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Business families found 6 companies on average across their history, according to a study by several European universities

According to the STEP Project report, which incorporates research conducted at ESADE, European family businesses are particularly strong in terms of compliance with environmental regulations. Reputation and influence over business governance and management are among the priorities of family firmss

European business families found an average of six companies across their history, with one company being added through a merger and four being added through acquisitions. This is one of the main conclusions of the report STEP ProjectUnderstanding Transgenerational Entrepreneurship Practices in European Family Businesses. The report is an initiative of the European STEP Council, a section of the STEP Project for Family Enterprising, which is an international academic project that explores entrepreneurial processes within business families. According to the study, the key to the success of European family businesses is that they do not only focus solely on their primary business, preferring instead to develop a dynamic and entrepreneurial business portfolio.

The report, based on an analysis of more than 350 family-owned companies from 11 countries, relies on research conducted by faculty at several European universities, including ESADE’s Maria José Parada, alongside colleagues from Università della Svizzera italiana (Switzerland), Windesheim University (Netherlands), Jönköping International Business School (Sweden), Audencia Business School (France) and Lappeenranta University of Technology (Finland).

Enterprising family businesses

The report describes the distinctive features of European family businesses in terms of entrepreneurial orientation. According to the study, these companies tend to be quite innovative and proactive, but they try to avoid taking large risks. “Despite what you might think, the study shows that entrepreneurial orientation does not depend on the age of the family business; an older company can be just as entrepreneurial as a startup,” commented Maria José Parada, Lecturer in the Department of Strategy and General Management at ESADE and Chair of the European STEP Project Council.

Environmental concerns and labour relations

The report describes various individual dimensions of European family firms, finding, for example, that these firms are “particularly strong when it comes to complying with environmental regulations”. This tendency confirms the special importance that family businesses place on reputation, as a loss in firm reputation could also negatively impact the family’s reputation.

According to the report, “Business families do not care about financial performance alone but also about several non-financial performance dimensions.” One such dimension identified by the study is labour relations. According to the report, family businesses are more likely to be regarded as trustful for paying back, since they care about their reputation and maintaining control. Similarly, the family is also a key factor when it comes to human capital: “Business families tend to have attractive projects where people can develop ideas, and are usually closer to decision-makers.”

Influence and governance

The study found that European family firms prefer to maintain a certain degree of direct family influence on governance and management. Seventy percent of respondents indicated that their primary business has a board of directors. On these boards, the owning family holds an average of 66% of the seats, and in 31% percent of cases the family holds all seats. The situation is similar for the top management team.

According to Ms. Parada, in order to adopt adequate governance bodies and protocols, a family business must first address its biggest challenge: relations with the founder or with earlier generations. “More than 40% of family businesses that have a board of directors make off-board decisions,” she observed. “Governance structures are the key to passing the baton from one generation to the next, but they mustn’t be adopted ceremonially or as a result of an imposition. Instead, they must be a solution to the company’s needs.” She added: “The real assimilation of these structures, which in other types of companies can happen very quickly, can take decades in family firms.”

“The biggest mistake we see, when a decision regarding the structure of the family business is finally made, is attempting to replicate the traditional governance model used by other companies,” explained Ms. Parada. “It’s easy to forget that each company is different, that you need a tailor-made suit.” According to Ms. Parada, a single company contains three different spheres: the family sphere, the ownership sphere and the business sphere. “The roles of each family member overlap and the borders between one sphere and the next become blurred,” she explained. “Each member needs to know how to change roles and conversation styles depending on the context.”