Le Monde, one of the two major French daily newspapers recently published (on 10 March 2013) an insightful article titled: ‘The succession of Family Businesses threatens 330,000 jobs per year in France’.
KPMG is delighted that Jesus Casado, the Secretary General of European Family Business, and Christine Blondel, Adjunct Professor of Family Business from INSEAD, and Senior Advisor to KPMG on Family Business Intelligence, were quoted in the article.
According to Jesus Casado, in Europe, a family business has a very small likelihood of existing in the same form two generations later; only 15 percent of these companies remain when it comes to the third generation.
As Nicole Vulser, the article’s author, points out that this ratio shows how difficult it can be to transfer a family business to the next generation. Mr. Casado is arguing for the various authorities within the European Union to recognize that the family business is “the core of the real economy in Europe”.
The European Commission set up a working group in mid-February to give a report on the transmission of family businesses in Europe and to try to find solutions which make it possible to sustain growth and employment. The Commission had previously put forward over 12 different measures on this issue in 1994, but not all member states have responded.
Casado says that there are several countries where family business succession is highly taxed, like France, “where the level of the taxes is such that it obstructs a decent amount of transfers”. On the other hand, he lists Spain, the United Kingdom, and Sweden as countries which have taken the lead in trying to lower these taxes.
Vulser states that for thousands of European SMEs, the difficulties in successfully passing the family business from one generation to another can lead to a massive loss of employment, even if one takes into account repurchases by other owners. According to a study carried out by Dynamics Business in 2010, “roughly 450,000 family businesses are transferred every year in the European Union, which affects 2 million jobs.”
According to this study, in France, these transfers could relate to, “27,000 companies and affect 330,000 jobs” each year until 2020.
Christine Blondel estimates, today, it is estimated that a good half of the quoted stock exchange companies in France are family businesses; L’Oréal, Wendel, LVMH, PR, Pernod Ricard, JC Decaux, Bongrain, Bonduelle, Hermes or Bouygues. This is not counting the groups like Auchan, Chanel, International Arc, Galeries Lafayette, or Norauto.
At the global level, family capitalism is extremely widespread and represents between 60 and 95 percent of the economy of the various countries worldwide, according to Casado. This is certainly true of the United States, where family businesses make up a third of the Fortune 500.
Among the competitive advantages most associated with family capitalism, Blondel notes that these companies, “generate on average better capital returns” than the others.
During a recent study lead by John L. Ward, professor of the school of management at Northwestern University in Illinois, carried out on 34,000 companies of average size in France, Germany, Great Britain, Italy, and Spain, it was noticed that this return amounts to 25 percent for family businesses compared with 20 percent for the others.
Blondel observes there is one more thing to note about family business, that it is, “a more human capitalism.” These companies in general offer, “a greater stability of employment while laying off less quickly” in the event of financial problems. This is perhaps, because the shareholders have an emotional attachment to their company if it was created by their parents or their grandparents.
Employee turnover is lower within a family business than elsewhere. Another characteristic is that these companies “are rooted in a territory”. Lastly, Blondel notes that “governance is more based on confidence and communication than on control”.