expect an even greater level of generation changes over the next ten years as well as an increase in the number of family members working in family-owned companies. We can thus be quite certain in forecasting that the power of family-owned companies in Slovenia will increase. Accordingly, it is high time for some legislation changes so that family-owned companies get their own chamber of commerce and industry or their own organised voice in the public arena.
Despite the high share of family-owned companies, Slovenia still does not have a precise definition of such companies. Family-owned companies in Slovenia have an unfavourable position in the country and are also not immune to crises, both social and those stemming from family relations. Good and bad characteristics are intertwined in these relations: family-owned companies are a hub where two worlds meet, namely the family world and the business world, which is why they are even more complex in terms of management. A change in one world has consequences in the other.
We could therefore say that family-owned companies are a delicate affair, but they also carry great social responsibility. They are an important creator of jobs and play a role in the fight against unemployment in their locality and in raising the quality of life. The state does not help in this matter: it requires family-owned companies to meet ever-increasing obligations so that people in such companies feel that their environment is a burden instead of helping them in the important role that they play. The entire family must give up ‘normal life’ because of the business and is deprived of the earnings collected from them by the state. Using the money collected from family-owned companies, the state also feeds those who do not understand family-owned companies or even criticise them.
In addition to all of the problems faced by such companies due to their specifics in terms of relations, an important consideration in family-owned companies is succession or the management of the company after the withdrawal (retirement …) of the manager/owner; this is the essential problem faced by family-owned companies in Slovenia these days.
Many companies do not have successor or a clear picture of how to ensure the company’s continued existence. In the long-term, a retirement can also lead to the winding up of company’s operations. But as these companies are crucial for both the local and the entire Slovenian market, it would be reasonable to put in place a system that would enable such companies to operate even after the retirement of the manager/owner.
Data from abroad prove that family-owned companies are more successful when management is assumed by a professionally qualified (“external”) manager. This format merges the best of both worlds.
Greedy State, Prudent Families
Owing to the lack of a definition of a family-owned company in Slovenia, the legislator does not devote special attention to such forms of organisation and makes it difficult for such companies to do business. The state could arrange the taxation aspects for family-owned companies as well as the labour legislation (as the owners of family-owned companies often work longer than eight hours a day) and supplementary pension insurance as members must have insurance just like the other employees. An additional blow to family-owned companies is the Financial Operations Act which was adopted in 1999, as the law stipulates that family members are liable for the debt when it is created which is unacceptable, but they were unable to convince the legislator to change the law.
Prof. Dr. Šime Ivanjko argued years ago that he sees an opportunity for Slovenia to become one of the first countries to generate a major portion of its income from family-owned companies as it has many small-sized companies, which are more flexible and can adapt rapidly. Will Slovenia capitalise on this opportunity? In the past, Dr. Ivanjko cautioned that family-owned companies are missing a sort of ‘society of family-owned companies’. The role of such an institution would not be to generate profit, but to support family-owned companies in their operations and provide professional services to them. In addition to the mentioned society, another positive factor would be a magazine devoted to family-owned companies.
From my extensive experience, I can see that companies would benefit from a sort of addition to the articles of association, i.e. a constitution such as I propose at the end; once family members working in the company were to sign this type of document and adjust it to their own specifics, they would see in advance where the biggest traps and advantages lie for them and would avoid many of the difficulties they can find themselves in because they are simply too immersed in their work and the emotional entanglement of relationships and roles.
By integrating such a ‘constitution’, they would not only arrange family relationships but naturally introduce a dynamic management model into their company as well as introducing changes in a timely manner that would enable healthy growth and eliminate dilemmas with regard to succession. The basic relationships would thus be clearly arranged even before the commencement of the handover of ownership or management.
When the cause of the establishment of the company is the resolution of social status, we run into a problem that can even grow into a fully-fledged crisis. A crisis can occur when the younger generation takes over the company as they inherit a company that has the same objective as the one their parents had: survival. They should change the objective as the conditions for survival were provided to them by their parents. Their goals should now not be to just survive, but to live. We must not intentionally bring our children up as our successors, but be a role model for them instead and show them what to do and how to do it. If they express the desire to continue the family tradition, we must not teach them the ‘craft’ alone, but mainly also the way they should think, the way they should live, economics, communication, etc. In short, we need to teach them skills they will apply to form into a complete personality and be able to live.
We should know that no family-owned company is eternal and that we cannot pass our wishes on to our offspring. The only thing we can do is to shape the company so that it brings our offspring a part of the income even if they do not work in the company.
From a Personal Experience to the Mysteries of Tradition
I resisted the suggestion of my first client that I should become a sole trader, but later accepted the conditions nevertheless. Either a sole trader as a legal entity did not seem like a company to me or I had a negative opinion about this form of organisation. I did not know that you represented yourself as a sole trader and that you guarantee the company with all of your property! My wife suggested the name and that we should develop into a brand, which we then proceeded to do. Everything started from marketing, and being a teacher, I could not move from the month-to-month time horizon.
At that moment, I could not say that it was a family-owned company as I did 99% of all the work myself. Within three years, my had wife joined the company operationally and we finally opened a private limited company with shared ownership. I then started to think long-term about what family entrepreneurship really means: does it have a special status, what problems such companies face … I gave it the old college try; I was interested in all of these stories, how relatives are organised, how they pass on knowledge, what their attitude is …
When I initially typed these and similar questions on family entrepreneurship in yahoo.com (Google was not a thing at the time), I found the following:
Of the ten oldest family-owned companies, as many as six are Italian, but the first is the Japanese hotel Hoshi Onsen that has been under the management of the same family for 1300 years.
The US-based Family Business magazine has published a list of the oldest family-owned companies which is based on continuous ownership of the company. The mentioned Japanese hotel Hoshi Onsen is listed first, while second place is held by the papal foundry Pontificia Fonderia Marinelli that has been casting church bells since 1040.
The Japanese also boasted the company Kongo Gumi that fits out Buddhist temples and was founded in 578, but the company was taken over in 2006 by the company Takamatsu.
Hoshi Onsen thus took first place. The hotel has been managed by the family since 718 when, according to legend, it was established by a Buddhist monk in a place shown to him by the god of mountains, Hakusan.
And what did I find when typing in ‘family-owned companies: escaping the crisis’?
The oldest Italian companies do not have such spiritual origins even though Pontificia Fonderia Marinelli manufactures papal bells. It was founded in the town of Agnone in the south of Italy and shares the second to third place with the French winery Chateau de Goulaine. The Marinelli foundry still uses the old bell-making technique today and its products reverberate around the world. Five of the twenty employees are members of the Marinelli family, including the CEO.
The Italian winemaker and olive oil producer Barone Ricasoli is in fourth place, while the fifth is the famous Murano glass maker Barovier & Toso, which was established in 1295. Only two of the other five companies are not Italian, the Pilgrim House hotel in sixth place and the French Moulin Richard de Bas in seventh.
Italians believe that they will recover from the recession more easily thanks to the large number of family-owned companies with long-standing tradition, and they view their economy as real and not virtual as is the case in many other developed countries.
When I delved deep into some of the stories, I saw that the key was that each of these companies with such tradition had highly binding articles of association! When I perused some of the articles of association I had access to, I learned that the key factor in the oldest ones was that the leadership functions and ownership shares were always assumed by lineal descendants and not by the family members who married into the company. This was the basic condition for the company to even be called a family-owned company as everything would have been watered down otherwise.
All therefore had the following conditions:
1. successors were the descendants;
2. they were always educated abroad or in another culture;
3. they always started at the bottom of the company so as to learn the entire process;
4. they had experience of working elsewhere so that they could make comparisons.
I also started to develop my family-owned company legally and formally; even though my wife and I did not have any children, we believed we would have them someday so that they could continue according to predetermined rules without going through all of our problems. Well, as it turned out, we did not have children and we also broke up because we believed we had made too many mistakes. But we did lay the foundations for a family-owned company.
I started saving all of this personal and research experience in a database that became the foundation for first-rate advice and sound information for all new clients.