Family Enterprises in the
United Kingdom, the Federal
Republic of Germany, and Spain:
A Transnational Comparison
Johannes
Welsch
This article analyzes, compares, and aggregates empirical findings of
three individual investigations of family firms in the United Kingdom, the
Federal Republic of Germany, and Spain. The purpose is not only to
identify differences and commonalities between family firms and nonfamily
firms in these three countries, but also to generate a European family
firm research agenda for the 1990s.
This paper is concerned with the situation of the European family business.
In particular, it reviews and, to the extent to which this seems appropriate,
aggregates the findings of three empirical investigations recently conducted
in the United Kingdom, the Federal Republic of Germany, and Spain. This
paper may be seen as a first step toward the development of a European
family business research agenda for the 1990s. Its ultimate purpose lies in
the emphasis on the transnational dimension of future research.
During the 1980s, researchers produced abundant evidence concerning
two facts: family firms are the bedrock on which the North American
economies are built (Becker and Tillman, 1978; Beckhard and Dyer, 1983;
Dyer, 1986) and family firms are fragile organizations (Alcorn, 1982; Dyer,
1986; Ward, 1988). There is no need here to repeat and add to the frequently published figures concerning the role of the family firm in the
American economy and the survival rates of these organizations. Important
questions to be addressed by researchers during the remainder of the
century concern the special situation of the European family business. In
which ways does it differ from its North American counterpart? Is there
Note: The author would like to thank Alden Lank and an anonymous reviewer for
their thoughtful comments on earlier drafts of this paper.
FAMILY BUSINESS R E V I E W , vol. IV, n o . 2 , S u m m e r 1 9 9 1
© J o s s e y - B a s s Inc., Publishers
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such a thing as the European family firm, or should this term be defined
differently according to cultural, social, economic, and even geographic
settings? An Italian talking about her family may be referring to a group of
people including remote relatives such as the children of her husband's
cousin. However, a married Scandinavian with children may even exclude
her parents from the definition because the term family has assumed the
meaning of nuclear family in Northern European societies.
Further questions that need to be addressed in the near future concern
the relative importance of the family firm in the economies of different
European countries. In which ways could this type of organization become
the key to, or at least facilitate, a more balanced distribution of wealth and
resources among European nations? Does a common European market
pose a threat to Southern European family firms? Will the Wirtschaftswunder
repeat itself in Eastern Europe, and will there be a new type of family
business as a consequence? Many questions could be added to this list.
Overview of the Three Studies
The investigation in the United Kingdom was initiated by Stoy Hayward
and conducted in 1990 by Peter Leach of Stoy Hayward, another partner of
this firm, and a business analyst in conjunction with a London Business
School study team (Leach and others, 1990). The German study was
initiated by Dr. Wieselhuber and Partner, a Munich-based consulting firm,
and conducted by Norbert Wieselhuber and Johannes Spannagl in 1988
(Wieselhuber and Spannagl, 1988). The Spanish investigation was initiated
by the Family Firm Chair at IESE in Barcelona and conducted by the
holder of that chair, Miguel Gallo, in collaboration with Carlos Garcia Pont
in 1988 (Gallo and Garcia Pont, 1988). This paper should not be considered a review of these three investigations nor a comprehensive report.
Each of the three studies contains more information than used and presented here. The original papers are available from the authors.
Given the fact that Spain is still less industrialized than the United
States, one would hypothesize that family firms play an even more substantial role in the former economy. The aim of the Gallo study is to estimate
the relative importance of the Spanish family business by interviewing 750
firms, family owned as well as nonfamily owned, and by taking into account
indicators such as sales, exports, and the number of employees. The German investigation has a different focus and concentrates on family businesses only. It may be seen as an attempt to uncover family firm-specific
problems and perspectives. The Stoy Hayward study provides a link between the two other investigations by first focusing on some differences
between family firms and nonfamily firms and then analyzing in depth the
particular situation of the British family firm.
The investigations differ not only in their aims but also with respect to
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193
their methodology (see Table 1). Gallo and Garcia Pont conducted a telephone survey in 750 Spanish firms based on a one-page questionnaire.
The data were then completed with publicly available information and
analyzed for differences between the family firm group and the nonfamily
firm group. The sample was generated randomly from a universe including
80 percent of the Spanish businesses with sales of more than Ptas 200
million (Ptas 100 = U.S. $1).
Wieselhuber and Spannagl, on the other hand, mailed a sixteen-page
questionnaire to 2,856 owners of businesses with more than fifty employees.
The German sample consists of two subsamples: first, 1,563 ASU (Association of Self-Employed Entrepreneurs) members and second, another convenience sample generated by the researchers themselves. Five hundred
and one questionnaires were returned, a response rate of nearly 20 percent.
The Stoy Hayward study employed questionnaire-based techniques to
generate the data. The British sample was drawn from a universe including
the largest 6,000 U.K. private companies and the approximately 2,000
firms quoted on the London Stock Exchange. Although the study does not
report the number of firms in the sample, it is indicated that "the response
to the survey was excellent and thus the results are highly representative of
family businesses within the U.K." (Leach and others, 1990, p. 5).
Before analyzing the findings of each of these three investigations, it is
necessary to show how the term family business was defined in each case.
The U.K. study adopts the following classification: "A family firm is defined
as one where the family body has a considerable impact on the ongoing and
future operations of the business and can also be considered where any of
the three following criteria are true: (1) More than 50 percent of the voting
shares are owned by a single family. (2) A single family group is effectively
controlling the firm. (3) A significant proportion of the firm's senior management is drawn from the same family" (Leach and others, 1990, p. 3).
Table 1. Overview of Three Investigations
Variables
Spain
Germany
United Kingdom
Sample size
750
501
Several hundred
Sample type
Random
Convenience
Random
Universe
80% of Spanish
firms with sales
greater than
Ptas 2 0 0 million
German family
firms with more
than 5 0
employees
Largest firms in the
United Kingdom
(about 8 , 0 0 0 )
Data generation
Telephone survey
Questionnaire
Questionnaire-based
techniques
Research approach
Exploratory
Hypothesis
testing
Exploratory
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Gallo and Garcia Pont, on the other hand, consider as family firms only
those firms in which ownership is not overly dispersed (the family owns at
least 10 percent of the voting shares and more shares than the next three
shareholders). Wieselhuber and Spannagl's definition of a family firm
appears to be less stringent, as they do not impose a minimum percentage
of shares to be represented by the owner-manager. As a matter of fact, they
are not explicit about their definition.
This lack of a common denominator hinders to some extent the aggregation of the findings. However, all three research studies impose a size
constraint: the U.K. questionnaire was submitted to the 8,000 largest British
firms, the German sample consists of family firms with more than fifty
employees, and the Spanish sample is restricted to firms with more than
Ptas 200 million in sales. One may therefore conclude that the family firms
in all three samples are medium- and large-sized organizations.
Wieselhuber and Spannagl provide a statistic indicating that the percentage of businesses with more than 1,000 employees in their sample is
three times as large as it is for West Germany as a whole. Thus, there is a
bias toward larger firms in the German sample. On the other hand, the
family firms in the U.K. sample appear to be smaller than the remaining
firms in that sample. In the Spanish sample, both the family firms and the
nonfamily firms are smaller than their counterparts in the British sample.
However, the same would be true if one were to compare to the British
sample a random sample of the largest 8,000 Spanish firms. In 1990, the
1,000th largest company in the United Kingdom had revenues of more
than U.S. $140 million. The corresponding Spanish figure was U.S. $65
million. This paper rests on the assumption that the comparison and partial
aggregation of the data in question are possible and reasonable. However,
a very conservative approach is necessary in order to avoid arriving at
conclusions based on comparing apples to oranges.
Aggregation and Comparison of Findings
What, then, is the magnitude of the activities of family firms in England
and Spain? Figure 1, providing a breakdown of the British sample, illustrates that over 76 percent of the responding firms are family owned. The
Stoy Hayward researchers acknowledge that "this is a very high percentage
considering the sample consisted of the largest companies in the United
Kingdom and it seems likely, therefore, that the actual percentage of U.K.
businesses being family owned is much higher" (Leach and others, 1990,
p. 5). The Spanish findings, very much along the same line, indicate that
68 percent to 74 percent (this range represents the 95 percent confidence
interval) of the firms in the universe fall into the family business category.
Again, the size constraint makes it likely that the actual percentage of
family-owned Spanish firms is higher. It seems safe to conclude that family
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Transnational
Comparison
oj Family
Enterprises
195
Figure 1. Breakdown of Two Samples
United Kingdom
Spain
Family Firms
\
76%
Nonfamily Firms
24%
Family Firms
^\71%
Nonfamily Firms
29%
firms play as substantial a role in the economies of these two countries as
they do in the American one.
The age structure of family firms, however, seems to differ in the two
countries (see Figure 2). Whereas over 60 percent of the family firms in
the U.K. sample and 92 percent of the German sample have been established for more than thirty years, Gallo and Garcia Pont's findings indicate
that about 15 percent of the Spanish family firms were established before
1950. This difference is due apparently to the fact that Spain joined the
group of industrialized countries only after World War II. Furthermore, 75
percent of the Spanish family firms are run by the first generation. In the
United Kingdom, less than half the family firms fall into this category.
Roughly one-third of the family firms in the U.K. sample are run by the
third and fourth generations, whereas in Spain only 9 percent of the family
firms can make that claim. However, this difference may be exaggerated by
the fact that Gallo and Garcia Pont looked at somewhat smaller firms.
These findings nevertheless indicate that there may be some basic
differences among family firms across Europe. In addition, the British
findings show family firms to be significantly older than nonfamily firms,
whereas the results of the Spanish investigation show no significant differences in this respect. This particular finding in the United Kingdom is
very much in line with the results of an empirical investigation recently
conducted in Germany (Welsch, 1990). Many of the largest European family
firms are very old firms, such as the 242-year-old German ceramics producer Villeroy & Boch, a family business in the eighth generation. It is safe
to conclude that, at least in Northern Europe, the average age of the largest
family firms is older than that of the largest nonfamily firms.
The importance of the family firm with respect to turnover is documented by the Spanish as well as the U.K. study. In the bracket up to Ptas
1,000 million, 73 percent of the Spanish firms are family owned. In the
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196
corresponding group in the United Kingdom, firms with sales up to £5
million (£1 = U.S. $1.90), 76 percent are family businesses. Sixty-nine percent of the Spanish sample having a turnover between Ptas 1,000 million
and Ptas 5,000 million are family firms compared to 80 percent of the
U.K. firms with sales between £5 million and £20 million. However, in the
large firm bracket (that is, Ptas 5,000 million and more and £20 million
and more), these figures drop to 53 percent and 31 percent, respectively.
(Since the figure for Spain is based on thirty-six observations only, Gallo
and Garcia Pont acknowledge that at a 95 percent level of confidence the
actual figure may be as low as 18 percent.) These findings indicate that the
macroeconomic importance of the family firm is similar in these two countries. Figure 3 gives still another perspective based on the relative differences between the subsamples (that is, the family firms and the nonfamily
firms) in both Spain and the United Kingdom.
The British and the German studies also cover managerial issues. For
example, the findings in the United Kingdom indicate that family firms are
more likely to have been operated under the present management for
longer periods of time than nonfamily firms (see Figure 4). To some extent,
these results are repeated by the German study. Only 22 percent of the
British and 3 percent of the German family firms have been under the
present management for less than five years, whereas this is true for almost
half the nonfamily firms in the United Kingdom. This evidence suggests
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Transnational Comparison of Family Enterprises
Figure 3. Sales
(a) Spain
200-500
501-1000
1001-5000
Millions of Pesetas
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>5000
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Figure 4. Management Tenure
100
that the long-term perspective of the family firm is shared by its management. The findings in the United Kingdom are even more drastic than the
German ones. Almost a third of the British family firms have been under
the present management for more than twenty years. In the German sample,
only 18 percent of the firms fall into this category. One implication of
these findings could be that German family firm managers are younger
than their British counterparts. Unfortunately, only the Wieselhuber study
provides data on this subject, and it turns out that 97 percent of the
managers in that sample are fifty-five years or younger. However, it must
also be acknowledged that 55 percent of them are between forty-six and
fifty-five years old.
Not all of the remaining information provided by both the Wieselhuber
and Stoy Hayward studies is in a format appropriate for direct comparison
or even aggregation. However, some of it may be used in a supplementary
fashion. For example, less than a third of the family firms in the British sample, as opposed to more than half of the nonfamily firms in that sample, claim
to have external advisers on the board. This finding is consistent with the
results of an investigation conducted in the United States. Ward and Handy
(1988) found that only about one-third of the firms in a sample consisting
of sixty-six family firms were relying on the advice of outside boards, which
include a few outside directors as well as family members. The German study
reveals, however, that 79 percent of the firms rely on the expertise of external
advisers to some extent. It thus seems that family firms may not be afraid to
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ask for outside advice, but they are indeed reluctant to equip outsiders
with formal authority by appointing them to boards.
One of the most important decisions facing the family firm is the sale
of shares to outsiders. In the United Kingdom, only 38 percent of the
family firms suggested that no shares should be sold to outsiders, whereas
73 percent of the firms in the German sample indicated that they would
not consider additional shareholders. (Wieselhuber and Spannagl did not
exclude the possibility of selling shares to family members when they
asked this question.)
The findings are even more contradictory when analyzed further. The
Stoy Hayward results show that in second- and third-generation family
firms, a family ownership awareness has developed that is absent to some
extent in the first-generation family firms. More than half the U.K. family
firms in the second generation opposed the idea of selling shares to outsiders. The Stoy Hayward researchers offer the following explanation: "This
again can probably be explained by the entrepreneurial spirit in building a
firm which is still primarily a 'one-man' business and not necessarily recognized as a family concern until such time as there are potential successors. The impact of the family culture and heritage then becomes more
prominent" (Leach and others, 1990, p. 15).
Applying this explanation to the differences between the German sample and the U.K. family firms would suggest that the former consists of
one-person businesses to a greater extent than the latter. However, 84
percent of the German firms indicate that they are owned by six or fewer
shareholders. In the United Kingdom, only about 56 percent of the family
firms have five or fewer shareholders. It thus seems that the "impact
of family culture and heritage" becomes prominent earlier in the German
family firm. This hypothesis, of importance also for the definition of the
research field's unit of analysis, definitely needs further investigation. In
addition, it should be remembered that probably more than half the German sample consists of firms belonging to the association of self-employed
entrepreneurs. Many of these will indeed fall into the one-person business
category.
The issue of succession and the more general issue of family member
career management are both crucial to the success of the family firm. In the
United Kingdom, more than 80 percent of the family firms agree that
"family members . . . [should be] employed only if skills and experience
fit" (Leach and others, 1990, p. 13). The German findings provide some
evidence that this credo of business over family is indeed practiced: 60
percent of the German entrepreneurs indicated that their successor would
not necessarily be a member of the family, and 43 percent of the Germans
running firms with more than 3,000 employees will definitely hire a professional manager as successor. Along the same line, 61 percent of the
family firms in the United Kingdom "disagreed with the statement that the
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current chief executive is more likely to be succeeded by a family member
rather than a professional manager" (Leach and others, 1990, p. 22).
Finally, both the British and the German studies come up with some
evidence as to the performance of the firms in the sample. The United
Kingdom data suggest that nonfamily firms are growing more rapidly than
family firms. Almost 40 percent of the former group report an annual
turnover growth rate of more than 20 percent, compared to 25 percent of
the latter group. The results in Germany show that only 21 percent of the
firms in the sample grow at a rate of 10 percent per year or more. There
thus seem to be some significant differences between the growth rates of
German and British family firms, as illustrated by Figure 5. It is necessary
to point out, however, that the annual turnover growth rate of the German
firms represents the five-year average between 1983 and 1987 and that it is
not evident to which period of time the British data apply.
The return on sales before taxes also seems moderate in the German
family firm since 53 percent of the firms in that sample report a rate of 4
percent or less. However, the question of whether family firms really strive
to maximize before-tax profits remains unanswered.
Figure 5. Turnover Growth Rate
Growth Rate/Year
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Summary
An attempt was made to analyze the situation of family firms in three
European countries. Preliminary findings suggest that the social and economic impact of this particular form of organization is just as great in
Europe as it is in North America. Focusing on Germany, Spain, and the
United Kingdom, my analysis resulted in the following specific findings:
In Spain and the United Kingdom, family firms are responsible for more
than 70 percent of those countries' GNP.
Spanish family firms are significantly younger than their counterparts in
Germany and the United Kingdom.
Large family firms are older than large nonfamily firms in Germany and the
United Kingdom.
Family firms in the United Kingdom and Germany have been operated
under the same management for longer periods of time than nonfamily
firms in the United Kingdom.
In German family firms the reluctance to sell shares seems to be greater
than in British family firms.
In the United Kingdom, both family and nonfamily firms grow faster than
family firms in Germany.
It must again be emphasized that these findings are still subject to the
particular biases of each of the three studies, although my analysis has
attempted to account for them. Some of the data provided by the three
sources in question have not been considered in this paper because their
aggregation or even their mere comparison would have been risky. For a
more detailed discussion of the situation of the family firm in these countries, the reader is encouraged to acquire the three reports on which my
analysis builds.
Directions for Future Research
Future research on European family firms will be characterized by its transnational dimension. Uninational findings will always have to be interpreted
in the light of the particular political, geographical, cultural, and economic
situation of the country in question. Comparative international research is
urgently needed, and researchers and institutions from all European countries will have to collaborate in order to achieve results. The need for
multinational research projects is underlined and illustrated by the difficulties of making the kinds of comparisons attempted in this paper. However, the paper's merits lie in that it does raise a number of interesting
questions that may provide the basis for a research agenda for the 1990s:
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Might more than 70 percent of the businesses in Europe be classified as
family firms, even when the term is defined strictly as majority ownership
and family involvement?
Are the family firms in less or recently industrialized European countries
younger than those in more industrialized countries?
Are large family firms older than the nonfamily firms of the same size in
heavily industrialized Northern European countries?
Is the contribution of family firms to the GNPs of different European countries similar to that found in the United States, namely around 40 percent
to 50 percent (Becker and Tillman, 1978; Dyer, 1986)?
Do professional managers in European family firms share the long-term
perspectives of the family, and is the management turnover of these
firms significantly lower than that of their counterparts?
Are there differences among European countries with respect to the relationship between the family-owner-managers and the business, independent of which generation is in control?
Are European family firms reluctant to appoint outsiders to the board? Are
they reluctant to rely on professional advice in general?
Does ownership have different meanings in different European countries,
and is the family typically more reluctant to sell shares to outsiders in
certain countries? Is the family firm awareness stronger in some European countries than in others?
Are members of the family who work for the family firm more likely to be
treated like regular employees in Northern than in Southern European
countries?
In which European countries do family firms grow less rapidly than nonfamily firms, and what are the reasons for these differences in growth
rates?
Answers to these and related questions will provide a much clearer
picture of family businesses in Europe than we have presently.
References
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Beckhard, R., and Dyer, W. G., Jr. "Managing Continuity in the Family-Owned Business."
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Transitions. San Francisco: Jossey-Bass, 1986.
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Conjunction with the London Business School. London: Stoy Hayward, 1990.
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Ward, J. L. "The Special Role of Strategic Planning for Family Businesses." Family Business
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Johannes
Welsch is a research fellow at the International Institute for
Management
Development in Lausanne, Switzerland. He also serves as an assistant to the executive
director of the Family Business Network.
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