Firm, Family, Leadership (German study)

Firm, Family, Leadership (German study)

The report created by KPMG in Germany studies the importance of the interdependence of a firm, family and leadership within a family business and how they can contribute to its success or failure.

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Below is an overview of the highlights from the report. View the full report (in German only).

Leadership

Autocracy is obsolete.

  • Today, it is virtually self-evident to allow employees freedoms (96.5 percent), management and employees mostly decide together (involvement of employees in decision making processes 92.9 percent, managers deciding alone 18.8 percent). Only 6 percent of family businesses are lead authoritatively and significantly more are lead through participatory actions (85 percent) and cooperatively (65 percent). A delegate leadership style is less common (8 percent).
  • The leadership style of family businesses has changed. Today, teamwork and the involvement of employees is indispensable for the success of the company. At the same time, situational leadership is gaining importance to allow flexible reactions to a changing environment.

Participation in the decision making process instead of money: What shareholders really want.

  • Shareholders want to shape the company: Managing directors among the shareholders participate far more in the company (94.8 percent) than pure shareholders (77.8 percent). Moreover, family managing directors find that they can strongly develop and grow personally (98.3 percent), which only 77.8 percent of shareholders perceive in an equal manner.
  • The bond of managing directors to their company is stronger than that of pure shareholders. Their responses to (‘under which circumstances would you sell your shares of the company?’) are generally lower than the ones of pure shareholders. This is especially pronounced in the topic of ‘financing personal goals’ (managing partners 5 percent, shareholders 33 percent). And: Satisfaction leads to loyalty. If shareholders are content with the family situation and feel a part of a strong community, the probability of selling the shares decreases.

Family

Extended family vs. branch organizations.

  • The importance of the extended family is diminishing. There are more and more shareholder circles that organize in the form of branches. The rise of 7 percent shows a clear trend towards the organization in branches.The reason for this is that the number of shareholders has grown. Thus, families see branches as a potential solution for this challenge.
  • Family governance in focus: Analyzing this trend under the aspect of family governance, it becomes evident that families that classify and organize themselves with an extended family are more likely to form a family governance than branch organizations. A reason for this is that extended families foster measures which strengthen the solidarity within the family. The study moreover reveals that members of extended families are happier: 91.7 percent feel that they are part of a strong community (branch organization 77.3 percent). 95.8 percent see the opportunity to actively participate in the company or the family (branch organization 86.4 percent).

Family rows and ties.

  • Generally, entrepreneurial families highly value open and direct communication (85.9 percent) and also indicate to live this (88.2 percent). While rules for handling conflicts within the family are also perceived as important (57.1 percent), they are hardly implemented (25.9 percent). This implies that entrepreneurial businesses partly fear conflicts so much that they do not even want to find a provision in case of controversy.
  • In summary, shared values is, according to the entrepreneurial families, what strongly distinguishes them (94.2 percent) – 81.2 percent actually use it.

Firm

Conflict culture, yes please, but only when there is no conflict.

  • Especially in companies with purely family management you can find a lack of communication or the ability to deal with conflicts. Mixed or pure external management rate their collaboration better than a purely internal management (grade 2.0 vs. 2.3). However, to address conflicts and to bring them to a viable solution is one of the most important leadership skills of all.
  • There is also a backlog in the task distribution and decision-making process: both topics got the lowest percentage in the survey (task allocation; 72.6 percent and decision making process 58.4 percent “agree totally” and “agree”).

Family first! Ancestry is more important than expertise – at least for a purely internal management.

  • The well-known concept of ‘business first’ shall continue. For a purely internal management family the subjective aspects (such as family membership) still have a priority. Loyalty to the company got a higher rating than individual performance. But is it not the business first.
  • Blood is thicker than water: mainly there are specific requirement profiles for family members who want to enter management. External managers need to leave their position more quickly – the hurdles for dismissal are generally lower for them than for the purely internal family management.

Drawback by steps, usually but not completely: The older a family business is the less family members are in the upper management.

  • It is normally remarkable, that the model of purely family management gets less attractive when the business becomes older. In the second and third generation the family members often share the leadership with for example, an external manager. From the fifth generation onwards, only one member of the family leads together with external managers the company (53 percent).
  • Double leadership established long ago: Every fifth family is led by a double leadership, which is a rising tendency.

More revenue, less family: Growing companies rely on expertise of external management.

  • The total number family members in the company decreases when revenue rises (below 50M Euro: 55 percent pure family-internal Management, over 500M. Euro: 8 percent pure family internal management). But this does not lead to more mixed managements. Rather, the proportion of purely external managements increases with the revenue (below 50M. Euro: 5 percent, over 500M. Euro: 26 percent pure external management).
  • External managers prefer to work without internal family managers, because they feel limited in their decisions.

Guide instead of steersman: Supervisor bodies are attractive alternatives for the family to influence the company.

  • The bigger the company the more likely they are to have supervisory roles, like boards (below 50 M. Euro: 66 percent no supervisory body, over 500 M. Euro: 25 percent no supervisory body).
  • The less family members in management positions, the more supervisory boards in place.
     

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