Family businesses – their defining characteristics

Family businesses are owned by one or more families. © Fotolia/industrieblick

Family businesses make a huge contribution to the German economy and German industry, as employers and as tradition-conscious innovators.

They are defined as companies that are owned by one or more families, with a difference being drawn between “family-controlled” and “family-led” businesses. In family-controlled businesses, up to two natural persons or their family members hold at least 50 percent of the company shares. In the case of family-led businesses, these natural persons are also involved in the management of the company. This basic definition brings two aspects into focus:

1. Ownership structure has key significance

2. Management of the company is very often in the hands of the owner/s.

These features give rise to certain typical characteristics. Many family businesses in industry are being run by the second or third generation. The shareholders are keen to maintain and grow what their fathers, grandfathers, or great-grandfathers have built up over decades or even centuries. This is one of the decisive differences between family businesses and public corporations: families prioritise long-term stability over short-term yields. Another fundamental aspect of family businesses is that risk and liability go hand in hand. This forces family entrepreneurs to be especially prudent, as they are accountable to their family for their decisions. Thus, family businesses care more about sustainability than they do about maximising profits in the short term. Where businesses are owned and managed by the same people, decisions can also be made more flexibly. Family business owners are always thinking about the next generation, rather than the next quarter. The most important decision is how the company can best be passed on to the next generations in the family, which obviously has a major influence on business activities and strategy. Consistent efforts to ensure the continuing existence of the company in the long term are a key hallmark of family businesses. And this is what makes them so successful. The approximately 4,500 largest family businesses in Germany (those with an annual revenue of at least €50 million each year) generate a fifth of the aggregate corporate turnover in Germany and employ a sixth of the nation’s workforce.