How family businesses make a contribution to society and the state

The economic significance of family businesses

Family businesses are the most widespread type of company in Germany: more than 93 percent of all companies in Germany are family-owned. They account for almost 60 percent of all jobs and are a stabilising factor for the employment market in times of economic downturn. These are the results of studies commissioned by the Foundation for Family Businesses.

A high number of large family businesses with international operations is a hallmark of the German economy: 34 percent of all companies with 250–499 employees, and 29 percent of those with more than 500 employees, are family businesses. Many of them are international market leaders in their particular technological niches, e.g. in the mechanical engineering and automotive industries.

 

 

Definition

Family businesses are not defined by a certain size as regards workforce or revenue. They can be found in almost all branches of industry and do not have to have any particular legal form. So what exactly is a family business?

For the purposes of analyses and surveys there are, roughly speaking, two ways of defining family businesses and distinguishing them from non-family businesses.

  1. Family-controlled enterprises: This definition includes all companies that are controlled by a small number of individuals. The owners and management of the company do not necessarily need to be identical. This is the most common definition, both in the public sphere and in academic literature.
  2. Owner-managed companies: According to this definition, family businesses are those controlled by a small number of individuals and where at least one of the owners manages the company.

Both of these definitions are used in the series of studies “The economic significance of family businesses”, which the Centre for European Economic Research (ZEW) has been conducting for the Foundation for Family Businesses since 2009.

The Foundation for Family Businesses itself generally uses the following definition:

A company of any size is a family business if

  1. the majority of the decision-making powers rest with the individual(s) who founded the company, with the individual(s) who acquired the company’s share capital, or if that share capital is owned by a spouse, parents, child or a direct heir of a child, and
  2. the majority of the decision-making powers are exercised either directly or indirectly, and/or
  3. at least one representative of the family or relative of the family is officially involved in the management or control of the company.

Listed companies fit the definition of a family business if the person who founded the company or acquired its share capital, or their family or descendants, hold 25 percent of the decision-making rights due to their stake in the company.

This definition also includes family businesses where the first handover of control to the next generation has not yet taken place, as well as sole proprietors and the self-employed (provided a legal entity exists that could be transferred to another person).

Comparison of the TOP 500 and the DAX-27

In order to identify possible differences in the growth and development of family businesses as opposed to non-family businesses, the Centre for European Economic Research (ZEW) regularly compares the 500 largest family businesses (TOP 500) with the DAX-listed companies in its series of studies “The economic significance of family businesses”.

As of the end of 2015, the 30 DAX-listed companies included three family businesses: Beiersdorf AG, Henkel AG & Co. KGaA, and Merck KGaA. In this study, these three companies were assigned to the group of family businesses.

The long-term study reveals that family businesses are particularly dynamic when it comes to personnel growth. While the total number of employees paying social security contributions in Germany increased by 14 percent from 2006 to 2014, the TOP 500 family businesses achieved significantly higher growth, boosting their headcounts by 19 percent to 3.17 million. The 27 non-family-controlled companies listed in the DAX (= DAX-27) achieved an increase of only two percent over the same period.

Vergleich TOP 500 Familienunternehmen und der DAX-26-Unternehmen

The trend is even more pronounced if we take 2003 as the base year. Whereas the TOP 500 family businesses increased their combined workforces by almost 59 percent, the DAX-27 reduced theirs by more than nine percent – as corresponding calculations carried out for the Foundation for Family Businesses highlight.

Worldwide, the TOP 500 created more than one million new jobs between 2006 and 2015. What is more, family businesses achieve more constant growth. The growth rate of the TOP 500 family businesses averaged 4.98 percent, compared with just over 4.85 percent at the DAX-listed companies analysed in the study.

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