Family-owned businesses lack conflict management

German family-owned businesses will have to face serious changes given that only one out of three companies will stay within the family once the current owner generation has retired. Such is the finding of the “Family-owned business survey for Germany 2006” presented on Tuesday in Frankfurt by the PricewaterhouseCoopers (PwC) accountancy and consulting company. The study describes a series of problems which have to be overcome by family-owned companies. In particular unsolved family disagreements on company strategy, management partnership and appropriation of earnings are issues threatening the process of company succession.

The particular kind of constellations with regard to associates and executives in small and medium-sized entities (SMEs) quite often cause a need for discussion which does not exist in this form in other companies. Major issues are company strategy, appropriation of earnings and demands by family members to be actively involved in the running of the company. Each of these aspects was mentioned by 29 percent of those questioned as a reason for disagreement. The question of how important a role family members by marriage should play in the company causes disagreement in 15 percent of all companies.

What is therefore needed is a Family Governance which defines a common system of values and objectives as well as rules for the solving of conflicts. A valuable instrument is a family council which was set up by one third of the companies surveyed either in the form of a convention of associates, committee of associates, advisory board or supervisory board. However, more than 80 percent of all family-owned businesses do not have any conflict solving procedure in place.

Nevertheless, the solving of conflicts is of particular importance in the phase where a company has to find a successor. Almost fifty percent of Germany family-owned businesses will change ownership over the next five years. More than 50 percent of current family owners are planning to sell their business, 15 are still undecided between selling and continuation by family members. Only one third is set to stay family-owned.

70 percent of companies have already dealt with the issue of changing the company´s management. 56 percent of these are also looking for suitable external executives. When selecting a company´s future leaders 76 percent of companies surveyed rely upon the opinion of other family members or that of their advisers. The services of headhunters and external advisers are only used by 15 and 12 percent respectively of family-owned companies questioned.

For the “Family-owned business survey in Germany 2006” PwC interviewed more than 1.000 European and 107 German family-owned companies. The survey is available as PDF brochure free of charge for download. GERMAN