Family Businesses and the Polish Economy Opportunities and Challenges

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1 Family Businesses and the Polish Economy Opportunities and Challenges Project co-financed by the European Union under the European Social Fund, commissioned by the Human Resources Development Unit (PAED). Warsaw, December

2 Publication has been prepared by following persons: Authors: Anna Kowalewska Chapters: 2, 3, 5, 6, 7, 8 Jacek Szut Chapters: 3, 5, 6, 7, 8 Barbara Lewandowska Chapters: 2, 3, 7, 8 Małgorzata Kwiatkowska Chapters: 2, 3, 7, 8 Prof. Łukasz Sułkowski Chapters: 4, 5, 7 Andrzej Marjański, Ph.D. Chapters: 4, 5, 7 Tomasz Jagusztyn Krynicki Chapters: 1, 6 Editing: Anna Kowalewska Consultation (Pentor): dr hab. Piotr Kwiatkowski Jerzy Głuszyński, Ph.D. Consultation (PAED): Professor of the University of Gdansk PhD habilitated Anna Maria Nikodemska- Wołowik Reviewer: Prof. dr hab Jan D. Antoszkiewicz Project coordinator (PAED): Małgorzata Mączyńska 2

3 TABLE OF CONTENTS 1 CONTEXT AND OBJECTIVES OF THE STUDY Context of the study Objectives of the study METHODOLOGY The outline of study concept The study population Concise description of research methodology SUMMARY Main conclusions of the survey of family businesses Family businesses and the level of employment RECOMMENDATIONS General trends in supporting family businesses Training and consulting support programme DEFINITION OF A FAMILY BUSINESS The debate on the notion of family business Polish definitions Preliminary definition of a family business The share of family businesses in the total number of businesses according to particular definition criteria FAMILY BUSINESSES IN POLISH ECONOMY The share of family businesses in the total number of business entities according to an established definition Share of family businesses in the GDP Share of family businesses in the employment structure Demography of family enterprises FEATURES OF FAMILY BUSINESSES The awareness of family nature of the enterprise The identity of family businesses The auto-picture of family enterprises Exposing the family aspect Sources of family entrepreneurship Specifics of family businesses Positive consequences of the family aspect Negative consequences of the family aspect Ownership and management in family enterprises Ownership structure in family enterprises Presence of family in the enterprise, inter-generationality Number of family members affected by the enterprise Impact of generations on decision-making process in the enterprise 107 3

4 7.4.5 Impact of the family on different management areas Organisational structure of family enterprises Strategies of family enterprises Human resources management in family enterprises Succession in a family enterprise Succession plans Potential successors The role of women in family enterprises Segmentation of family enterprises COUNSELLING AND TRAININGS FOR FAMILY BUSINESSES Using training and counselling services Reasons of not using trainings Needs of family businesses concerning training and counselling Problems of companies from the MSME sector Problems of family businesses Problem areas managers are aware of Problem areas managers are not aware of Interest in training and counselling services oriented at family enterprises Preference towards the method of organising training and counselling services oriented at family enterprises Sources of knowledge about the training and counselling

5 1 CONTEXT AND OBJECTIVES OF THE STUDY 1.1 Context of the study The discussion on the issue of family businesses has been taken on for a relatively short time. For many decades, family influence on the performance of a company was not the subject of scientific and political discussions and was not considered to be essential in running a company. The situation began to change at the turn of 1970s and 1980s. Since then, family businesses have been successfully included in the scientific and political discussions mainstream both in Europe and globally. In recent years a similar trend has also been observed in Poland. Research and analyses on family businesses began in the second half of 1970s. The first significant study was conducted in 1990s. The research run on the representative sample of (14,000) households in the United States (1997) was ground-breaking. It can be assumed that the new discipline the study of family enterprises emerged as a separate entity at the end of 20 th century. At that time the international group of scientists of fixed renown and with scientific output in this discipline and representing a set of theories and research paradigms, under which family businesses research may be conducted, was founded. The issue of family businesses has also become the subject to the economic policy. Self-government organisations were established (for example: International Family Business Network, German Arbeitsgemeinschaft selbständiger Unternehmer, Spanish Instituto de la Empresa Familia, French ASMEP, and Italian Associazione Italiana delle Aziende Familliari). Their objective is to promote the question of family enterprises and to make the public policies oriented towards such companies. Some entrepreneurs (also in Poland) began to refer to their companies as family companies. This tendency may serve as evidence for the success of raising awareness of the family nature of family businesses. 5

6 Depending on their definition, family businesses in the EU-15 and in the United States constitute from one-third to 70% of all business entities on the market, produce between 20% and 70% of GDP, and employ 27% - 70% of all employees. 1 SME sector is a dominant area for family enterprises to be established and run. It is natural since over 99% of all the business entities are small and medium enterprises, and the beginnings of most of the businesses are usually related to a small size of organisation. Many of these companies do not develop into larger business entities because of limited resources or a strategic choice. Family character and limited size and resources of the entity are the most typical features of most family enterprises and substantially influence the way these enterprises are managed. The European Commission (DG Enterprise) has also valued the role of family businesses in the economic and social reality and in 2007 created an Expert Group on Family Business bringing together representatives of all Member States, including Poland. In the final report issued by the expert group 2 in November 2009 it is emphasised that, although most of the family businesses problems are identical with problems of MSME, there are also some peculiar challenges faced by family businesses. They are as follows: financial issues related to gift and inheritance tax, access to financing without losing control of the company, favourable tax treatment of reinvested profits, unawareness of the importance of planning company transfers, difficulties in attracting and retaining a skilled workforce, lack of family-business-specific management training, and the need for more research into family-business-specific issues. The awareness of the role of family businesses in economy and society is increasing also in Poland. In 2005, Wyższa Szkoła Biznesu - National-Louis University in Nowy 1 Cf.: Astrachan J., H. i Shaker M. C, Family Businesses Contribution to the U.S. Economy: A Closer Look, Family Business Review, 16 (3), 2003; Overview of Family Business Relevant Issues, KMU Forschung Austria Austrian Institute for SME Research Contract No. 30-CE /00-51, Final Report Vienna 2008, p.39 available at: 2 Cf.: European Commission, Enterprise and Industry Directorate-General, Promotion of SMEs competitiveness, November 2009; Final Report of The Expert Group Overview of Family Business Relevant issues: Research, Networks, Policy Measures and Existing Studies, available at: 6

7 Sącz organised the first Family Business Conference in Poland which gathered international group of scientists working on family business (FB) and representatives of the most buoyant family companies in Poland. The Polish family business network was established and incorporated into the International Family Business Network, head-quartered in Switzerland. In 2006, Family Business Initiative (IFR, pl. Inicjatywa Firm Rodzinnych) was established in Warsaw. The Entrepreneurship and Growth of Family Firms 3 international conference was held at Cracow University of Economics in June Those initiatives, however, have limited scope and apply to companies with strong market position that are aware of their role and significance. Regarding the family businesses contribution to economy and society, it should be admitted that they constitute a valuable part of business sector and that their development should be supported. Many European countries introduce family enterprises aid schemes organised by public entities and the third sector. In Germany, for instance, family entrepreneurs may obtain legal (labour law, commercial law, law of succession) or management advice through the Chamber of Industry and Commerce Erfurt (IHK Erfurt). There is also the Nexxt-Change an Internet business exchange to support German family enterprises in their way through generational transfer. No specific measures have been addressed to this group of companies in Poland so far. Therefore, a pilot training and consulting project is dedicated to family enterprises to meet their particular needs. The project is implemented by the Polish Agency for Enterprise Development in cooperation with the Family Business Initiative (IFR, pl. Inicjatywa Firm Rodzinnych) under the Human Capital Operational Programme (Measure 2.1.3). The objectives of the project are: to prepare training and consulting programme for family businesses; to organise trainings and consulting for at least 300 persons from at least 50 family businesses; 3 For more information visit: 7

8 to analyse experiences in implementing training and consulting services; to prepare and disseminate the methodology of supporting family businesses. In order to a create policy supporting the development of family businesses and specific support instruments, a study had to be conducted to develop a detailed description of family businesses and to identify their needs and problems. The study was conducted by Pentor Research International, selected in a tender procedure. Results of the study are presented in this publication. 1.2 Objectives of the study So far no broad-scale research on family businesses has been conducted in Poland either for the commercial or public sector. Therefore, there was no reliable information on the number and structure of these companies and their contribution to the Polish economy. The project in question was the first venture of this kind implemented on such a broad and spectacular scale. The main objective of this project was: to provide information about the needs and problems faced by family businesses in order to develop training and consulting services for family businesses. Moreover, the project aimed at: filling the information gap, especially by providing reliable data on the share of family businesses in the MSME sector and their description as compared to nonfamily businesses (internal structure, training needs, training participation rate, role in the economy). Detailed research problems included: a) description of family businesses in Poland; b) segmentation of family enterprises and identification of its main criteria; c) identification and assessment of the need for training and consulting support among family businesses; d) defining the organisation of the support programme for family businesses. 8

9 2 METHODOLOGY 2.1 The outline of study concept Considering the complex and interdisciplinary character of the study topic and a fact that it was never subject to a sampling survey in Poland before, the following requirements must be met: Qualitative and quantitative methods of research. Multistage research procedure Methodological triangulation and data triangulation. Involving various actors in the research, not only managers and owners of the company (as it is common in business research) but also lower rank personnel, including those non-related to the owner of the company. Involving both representatives of family businesses and external experts (representatives of the academic community, business organisations, consulting and training companies) in the research. Qualitative and quantitative methods of research Family entrepreneurship is somewhere in between family relations and goals and company's relations and goals. It is difficult to recognise the relation between family bonds and values and running a company. Managers of a family enterprise, whether intentionally or not, minimise the degree of importance of family and social factors, and focus on economic aspects of business activity. A structured interview and a poll do not present informal family relations which play a crucial role in running a family enterprise. Family relations are generally noticed in terms of problems and sensitive issues associated with nepotism 4. Therefore, it was extremely important to use both qualitative and quantitative methods during the research on influence of family bonds on organisational strategy, structure and culture, human resources management and training needs. 4 Sułkowski, Ł. Raport z badań przedsiębiorstw rodzinnych w Polsce, in: Ł. Sułkowski (ed.) Determinanty rozwoju przedsiębiorstw rodzinnych w Polsce, TNOiK, Toruń 2005., p

10 Qualitative research produces answers for why-questions. It is aimed at investigating the way of thinking, assessing, conjoining and reacting. This type of research is focused on meanings and connotations related to things, symbols and themes controlling behaviour of the researched. Quantitative research provides opinions, patterns of thoughts and emotions, set customs, habits and expectations. Moreover, qualitative research is aimed at thorough exploration of motives (unknowing or very emotional) for preferences and choices of the researched. Projective techniques are used in qualitative research as they enable the respondents to stimulate and express their emotions and beliefs. Quantitative research is a questionnaire run on relatively large samples of respondents, mostly representative for the study population, with the use of statistical and mathematical methods while selecting the sample and calculating the results. This method of research is based on collecting data from the respondents by means of questionnaires and interviews. Specific number of respondents, selected in accordance with the principles of statistics, is asked to answer questions included in the questionnaire. These answers help to learn about opinions and facts present in the study population. Quantitative methods are applied when on the basis of results obtained for the sample we want to make conclusions on a population larger than the sample. Conclusions based on the results of quantitative research are subject to principles of mathematical statistics. Therefore, they usually not only produce certain numerical evaluation of the general population but also determine statistical error for this evaluation. There are many techniques of quantitative research: personal interview (face to face), telephone interview, Computer Assisted Personal Interview, mail survey, random survey, and Computer Assisted Self-Interviewing. Multistage research procedure Insufficient knowledge of macro family businesses, especially no reliable data on their structure and share in MSME sector, resulted in the necessity to apply the multistage research procedure. The procedure had to enable reliable evaluation of family businesses share in MSME sector (including their share in GDP and in the general employment structure), and to provide answers to all research questions and objectives. Methodological triangulation and data triangulation Data from various sources and many research methods (casual interviews, questionnaire interviews) were used in the research process. Qualitative data and hypotheses based on those methods were verified in terms of quantitative data obtained from the representative sample. Quantitative data on the key research questions were verified in qualitative research. 10

11 Involving both persons related and non-related to the company s owner in the research Nepotism in personnel policy and organisational culture is a significant problem faced by family businesses. Therefore, it was extremely important in the research to find out the standpoint of both the owner of the family business and his non-related employees. Involving both representatives of family businesses and external experts in the research It was expected that owners of family businesses might be so emotionally related to their companies that they would not be able to assess their weaknesses and training needs objectively. To this end, statements of the owners and the employees were compared to opinions of external experts who cooperate with family businesses (lawyers, business organisations). The diagram of the research procedure applied in the project is presented in the chart below. 11

12 Chart 1. Research procedure scheme Desk research Thorough analysis of documents and studies on family businesses cataloguing the present knowledge of family businesses. Proving the role of family businesses in economy. Analysis of foreign models of family businesses support, including training and consulting support. Analysis of MSME interest, including family businesses interest in trainings and consulting. 1. Exploratory stage MSME quantitative research (N=1280) Estimating family businesses share and structure in accordance with various defining criteria. Verification of the preliminary definition of family business from the Polish perspective. Preliminary identification of Polish family businesses problems. Description of family businesses compared to MSME nonfamily businesses (structure, perception of problems, participation in trainings, facts and attitudes.) 2. Diagnosis and verification stage Qualitative research 30 IDI (entrepreneurs) 16 IDI (experts) Thorough study of family businesses, their problems and development barriers. Training needs investigation. Family businesses quantitative research (N=1610) Description of Polish family businesses. Family businesses segmentation. Identifying the experience in trainings attendance. Identification of the demand for various types of training and consulting services on a voivodeship basis. Specifying the best way of preparing the service. 3. Explanatory stage Qualitative research 15 IDI (entrepreneurs) 5 IDI (experts) Specifying the character of training service: support tools, subject matter, means of organisation. Preparing training and consulting support model. Assessment of certain training and consulting ideas. 12

13 2.2 The study population The general population in the research project consisted of Micro, Small and Medium Enterprises (MSME): micro - up to 9 employees; small from 10 to 49 employees; medium from 50 to 249 employees. The entities representing the following PKD sections have been excluded from the research: Section A agriculture, hunting section B fishing section L public administration section P households employing workers Section Q extraterritorial organisations and bodies. As recommended by the Contracting Party, sole traders who do not employ any staff were also excluded from the population. Therefore, the research was limited only to a part of MSME sector (35% of the entire sector). This has serious consequences for estimating family businesses share in MSME, GDP and in general employment structure. The defined MSME population was estimated at 1,333,350 entities, pursuant to REGON register, and 607,591 active entities 6. 5 PKD 2004 sections were applied since this classification was at that time used by CSO while preparing the collections of statistics presenting the structure of business entities population, and while reporting data from REGON register. 6 According to the Report on the condition of the small and medium-sized enterprise sector in Poland in ; PAED Percentage of companies hiring 0 employees was calculated on the basis of CSO compilation: Economic activity of enterprises employing less than 9 persons in 2004, CSO, Warsaw,

14 2.3 Concise description of research methodology Exploratory stage 1. Desk research a detailed analysis of available studies on family businesses 2. MSME quantitative research a. Necessity for conducting quantitative research on a representative sample of MSME enterprises as a result of the need to estimate the size of population in question and to describe the population. It was also important to obtain information necessary for conducting a comparative analysis of family and non-family businesses (structures, training needs). b. The research objective was to estimate family businesses share in MSMEs according to various family business defining criteria applied in the world. c. The group of respondents consisted of companies owners/ co-owners or enterprises managers (chairmen, directors or their deputies, members of the board). In case of family businesses, they were both family members and non-related persons (provided they were appointed to managerial posts). d. Selection of the sample stratified random. e. Size of the sample N=1280, maximum statistical error 2.7%. Data were outweighed so that the structure of the sample reflected the structure of MSME sector perfectly. As a consequence of weighting, the sums of percentages in answers may not equal 100% (usually they vary by +/- 1% at most). f. Research technique direct individual questionnaire interviews. The structure of the sample in MSME research according to the most important variables is presented in the charts below. 14

15 Chart 2. Structure of the sample in MSME research size of the enterprise Source: MSME research, exploratory stage, N=1280 medium enterprises 2% micro enterprises 87% small ente rprises 11% Chart 3. Structure of the sample in MSME research PKD section Section D manufacturing Section F buiding industry 9% 13% Section G commerce 38% Section H hotels and restaurants Section I transport Section J financial intermediation Section K real estate Section M education Section N health care Section O other service activities 4% 8% 2% 14% 3% 4% 5% Source: MSME research, exploratory stage, N=

16 Chart 4. Structure of the sample in MSME research voivodeship 16% 8% 5% 4% 3% 7% 8% 3% 4% 2% 6% 12% 3% 3% 10% 6% Dolnośląskie Kujawsko - pomorskie Lubelskie Lubuskie Łódzkie Małopolskie Mazowieckie Opolskie Podkarpackie Podlaskie Pomorskie Śląskie Świętokrzyskie Warmińsko - mazurskie Wielkopolskie Zachodniopomorskie Source: MSME research, exploratory stage, N=1280 Chart 5. Structure of the sample in MSME research legal form sole traders 69% other legal form 31% Source: MSME research, exploratory stage, N=

17 Diagnosis and verification stage 1. Qualitative research To gain a better understanding of problems and barriers related to running a family business and to determine its demand for training and consulting services, the research project included: Individual interviews with family entrepreneurs and key employees, Individual interviews with experts (representatives of the academic community, business organisations, consulting and training companies). As a result of the first stage of the research for the purposes of subsequent stages of the project the following definition of a family business was adopted: A family enterprise is each business entity from the MSME sector, regardless of the legal form, registered and operating in Poland, in which: at least two family members are working together, at least one family member has a considerable impact on managing the enterprise, family members have a significant share in the enterprise. The detailed definition is described in section 6.1. Individual interviews with family entrepreneurs a. Stage 1 individual deepened interviews with owners or co-owners of family businesses. Stage 2 individual deepened interviews with key employees. b. The second-stage respondents were family businesses employees selected after stage 1 (after recognising the organisational structure and the company s specific character, persons with greatest knowledge on organisational units or departments they work in, were selected). c. Companies selected for the research were differentiated by: size (micro, small and medium), branch and voivodeship. d. The total number of companies where the interviews were conducted, was 30. Individual interviews with experts: a. respondents persons who work in a family business: representatives of the academic community - 6 representatives of business organisations - 3 representatives of training and consulting companies - 3 lawyers - 3 accountants - 1 b. The total number of the conducted interviews was: 16 (including two pilot interviews). 17

18 2. Quantitative research on family businesses (the proper research on family businesses) a. The main objective of the research was quantitative verification of the results of two previous stages: exploratory stage and qualitative research of diagnosis and verification stage, in particular: segmentation of family enterprises and identification of main criteria and relatively homogeneous segments diagnosis of current and potential problems specific to family businesses identification and assessment of the demand for training and consulting support among family enterprises defining the demand for training and consulting service for family businesses on a voivodeship basis recognition of preferences for substantive, technical and organisational aspects of consulting and/or training service, defining the demand for particular support instruments. b. The general population consisted of Polish MSME family businesses according to definition verified after conducting the quantitative research at exploratory stage (the detailed definition is discussed in section 6.1). Respondents were owners and/or management of the family enterprise (sample entities), whether they were related to the owner or not. c. Selection of the sample quota, structure of the sample (number of employees, branch and voivodeship) consistent inter alia due to weighting procedure 7 with the structure of family businesses identified in a research on the representative MSME sample. The sample of family businesses may be regarded as representative for the population of Polish MSME family businesses. d. The research was conducted through computer assisted direct interviews. 7 As a consequence of weighting, the sums of percentages in answers may be not equal 100% (usually they vary by +/- 1% at most). 18

19 The structure of the sample in family business research is presented in the charts below. Chart 6. Structure of the sample in family businesses research size of the enterprise medium enterpris es 1% micro enterpris es 90% small enterpris es 9% Source: The actual survey of family businesses, diagnosis and verification stage, N = 1610 Chart 7 Structure of the sample in family businesses research PKD section 44% 15% 11% 13% 4% 5% 2% 1% 3% 2% Section D manufacturing Section F building industry Section G commerce Section H hotels and restaurants Section I transport Section J financial intermediation Section K real estate Section M education Section N health care Section O other service activities Source: The actual survey of family businesses, diagnosis and verification stage, N =

20 Chart 8. Structure of the sample in family businesses research voivodeship 15% 12% 11% 11% 6% 3% 2% 7% 5% 3% 2% 7% 7% 4% 2% 3% Dolnośląskie Kujawsko - pomorskie Lubelskie Lubuskie Łódzkie Małopolskie Mazowieckie Opolskie Podkarpackie Podlaskie Pomorskie Śląskie Świętokrzyskie Warmińsko - mazurskie Wielkopolskie Zachodniopomorskie Source: The actual survey of family businesses, diagnosis and verification stage, N = 1610 Chart 9 Structure of the sample in family businesses research legal form sole traders 68% other legal form 32% Source: The actual survey of family businesses, diagnosis and verification stage, N = 1610 Explanatory stage The main objective of this stage was to prepare a model of training and consulting programme addressed to family businesses. The explanatory stage included: 1. Individual deepened interviews with owners of family businesses the research was based on the sample of 15 family businesses, including those identified in quantitative research as companies with strong training demand. 2. Individual deepened interviews with experts representatives of consulting and training companies (all respondents were experts in preparing training programmes). In total 5 interviews were conducted. 20

21 3 SUMMARY 3.1 Main conclusions of the survey of family businesses Family businesses and the economy Family businesses constitute 36% of MSMEs 8. The MSMEs share of family businesses (as defined) decreases as the enterprise size grows: family businesses constitute 38% of micro-enterprises, 28% of small enterprises and 14% of medium enterprises. Should the a priori assumption be made, that firms functioning as a natural person engaged in economic activity and not employing any staff (excluded from the definition of a family enterprise, hence not included in the MSMEs survey, though in some countries included to the family enterprise category), qualify as family enterprises, the share of family businesses in MSMEs would amount to 78%. Most enterprises fulfilling the family business criteria adapted for the survey (almost 90%) have the awareness of their family character define themselves as family businesses. It can be estimated that family enterprises belonging to the MSME sector produce at least 10.4% of total Polish GDP (more than PLN 121 billion) 9. Family enterprises in Poland employ circa 1 million 300 thousand persons, which constitutes about 21% of the total number of employees in MSME sector. 8 Only the entities from the MSME sector representing the following PKD 2004 sections have been included in the survey: A agriculture, hunting and forestry; B fishing; L public administration, P households employing workers; Q extraterritorial organisations and bodies. Also entities couducting business activity as natural persons, not employing anyone else (even if informally supported by the family members work) were excluded from the survey. 9 Data from the Report on the Condition of Small and Medium Enterprises in Poland in , PAED 2009, were used for the calculations. According to the said report, the whole SME sector produces 47.4% of Polish GDP (including micro-enterprises 30.1%, small enterprises - 7.3%, and medium enterprises 10%). 21

22 Differences between family and non-family businesses Quantitative analysis of a representative sample of MSME enterprises has not revealed significant structural differences between family entrepreneurship and other MSME enterprises (in terms of an enterprise size, employee number, geographical location, turnover, investment and investment plans). No vital differences have been observed in the perception of Poland s largest barriers for entrepreneurship, or measures to be taken in order to improve conditions for business activity in Poland either. The analyses have shown that differentiation in the MSME sector depends much more on enterprise size (the employee number), than on its family character. It might result from currently achieved maturity (in terms of years) of Poland s free market. Consequently, large number of Polish family enterprises find themselves in the development stage, in which specific problems of family entrepreneurship, such as intergenerational transfer of ownership, or introduction of the new generations/external managers to the enterprise, do not manifest themselves. It should also be noted that minor (usually statistically insignificant) differences between family businesses and other enterprises may result from the specificity of Polish MSME sector. It is dominated by micro-enterprises both among family and non-family firms. It would be difficult to expect that problems with staff or extensive organisational structure management would become apparent in case of such a structure. Differences between family and non-family enterprises pertain mostly to the sphere of values and organisational culture, which is influenced by diverse positive and negative consequences of the family aspect. This might be the reason why an enterprise s family culture and identity are not always reflected in its image. Not all the managers underline the family character of their enterprises, as they believe it might be perceived negatively. Employing family members means above all higher confidence level. The blood ties, shared values and responsibility for the name and the brand result in the founders' 22

23 certainty that they will not be misused by their family members. That is why the latter occupy key posts in the enterprise and are responsible for more important decisions. In the entrepreneurs perception, employees who are family members are also obliged to work more efficiently and eager to make sacrifices for the well-being of the company more than the non-family employees (e.g. unpaid extra hours). A communication system, developed over the years by a family, which uses the same code and spends much time together, result in quicker decisions in the enterprise. Close family ties help family members express their opinions, especially the less positive ones. Characteristic family organisation culture is created, above all, by positive working environment. The owners often bring family, home-like climate to business environment. It transpires from the interviews with non-family members employed in a family enterprise that the attitude they are experiencing is more personalised in a family enterprise than in a non-family enterprise. The owners often show interest in their employees private lives. Family enterprises are also more responsive to their clients needs. Flexible working hours enable them to adapt to changing demand on the market. Experts point out that family enterprises often occupy market niches and respond to special, nonstandard commissions. Due to their flexibility and greater adaptability, family enterprises are more crisisresistant: they quickly adapt to new critical conditions by reducing costs to a necessary minimum and suspending all unnecessary expenses. The enterprises may reduce or even suspend for a while the family members remuneration. Family enterprises are characterised by a higher level of responsibility for the family, the employees and the local community they are active in. While taking decisions of any kind the managers bear in mind their responsibility for the employees and, indirectly, for the families of the latter as well. 23

24 Characteristics of Polish family entrepreneurship As it has been mentioned before, the size structure of family enterprises reflects the structure of the MSME sector. Micro-enterprises prevail (90%). Almost one in ten (95) family business employs 10 to 49 people, and only 1% belong to the medium enterprise category. Average employee number in family businesses is 5.8, 2.4 family members included. The predominant legal form of Polish family entrepreneurship is a natural person engaged in business activity (81% of family businesses operate in this form). An average family enterprise is about 14 years old, resembling in this respect nonfamily enterprises. The most numerous group are enterprises that have been present on the market for 11 to 20 years (42%); the representations of entreprises aged 6-10 and more than 20 years are also numerous (circa 20% each). In regional terms, the highest proportion of family enterprises is found in the Opolskie Voivodeship and the Kujawsko-Pomorskie Voivodeship, as well as in the Dolnośląskie, Świętkorzyskie, Wielkopolskie and Małopolskie Voivodeships, the smallest in the Lubuskie, Zachodniopomorskie, Podkarpackie and Lubelskie Voivodeships. 10 In terms of absolute figures, the highest number of family businesses is found in the Mazowieckie, Śląskie, Dolnośląskie and Wielkopolskie Voivodeships. Family enterprises are most commonly found in the following economy sectors: H (hotels and restaurants), D (industrial processing), I (transport and warehouse management) and G (wholesale and retail trade). 76% of the total number of family enterprises were related to the PKD (Polish Classification of Activities) sections mentioned above, section G (45%) in particular. High family entrepreneurship rate in the said industries may probably relate to the low cost of market entry. 10 Establishing causes of the noted differences is very difficult. Surely they are not related to the basic socioeconomic development indicators, since among the leaders are both the best-developed voivodeships (such as the Wielkopolskie Voivodeship), but also the voivodeships of lower development indicators (e.g. the Świętokrzyskie and Kujawsko-Pomorskie Voivodeships). 24

25 Family businesses are active above all on the closest markets (local and voivodeship). Only 2% of family enterprises are present on international markets. Family businesses, like the remaining MSME enterprises, do not belong to the financial shark category. The majority of those achieved turnover below PLN 1 million in the last year, with results below PLN prevailing. The family enterprises investments do not differ from its counterparts of the remaining enterprises from MSME sector. Modernisation (purchase of new machines and equipment) is a clear priority; training and consulting activities do not enjoy any particular popularity, and R&D investment is almost non-existent. In the last two years training and consulting were not common (only circa 15% of family enterprises used such services). The size of the enterprise was the variable determining the level of such investment in the enterprise's development. The more persons the enterprise hired, the highest probability of soft investment there was. The family enterprises' tendency to finance investment by means of credits is obviously bigger than that of non-family ones. This phenomenon can easily be explained by limited funds of family enterprises (indicated, a.o. by lower turnover), which operate in vast majority as natural persons engaged in business activity. Activity in the domains requiring more funds forces such persons to make use of credits and loans. Ownership and management in Polish family businesses are concentrated in most cases in the hands of their founders (founding families). The investigated enterprises (family businesses excluding natural persons engaged in business activity - sole traders) are mostly enterprises with the majority ownership share of the family (93%). In most cases, these are the entities, in which the total share belongs to the founder's family (52%) followed by those, in which it varies from 50% to 70% (23%). Average family share amounts to 87%. 25

26 Representatives of the first generation work in family enterprises (almost 90%); they are also in most cases their owners. Co-ownership (much less common) is found mostly between the representatives of the first and the second generation. The second generation is more often engaged in work for the enterprise (33%) than given access to ownership share (15%). The owners in most cases manage their enterprises personally (or with the family s assistance). Also, in enterprises where more than one generation works, the founders usually have the biggest say in the decision making process in 9 in 10 cases their influence is substantial, in more than a half cases - very much so. The owners of family enterprises use most often the paternalistic management style. This is the one-sided, charismatic and power-oriented management style. The founder of the enterprise, who has substantial decision making powers, cares for the enterprise s development and wants prosperity for the family and the employees. On the one hand, the paternalistic management style may give the employees the sense of security and stability, however on the other hand, it may restrict their decision making powers and render them too dependent on the manager. 11 The non-family employees have limited influence on the decision making process in the firm. Only in 11% of enterprises it has been described as considerable or substantial. At the same time, 38% respondents declared that such employees do not have any influence on the process. There are apparent discrepancies between the attitudes of the family and non-family managers on how the business should be managed. They may result in potential conflicts as to the direction of the family business development. Owners display more conservative approach to management. They claim, more often than the non-family decision-makers, that investment should be made on the basis of the firm s own capital (59% against 40% of the non-family decision-makers), that the company should develop little by little (59% and 43% respectively), in accordance with old, tried and trusted patterns (42%, 29%). In consequence, they describe perspectives for the enterprise in different terms owners, more than the non-family members, declare more often that they think in terms of their firm s survival rather than 11 Ł. Sułkowski, Determinanty rozwoju przedsiębiorstw rodzinnych w Polsce, TNOiK, Toruń

27 development (33% against 15% respectively). The above is also true for medium enterprises. Family succession is one of the most important manifestation of family enterprises operation. The successful succession is crucial for a family enterprise, since its development depends on the process. Due to relatively short traditions of Polish entrepreneurship rarely did we encounter family businesses where intra-generational transfer occurred (circa 20% 12 ). In the majority of cases, however, family enterprises declare the will to hand the enterprise over to a descendant (58%). Still, those have the declaratory rather than performative power. Knowledge on how to plan succession is very limited. The managers rely exclusively on their own experience and intuition and often make mistakes, such as, for example, not preparing the successor. The managed firms suffer from serious succession problems, should the succession occur as a result of a sudden, unexpected event. Although the family component of an enterprise is positively valued (the respondents have a very positive association with family enterprises, and in majority they consider the family character a contributing factor to the business activity), the said character is not strongly exposed in business relations. 27% of the examined companies declared frequent emphasis on the family character of their activity. Similar number (26%) declared they do it from time to time, 14% claimed it rare. Almost one in three (32%) firms under investigation did not mention their family character at all. 12 Data on the ratio of family businesses, where succession has taken place (and which are in the hands of the second or following generation of owners) were gathered twice: in the representative MSME sample survey (questions about succession were asked only the entities operating in a legal form other than economic activity of a natural person) and in the proper survey of family enterprises (questions asked to all enterprises). The ratio amounted to 25%in the first survey and 16% in the second survey. Hence the average ratio of family enterprises where succession has taken place (taking into account differentces in statistical error) amounts to circa 20%. 27

28 Division of family businesses The results of the survey give grounds for defining 6 segments of family businesses, distinguished against the criteria related to: valuing and emphasizing family character as the enterprise s asset, succession processes effected or planned, which reflect the bi- or multigenerational ownership and/or management structure, the influence of the family and non-family members on the management processes, the enterprise size and age, having formal development strategy. The first two criteria are crucial for differentiation in the demand for training and consulting services. Following segments of family entrepreneurship have been distinguished 13 : Segment 1 Achieving position (45%) the most numerously represented segment of family entrepreneurship, typical for the first entrepreneurship stage. Characteristics: rare emphasis on the family character of the company, conviction that the family character does not help in business, uncertainty as to the succession plans, young age (7 years on average, but as many as 16% are active on the market less than 3 years), small employee number, lack of formal development strategies (both long- and short term). Segment 2 Collectivity and sprouting of succession (16%) firms, which are characterised by development strategy and high will of succession. In some of those firms partial succession occurred. Although ownership belongs mostly to the generation of founders, there are also cases of ownership sharing with the representatives of the second generation (the second generation is much more often given access to common work). More than a half of those have been present on the market for more than 10 years. Segment 3 Professionalisation of management (12%) companies in this segment are relatively large and distinguished by significant influence of persons 13 More detailed description of the differentiated segments is included in section

29 not belonging to the family on management processes. Ownership is held mostly by the first generation representatives (other generations are rarely present). The family character is of secondary importance in such companies they are not characterised by particular emphasis on the business family character, or a particular will of succession. Segment 4 Enthusiasts of family character (13%) such firms often emphasize their family character. It is accompanied by more than average conviction of the family character s positive influence on business activity. These are firms with less formalised development strategies, and young firms they resemble in that respect the firms from the achieving position segment. However, they are distinguished from the latter by a very positive assessment of the family character as a firm s advantage. Segment 5 Changing guards (10%) firms from this segment are characterised by the fact that succession has occurred. They are in the hands of the second generation representatives, but the founders though withdrawing from ownership do not stop their professional activity. The firms advantage is also the limited influence of the employees who are not family members on the decision making process. These are not young companies, however, they do not belong to the longest-operating ones (their average age is 13 years). Segment 6 Multigenerational traditionalists, aware of the family character (5%) those are typical multigenerational family businesses, both in terms of the ownership structure and common work for the firm, consciously using the family character in business relations. These are the oldest (on average 17 years old, half of them present on the market for more than 20 years) and relatively large companies. They relatively often have formal development strategies. Identification and assessment of the need for training and consulting support among family businesses In the past, the use of training and consulting services for family businesses was declared only by 2% of the studied family enterprises. The listed subjects point out, 29

30 that among those were also firms, which trained themselves in subjects not related to the specificity of a family business. At present, the training and consulting market for family enterprises pertaining to their specific, family character does not exist in Poland, and the prospective training and consulting service is to be the first on the market directed specifically to this target group. There is no considerable interest in the service assuming that it would be free of charge only one in four entrepreneurs would be interested. Such results are not surprising, since half of the Polish family enterprises are small firms, struggling to survive, which do not perceive their family character as a particular asset (see: segment 1 Achieving position ). The segments which express substantial interest in the service are those, which: value their family character and/or where problems may appear resulting from: o the presence of representatives of many generations (the issue of succession) o growing professionalisation of management, one of the symptoms of which is the presence of non-family employees in the firm. As far as the service is concerned, the highest interest ratio was noted in the following segments: Segment 3 Professionalisation of management (49%) Segment 4 Enthusiasts of family character (40%) Segment 5 Changing guards (38%) Segment 2 Collectivity and sprouting of succession (31%). The Multigenerational traditionalists, aware of the family character segment does not express interest the company s long history, learning through experience (good and bad practice included), skilful use of their family character may result in a situation where they feel no need of training and consulting support. It should nevertheless be noted that the number of such companies in the sample is very small (circa30), which renders statistic induction less reliable. 30

31 However, even among enterprises expressing more than ordinary interest, there is high ratio of those, whose needs pertaining to trainings have not been specified. Positive attitude to training in general and awareness of family character allow to think that adequate diagnosis of training needs (the importance of which, as it has been indicated by the gathered data, cannot be overestimated) will allow for adequate identification of the most desirable tendencies in the enterprises development. Training and consulting services that raised most considerable interest pertained to building strategies and plans for family enterprises, followed by the family enterprise accounting for Tax Office and, in the third place, strategic management in family enterprises. Training on creating common vision of the enterprise s development by persons belonging to different generations also received a relatively high preference ratio. 3.2 Family businesses and the level of employment Main conclusions from the research (some of which have already been mentioned above), pertaining to the characteristics and functioning of family businesses depending on the enterprise size are presented below. The share of family businesses depending on their size The SMEs share of the family enterprises (as defined) in MSME decreases with the enterprise s growth: family enterprises constitute 38% of micro-enterprises, 28% of small enterprises and 14% of medium enterprises. The same ratio is also observed among the firms perceived by their owners or managers as being of family character it decreases with the growth of the enterprise size: it reached 34% among micro-enterprises, 27% among small enterprises and 14% among medium enterprises. The estimated number of employees in family businesses is slightly more than 1 million 300 thousand (21% of the total employee number in MSMEs), including circa 850 thousand employees of micro-enterprises, almost 330 thousand 31

32 employees of small enterprises and 160 thousand employees of medium enterprises. Internal structures of family businesses according to the level of employment Micro-enterprises prevail among family businesses (90%). One in ten family enterprises (9%) employs from 10 to 49 workers and only 1% belongs to the category of medium-sized enterprises. Such structure is also typical for the whole MSME sector, including non-family enterprises. Enterprise size and legal form of activity The enterprise size is the factor determining its legal and organisational form. Natural persons conducting their own business activity prevail among the microenterprises (86%, small 64%, medium 36%). Other legal forms gain importance as the company grows in size especially Limited Liability Companies (4%, 10%, 36% respectively) and, less often, civil law partnerships and registered partnerships. Enterprise size and industry Most micro-enterprises (63%) specialise in wholesale and retail trade. The industry's popularity decreases among small and medium enterprises; which in turn become more often attracted to industrial processing (small 16%, medium 29%), transport (8% and 12% respectively), small enterprises also turn to real estate services (11%), and the medium ones to healthcare (9%). Enterprise size and the scope of its activity Micro-enterprises are active above all on local markets (73%). Small and medium enterprises are much more often present on voivodeship, nation-wide and international markets (especially medium enterprises are active on the last one). Barriers for the micro-enterprises expansion result from both their limited size and a certain cautiousness on their part. It is often manifested in the conviction that investment should be made on the basis of one s own capital (65%) and the best development method is the "one (little) step at a time approach. Consequently one in two micro-enterprises declares feeling overwhelmed by 32

33 problems, functioning in constant fear of tomorrow and not thinking of development, but only hoping to survive on the market. Family business characteristics Micro-enterprises have more positive an opinion on the family character s influence on business activity. Two in three declare that such character helps them run business (they appreciate the opportunity to use their family human resources in the first place and, in the start-up stage, also the family s financial resources). In small enterprises this ratio amounts to 55%, in medium ones 57%. The use of family aspect in business relations is slightly more often practised by firms that employ persons. 62% of companies in that category emphasize their family character often or every now and then, while this ratio is several p.p. smaller in the remaining companies. On average 2.6 family members (2.1 of which formally) are involved in work for the business in micro-enterprises, 3.9 (3.7 of which formally) in small family enterprises and 7 (6.3 formally) in medium enterprises. The inter-generational character, both of the ownership structure and the involvement in work for the firms, grows with the enterprise size. The second generation s share in ownership was noted in 15% of micro-enterprises, 21% of small and 34% of medium enterprises; its involvement in work for the enterprise in case of 29% micro-, 39% small and as much as 57% medium enterprises. Another variable that influences the relationship between the inter-generational character and the enterprise size is the age of the enterprise (since the period of its activity on the market is highly co-related with its size). Organisational structure of an entity results from its size. The structural departments exist in 10% micro-enterprises, 30% small and 74% medium enterprises. The entity s size is also co-related with its having management and supervisory board (or any informal board). These structures are most often encountered in medium enterprises (management 53%, the board 26%), rarely in small ones (15% and 4% respectively), hardly in micro-enterprises (5%, 1%). Hence management functions carried out by family members in internal organisational structures were most often declared by the representatives of medium enterprises (75%), followed by the representatives of companies 33

34 employing from 10 to 49 persons (59%). In the smallest enterprises the ratio amounted to 28%. It does not mean that micro-enterprises are more reluctant to nepotism, but rather reflects the natural, structural barrier. In the vast majority of family businesses the owner manages the enterprise directly and on their own however such centralised management is encountered mostly in micro- and small enterprises (95% and 92% respectively). In medium enterprises other family members (16%) or external managers (5%) are sometimes given access to management. These conclusions confirm the data on the non-family members share in management in as much as 43% microenterprises such persons do not have any influence on the decision making process in the enterprise (it should be remembered, however, that only family members work in most such companies). In small and medium enterprises this ratio is much lower (21% and 14%). The inclination to hand the enterprise over to legal successors of the owner is not related to its size. Still, preparatory measures to this end are encountered much more often in small and medium than in micro-enterprises. The former more often have a succession plan in writing, offer the successor employment and education related to the company s profile (in particular medium enterprises; they are also the ones which have a general development strategy in writing 34% against 13% in small and 7% in micro-enterprises). The use of training services, the interest in training services for family businesses Large discrepancies exist with respect to the use of training/consulting services, depending on a enterprise size. Micro-enterprises use them the least (8% during the last two years; the significant number of those consider themselves too small to use such services), small enterprises more often (17%), medium ones the most often, but still relatively rarely (37%). Micro-enterprises and small enterprises declare interest in training services for family businesses less often than medium enterprises (24% and 29% respectively against 38%). 34

35 4 RECOMMENDATIONS 4.1 General trends in supporting family businesses The research carried out to date would suggest that family businesses are experiencing problems, which are due to the specific character of the MSME sector (or the whole Polish economy) as well as particular problems related to family ownership and management. The first group includes: Capital barriers problems with obtaining the capital necessary for development. Fiscal and tax barriers increasing the operating costs and encouraging the selection of passive and conservative investment strategies. Technological barriers related to lack of access to newest technologies, equipment, devices and technical innovations. Competence barriers making it difficult to find on the labour market highly skilled employees with relevant qualifications. Legal and administrative barriers restricting flexibility as well as possibilities of investment and employment. However, family businesses share a common area of specific problems due to the family character of business and related to management and social relations. These mainly include: a) Problems and conflicts related to the family character of business. b) Efficiency of succession and generational transfers. c) The application of strategic management. d) Problems related to growth, stages of growth and professionalisation of family businesses. e) Psychological and sociological problems related to the founder, successors, shareholders and employees of family businesses. Among barriers that are specific to family businesses, the most important role is played by: 35

36 a) Professionalisation barriers due to the fact that owner family members restrict the role of contract managers. b) Succession barriers that might lead to frequent crises that usually follow a generational transfer in the management of a family enterprise. c) Cultural barriers nepotism and familism in organisational culture and in human resources management d) Management style barriers - omnipotence of and autocratic management by the founder of the family business. e) Strategic development barriers the goals of the dominant family may be in conflict with the aims of the business that they are controlling. As can be evidenced by the findings of the study, managers and owners of family businesses have a limited knowledge of and experience in solving those specific problems. When designing training and consulting programmes for family businesses, it is useful to take into consideration the general trends in supporting the development of family businesses i.e. how can family businesses cope with family business-specific problems and obstacles to development? Measures aimed at enhancing competitiveness of family businesses (achieved through training and consulting support, but also owing to other instruments) should include: 1. Reconstruction of identity of a family business The enterprises that are part of the investigated category should define their position within the category of family business. In order words, they should define how they will reconciliate the goals of the family and those of the enterprise, how they will define family ownership and management structure and their position with respect to planning the succession process. If the business sets clear goals, this will allow it to understand the weak and strong sides of belonging to the category of family firms and use this knowledge in practice. 2. Developing a family business strategy Family businesses should formulate the objectives of the business which ought to be strictly connected with those of the family and match the vision of the founder of the 36

37 business. The dominant family and the enterprise s management should then develop a mission reflecting the identity of the enterprise, along with a succession plan which will prepare the successor, the manager and employee s of the enterprise for future transfer of power. 3. Restructuring of a family business The organisational structure should meet the following criteria: flexibility, effectiveness and ensuring family control. The departure from the hub and spoke structure 14, commonly used in family businesses, is particularly challenging. The change in the structure should be progressive, according to the plan set. It is also important that the members of the family, intending to give the most important positions to family, refrain from creating a family structure only. Even in the case of MSMEs, it frequently proves essential to employ managers who are not family, in particular when there are no specialists in the family that could fill the positions. This results in a more open organisational culture, a more efficient HR policy and better mechanisms of strategic decision-making. 4. Developing a learning familism culture Awareness of the family character of the enterprise contributes to the development of strategy, structure and culture where business and family are combined. However, these activities must have a self-limiting character. The family may not excessively exploit the enterprise. Its development may not be restricted by nepotism in the HR policy and organisational culture either. Developing a learning family culture relies on using the strong sides of the family character of the enterprise: aiming at high employee involvement, building a strong bond between the company and its stakeholders and adopting flexible rules of operations for the benefit of the enterprise. 14 The characteristic feature of the hub and spoke structure is that it involves one person acting as a manager only and they are in charge of all key decisions. There are no intermediate levels in this kind of structure. Although initially such a model of management is really effective, once the company starts to grow, its efficiency becomes progressively limited with resulting problems related to lack of flexibility, communication and decision breakdowns. 37

38 5. Monitoring the connections between the family and the family business The family and the enterprise are bound by strong relationships that change over time. Monitoring of these is an important task. Family should be an element of competitive advantage that changes as the business develops. Excessive fixation of legal arrangements related to succession, ownership and management of the enterprise may lead to ossification of the business and lower its effectiveness. 6. A set of universal rules of effective succession is proposed below. Their usefulness is confirmed in foreign research on family enterprises: a) One of the most important factors facilitating a succession is its early planning and preparation 15. b) A model of successful succession should answer such questions as: who inherits?, when? and how? 16 c) Succession should be planned and progressive. Seven stages of succession can be identified: pre-business, introductory, introductory functional, functional, advanced functional, early succession and final mature succession P.C. Rosenblatt, L. de Mik, R.M. Anderson, P.A. Johnson, The Family in Business: Understanding and Dealing with the Challenges Entrepreneurial Families Face, Jossey-Bass, San Francisco W.G. Dyer, Jr., Cultural Change in Family Firms: Anticipating and Managing Business and family Transitions, Jossey-Bass, San Francisco I. Lansberg, Succeeding Generations: Realasing the Dream of Families in Business, Harvard Business School Press, Boston J.G. Longenecker, J.E. Schoen, Management Succession in the Family Business, w: Family Business Sourcebook, (eds.) C.E. Aronoff, J.H. Astrachan, J.L. Ward, Family Entreprise Publishers, Georgia 2002, p

39 Table 1 Description of succession stages Succession stages 1. Pre-business 2. Introductory 3. Introductory functional 4. Functional 5. Advanced functional 6. Early succession 7. Mature succession Source: Own work Description The successor is still a child, but is not isolated from company workers They perceive the child as a future owner (but this is not definite). Although they are not an adult, the successor becomes aware of the relations between family and business. The successor is employed part-time in the family business and gains experience in other companies; building an educational background (relevant education for the future role). The successor begins full-time work in the family business. They gain experience in non-managerial positions and different organisational units The successor is gradually promoted. They assume increasingly more responsibilities. The successor assumes presidency. However, the new head - president is still supervised by their predecessor. The predecessor progressively retires. The successor assumes full control and responsibility. d) For a successful succession, such factors as: the extent of autonomy in decision-making, their competence and self-confidence 18 are important. e) Education and preparing the successor to take over the business are key in succession planning. What is also important is early introduction of the successor to business 19, but also building their autonomy allowing them to work outside the family business 20. f) Succession planning is enhanced by harmonious relationships in the family prevailing in the family enterprise. 21 g) One way to deal with the problems related to succession in a family business could be building a balance between family goals and company goals supported by a strategic vision S.D. Goldberg, B. Woolridge, Self Confidence and Managerial Autonomy: Successor Characteristics Critical to Succession in Family Firms, Family Business Review, 6 (1), 1993, p J.A. Barach, J. Gantisky, J.A. Carson, B.A. Doochin, Entry of the Next Generation: Strategic Challenge for Family Business, in: Family Business Sourcebook, (eds.) C.E. Aronoff, J.H. Astrachan, J.L. Ward, Family Entreprise Publishers, Georgia 2002, p B.S. Hollander, Silver Spoon Syndrome, in: Family Business Sourcebook, (eds.) C.E. Aronoff, J.H. Astrachan, J.L. Ward, Family Entreprise Publishers, Georgia 2002, p N.C. Churchill, K.J. Hatten, Non-Market-Based Transfers of Wealth and Power: A Research Framework for Family Businesses, American Journal of Small Business, 1987, 11 (3), p

40 h) Unsuccessful succession is usually due to: weak relationships and conflicts in the family, inadequate power and ownership structure and problems in organisational communication Enhancing the image of family businesses There are problems related to social perception of family businesses, including how they are perceived by the entrepreneurs. The negative aspects of this image include for instance: the limited size of business, stagnation, absence of market expansion, unprofessional management, associating such business with nepotism. The family entrepreneurs themselves also share the negative connotations of the family aspect of business. They only highlight the family aspect in the business relationships once they feel they are successful in the market. The proposed image campaign is one way to overcome those negative connotations and at the same a way to break the taboo surrounding family businesses, encouraging an open and substantive discussion on the problems identified. 4.2 Training and consulting support programme In the light of an increase in importance of family businesses in Polish economy we are facing the necessity of implementing practices aimed at enhancing the management of family enterprises. Due to the complex nature of family enterprises, an open, interdisciplinary research approach is required here, combining what we have learnt from economics, management, law, social science, social psychology and anthropology. Research shows that key problems of family business which are specific to this group of companies usually relate to: succession strategies, 22 J. Jeżak, Wizja rozwoju firmy jako kluczowy element przedsiębiorczości rodzinnej, [A vision of company development as a key element in family entrepreneurship] in: Przedsiębiorczość a zarządzanie korporacjami [Entrepreneurship and company management], (eds.) J.Jeżak, Górnośląska Wyższa Szkoła Handlowa, Katowice T. Hubler, Ten Most Prevalent Obstacles to Family-Business Succession Planning, in: Family Business Sourcebook, (eds.) C.E. Aronoff, J.H. Astrachan, J.L. Ward, Family Entreprise Publishers, Georgia 2002, p

41 legal and financial problems related to succession in family enterprises, psychological and social problems related to management, difficulties in relation to professionalisation of family businesses, image, identity, organisational culture of family enterprises. Many family enterprises do not have sufficient knowledge of threats and opportunities related to the family aspect of business, which is a problem. A faster and more sustainable growth of family businesses will be possible provided that efficient training and consulting measures are implemented. Activation of training, consulting and academic centres, specialising in research on family businesses in Poland, would seem particularly desirable here. What is needed are conferences, seminars involving both practitioners and theorists in the field of management of family enterprises and promotion aimed at enhancing both the identity and image of businesses of this kind. Another useful tool in supporting family businesses are public relations activities directed at raising awareness among such firms. Although it may be difficult to expect that this will result in increased competitiveness of those companies, such activities will raise the entrepreneurs selfawareness as now they do not perceive themselves as family businesses. Lack of awareness may make it difficult for them to assess their own training needs or may lead to incorrect assessments. 24 As a result of dissemination of knowledge about family businesses, the family business researchers circles will consolidate and its image will improve in the eyes of, for instance, future employees. This will lead, on the one hand, to more efficient lobbying for family enterprises and to their increased attractiveness as prospective employers, on the other (currently, it is the large corporations which are perceived as professional businesses). Central areas of training and consulting activities include: preparing business for transfer legal and financial aspects, preparing and educating the successor to take over family business, 24 For instance, while the entrepreneur feels that the company s problems are down to workers disobedience, the real problem is the authoritarian patriarchal model, characteristic of a family relationship, used in the company. 41

42 professionalisation of business and human capital management in family enterprises. Training and consulting services should be targeted at micro, small and average family enterprises regardless of the sector, region and type of business. Family MSMEs in which succession will occur within the next 5-7 years are a particularly important target group. Such services should be provided to managers of those businesses only. The aim of those services should be to: overcome the obstacles to development experienced by the business, including succession, development strategies, financing, legal and cultural barriers, increase efficiency of businesses, develop an efficient and stable development strategy. What constitutes a challenge for the consulting and training service provider is the fact that family enterprises are frequently unaware of their problems and training needs. Even if family businesses are aware of their needs, they are often unable to prioritise them. This is evidenced by positive reactions to trainings proposed during in-depth interviews (although initially respondents did not mention any training needs, their attitude changed once specific proposals were presented). The same is suggested by qualitative research findings. After the respondents were presented with potential training (consulting) topics and the question of whether or not they might be willing to take advantage of the offer was asked again, the number of individuals interested in the training services increased. Even those enterprises identified as mature family businesses (succession planned or completed, highlighting the family character of business, multi-generationality and tradition) do not have precise training needs. Therefore, before the training service is developed, professional consulting is desirable and it should help assess the training needs of family businesses participating in the trainings in the context of their current development stages and anticipated development crises. 42

43 Judging solely by the number of respondents interested in particular training topics, we may conclude that three most preferred ones have relatively little in common with relevant issues which family enterprises face. The family element of the service is just an additional adjective and most of those services may in fact be provided using the support designed for MSMEs. However, the subsequent trainings indicated by the respondents were typical for family enterprises. They concerned issues related to cooperation of generations, asset/property management, transfer of roles (from family to company, from company to family). It seems that if it was not for low awareness of needs, trainings of this kind would be preferred by the respondents more frequently. Although in the study, the issue of succession (as a training need) was not highlighted to a considerable extent, this problem should be considered as one of the most important ones. As the study has revealed, most family enterprises is contemplating the idea of generational transfer. However, their knowledge of legal aspects of succession is relatively weak. 25 In the coming years we may see the emergence of problems related to succession (even though they do not seem relevant now). In time, more and more companies dating back to early 1990s, will be contemplating the idea of going out of business. In addition to legal (and financial) aspects of succession, the training (consulting) programmes should include issues related to early stages of succession and in particular, progressive preparation of successors for entry to a family firm. 26 This research has shown that family enterprises are not using the potential of the family brand of such businesses. The trainings should therefore also cover issues related to marketing and family enterprise image. 25 The respondents declare their intention to implement a succession much more frequently than their sound knowledge of its legal aspects. In addition, the definite intention to transfer the company to the subsequent generation is not accompanied by formal succession strategy (in writing). 26 The study revealed that now only one in five successors is deemed to be well prepared to become a successor. At the same time almost one in three is unemployed. Despite this, only 8% of the respondents felt that the candidates for successors were inadequately prepared. 43

44 Yet another problem is an appropriate model of implementing those consulting and training elements. Family enterprises are one of typical sensitive issues. Few businesses are willing to admit that they are facing problems in relation to the family character of business and use external training and consulting services. That is why training and consulting should focus on small internal groups or be provided to representatives of several family enterprises and combine elements of mentoring and consulting. It would seem reasonable to implement whole networks of business support institutions and organisations which could support family enterprises on a permanent basis. These might be: family business associations, academic institutions and consulting companies dealing with this issue. The respondents' preferences with respect to duration, time and place of training are very clear. The trainings may not be too long. Acceptable duration of trainings is no more than three months with two meetings a week. If the duration was longer and frequency higher, the interest is weaker and the number of workers willing to participate in the trainings is lower. What can be rejected for sure is the idea of training trips, supported by very few respondents. The preferred location for training is place of business (without necessarily being own company). The training should therefore be organised in cities of a relatively high level of entrepreneurship (number of MSMEs) with the right logistic facilities. Respondents are more flexible with respect to training hours and one can identify two equal groups here. For the first group, trainings during working time seem to be an attractive option and for the second one training outside working hours seems more appropriate. Since the idea of the programme appeals mainly to managers in companies with a substantial workload, it would seem that a better option would be to organise trainings when employees are off work. A pilot training project should be carried out in a voivodeship with the largest share of family enterprises - such as the Mazowieckie, Śląskie, Dolnośląskie or Wielkopolskie Voivodeships. The model solutions that they will provide will then be ready to be used in family businesses in other regions. 44

45 5 DEFINITION OF A FAMILY BUSINESS 5.1 The debate on the notion of family business 27 Published work on family businesses has not provided us with a uniform definition of a family business that would be commonly accepted by researchers. However, a considerable amount of data and analyses concerning this topic are available. Their comparability is nonetheless limited as they are based on different ad hoc definitions of a family business, which are not always directly formulated. The notion of family business may be present in everyday language but is understood in a variety of ways. The difficulty in defining it is due to at least two reasons 28 : 1. A family enterprise is not a unidimensional" entity, but its nature is very complex. Due to absence of formal criteria of distinguishing it from other businesses, various enterprises with different legal status, ownership structure, size and management style are placed in this category. 2. It combines two groups of terms (notions) which vary in terms of origin, history and social perception, namely family and enterprise, which are equivalent to institutions serving different aims. The first of those two is a social institution aimed at procreation, household running, organising the life of family members and securing one's external needs. However, the aims of an enterprise include meeting the needs of strangers, risk-taking and economic independence. Table 2 illustrates different systems of standards used in family and in an enterprise. Table 2 Comparison of family and enterprise standards 27 Extracts from unpublished work by A. Marjański, Pojęcie i istota przedsiębiorstwa rodzinnego [The essence and the definition of family business]. 28 K. Safin, Przedsiębiorstwo rodzinne istota i zachowania strategiczne [Family business its essence and strategic behaviours], Wydawnictwo Akademii Ekonomicznej in Wrocław, Wrocław 2006, p. 1-2

46 Family standards Creating the right conditions for meeting the needs of family members and own children in particular Ensuring that relevant support is provided as the needs arise Perceiving each family member as a unique individual, equal treatment of sibling Ensuring that each person has an opportunity to learn depending on their needs Enterprise standards Employing fully-qualified individuals only Ensuring that remuneration is provided and that it is dependent on an employee's contribution and market conditions No individualised approach to the employee; a tendency to identify the best ones. Ensuring that each person has an opportunity to learn depending on the needs of the organisation Source: K. Safin, Przedsiębiorstwo rodzinne istota i zachowania strategiczne, [Family business its essence and strategic behaviours] Wydawnictwo Akademii Ekonomicznej in Wrocław, Wrocław 2006, p.1, [in:] T. Siefer, Du kommst später mal in die Firma! Psychosoziale Dynamik von Familienunternehmen, Heidelberg 1996, p. 63 Published work on the subject provides us with various attempts at definitions of family enterprise aimed at clarifying its special social and economic aspects. Let us quote a few examples: "... if at least two generations of the same family had an important impact on the aims and policy of a business, then we may speak of a family business". 29 A family enterprise may have any legal status; its capital may partially or fully belong to the family and at least one family member has an decisive impact on management or is a manager themselves and intends to ensure that the business will be permanently owned by the family 30. In a family business, at least two family members in charge of management and finance are employed; the succession is planned or has already been implemented 31. The criterion used to distinguish family business from other entities is that of ownership and management type. The definitions used also include those which define the extent of involvement of family members in business and those which take account of more than one criterion. The use of succession as a necessary criterion of belonging to the category of family enterprises is less usual. We may therefore encounter definitions basing on the following criteria: R.G. Donnelley, The Family Business, w: Family Business Sourcebook, op. cit., p P.A. Frishkoff, Understanding Family Business, Austin Family Business Program, 15 April K. Ashley-Cotleur, Family Business and Relationship Marketing: The Impact of Relationship Marketing in Second Generation Family Business, Frostburg State University 32 P.Aminoff, Family Entrepreneurship. Family Enterprises as the Engines of Continuity, Renewal and Growthintensiveness, Ministry of Trade and Industry Finland, 2006, available at: 46

47 1. Structural criteria when the family owns more than 50% of shares in the enterprise. 2. Subjective criteria when the owner of the enterprise refers to their enterprise as a family business. 3. Functional criteria when the family is involved in running the business. 4. Generational transfer a family business is that in which full succession has been implemented. 5.2 Polish definitions Polish theory on family enterprises has not yet provided us with a definition of family business based on local conditions. Polish researchers are, however, of the opinion that there is no single and universal definition of family entrepreneurship. The first foreign definition of a family business appeared in the end of 1970s. The definitions are being developed in the context of the centuries-old capitalism, in which family businesses are run not only by the second generation but even by the third and subsequent generations of owners. Poland, which has been developing its economic system only for 20 years, has also seen the emergence of family entrepreneurship and this is evidenced by some research that has been conducted in this area. It should, however, be noted that in the majority of those enterprises the problem of succession may not have appeared yet. It should therefore be assumed that narrow, international definitions, in particular those which stress generational transfer, do not correspond to Polish reality. Those definitions will probably be useful in the future. It is then that we will learn what percentage of SMEs established today was actually transferred to subsequent generations. ssreport_2006_english.pdf 47

48 5.3 Preliminary definition of a family business For the purpose of the project, a family business has been defined in the following manner: A family enterprise is each business from the MSME sector, regardless of the legal form, registered and operating in Poland, in which: at least two family members working together, at least one family member has a considerable impact on managing the enterprise, family members have a significant share* in the enterprise. *It is assumed that a signficant share refers to controlling shares. This definition was verified in a qualitative study of MSMEs in the discovery stage. The aim of this research was to investigate what percentage of MSMEs meets the following criteria of the family character of business: Subjective when the owner / manager refers to his business as a family firm. Structural When the family owns more than 50% of shares in the business. This criterion was used in relation to companies with a legal status other than sole trading. Functional takes account of the family s involvement in running the business, impact on management and the presence of family in the business (number of family members employed) Generational transfer A family enterprise is a business in which succession took place. The criterion was used in relation to businesses with a legal status other than sole trading. 5.4 The share of family businesses in the total number of businesses according to particular definition criteria a. Subjective criterion If we take this criterion into consideration, one in three companies in the investigated population may be considered a family business i.e. when their owners and managers were requested to answer the question: Would you refer to your company as family business?, the answer was affirmative. 48

49 Such an answer was given by 36% of natural persons and by 27% of entities 33 with a different legal status. The larger the size of the company, the smaller the percentage of companies considering themselves as family businesses: 34% in the case of micro enterprises, 27% in the case of small enterprises and 14% in the case of medium enterprises. b. Structural criterion The structural criterion distinguishes family companies from non-family companies based on the origin of the enterprise s capital. In the MSME study, this criterion was only used in relation to businesses with a legal status other than sole trading. The research has shown that in 22% of Polish businesses (with a legal status other than sole trading) the shares belong to the family/families. In most enterprises, the shares are equivalent to or exceed 50% (only in the case of 5% of companies these are less than 50%); the average number of shares is 87%. c. Functional criterion The functional criterion takes into account the involvement of family in running the business: influence of the family on management and the presence of family in the enterprise (the number of family members employed). Influence of the family on management In Polish business, the dominant model is that of direct management. 75% of sole traders manage their companies single-handedly, 21% manage their companies on their own assisted by family, 2% - totally through another family member, 1% employ a manager. 34 In the case of family businesses with a legal status other than sole trading, as many as 97% of enterprises are managed directly by family members. 33 Excluding sole traders without employees. 34 The percentages do not sum up to 100 because refuse to answer response was omitted. 49

50 The number of individuals actively involved in running the enterprise: (both formal and informal employment) Sole traders in approximately a half of businesses of this kind (43%), at least two family members are actively involved in running the enterprise (along with the owner). Businesses with a legal status other than sole trading (in which the family has controlling shares regardless of the amount) in approximately 90% of those businesses at least two family members are actively involved in running the enterprise (along with the owner). d. The generational transfer criterion According to this criterion, a family enterprise is any enterprise in which succession took place 35. In the case of family companies with a legal status other than sole trading, succession was implemented in one in four companies. Such companies were usually owned by the representatives of the second generation (23%). The remaining companies were owned by the third generation (1%) or by the second and third generation simultaneously (1%). Upon verification of the four above-mentioned detailed definition criteria, a final version of the definition of a family business was adopted and used in qualitative and quantitative research dedicated to family enterprises. This definition is an operational form of the initial definition. A separate set of criteria which are necessary to categorize a company as a family business was developed for sole traders and for business with a legal status other than sole trading. Compared to the initial definition, shares of the family in the enterprise were redefined i.e. controlling shares are no longer used as a criterion and owing of any number of shares is deemed a sufficient condition. A definition of family was also introduced. 35 In the study, which used a representative MSME sample, this criterion was only used in relation to businesses with a legal status other than sole trading. 50

51 DEFINITION OF A FAMILY BUSINESS I. Exclusion criteria: 1. legal status sole traders without any employees are excluded 2. industry the following sectors are excluded: agriculture, hunting, forestry fishery public administration households employing workers extra-territorial organisations and bodies II. Family business specific criteria sole traders o at least one person from the owner s family (in addition to the owner) is actively involved in the running the business they are formal or informal employees other types of business o family owns shares in the business (regardless of the amount) o at least one family member has a decisive impact on company management (managing directly or through a manager) o at least two family members are formally or informally employed in the company III. A broad definition of family was introduced reflecting the current social and demographical trends and changes in family lifestyles. It has been assumed that family is: family in the legal sense (close family and relatives): marriage or other family configurations provided that members are related (e.g. parents children; grandparents grandchildren) Informal relationships provided that they consider their relationship a family. 51

52 6 FAMILY BUSINESSES IN POLISH ECONOMY 6.1 The share of family businesses in the total number of business entities according to an established definition On the basis of the results of the study, it may be estimated that, according to the established definition, family enterprises constitute 36% of the surveyed population (MSME with the exclusion of certain sections of the Polish Classification of Activities (PKD) as well as natural persons conducting their own economic activity and not employing any workers) and their number may be estimated at about 219 thousand. A 36% share of family enterprises in the MSME population is a result which is lower than the majority of those quoted in relation to other EU countries (which most often amounts to 70-80% 36 ). It has to be underlined, however, that the acquired data is not directly comparable due to the lack of information on the definitions and methodology used in foreign calculations. First of all, there is no information concerning the way the entities constituting economic activities conducted by natural persons and not employing workers were treated in these calculations. It may be assumed that most countries included them in their analyses. If we were to make such an assumption in our study, the share of family enterprises in the MSME sector in Poland would amount to 78% and would be similar to the foreign ones. The second difference may consist in the fact that the population of enterprises was limited only to the MSME sector, whereas foreign calculations usually took into account also the large companies. This difference may have seriously influenced the estimated, rather low share of Polish family enterprises in the GDP and the employment structure. 36 Overview of Family Business Relevant Issues, KMU Forschung Austria Austrian Institute for SME Research Contract No. 30-CE /00-51, Final Report Vienna

53 6.2 Share of family businesses in the GDP. It can be estimated that family businesses are responsible for at least 10.4% of the total Polish GDP (more than PLN 121 billion) 37. The calculations employed the data from the Report on small and medium-sized enterprises in Poland in According to these calculations, the MSME sector is responsible for 47.4% of the Polish GDP, where micro-enterprises account for 30.1%, small 7.3% and mediumsized 10%. Calculations were based on a share of micro-enterprises in the GDP, which was limited only to those enterprises which employ from 1 to 9 workers (estimated 21.37% of the GDP 39 ). The data mentioned above was multiplied by an estimated share of family enterprises in enterprises of particular level of employment. This way it was estimated that the micro- family enterprises are responsible for 7%, small family enterprises for 1.9% and medium-sized family enterprises for 1.4% of the GDP. 6.3 Share of family businesses in the employment structure Data concerning the number of family businesses constituted a starting point for estimating the number of persons employed in family enterprises: micro- (about 197 thousand), small (over 19 thousand) and medium-sized (about 2,100). The results of the MSME study have shown that the micro- family enterprises employed an average of 4.3 workers, small enterprises 16.6 and the medium-sized ones On the basis of these two sets of data, it was possible to estimate the number of persons employed by family enterprises: about 850 thousand in the case of micro-enterprises, almost 330 thousand for small enterprises and 160 thousand for medium-sized family enterprises. According to the calculations mentioned above, family enterprises employed over 1 million 300 thousand workers. As stated in the Report on small and medium-sized enterprises in Poland in , as of the end of 2007 the total of over 6 million 200 thousand workers were employed in micro-, small and medium- 37 However, the data has to be analysed with caution the population defined for the needs of the research is part of the MSME sector. Information on the share of population defined in this way in the GDP is unavailable. 38 Report on small and medium-sized enterprises in Poland in ; PAED Estimation based on data from CSO s compilation Economic activity of enterprises employing less than 9 persons in 2004, CSO, Warsaw,

54 sized enterprises. It can be estimated, therefore, that family enterprises employ 21% of all persons employed by MSME. 6.4 Demography of family enterprises In the present chapter, the family enterprises identified in the MSME study will be characterised by way of comparison with the non-family enterprises taking into consideration such basic variables as: the level of employment, legal form, scope of activity (industry), voivodeship, size of the city, age of company, geographical range of activity, turnover and investment activity. Level of employment According to the calculations presented above, the share of family enterprises in the studied MSME population (bearing in mind that particular PKD sections as well as natural persons conducting their own economic activity and not employing any workers were excluded from the population) can be estimated at 36%. The share of family enterprises in the MSME sector decreases with the growth of the enterprise size: family enterprises constitute 38% of micro-enterprises, 28% of small enterprises and 14% of medium-sized ones. 54

55 Chart 10. Share of family enterprises in MSME according to the number of employed persons Source: MSME study, exploratory phase, N=1280 The internal structure of family enterprises from the point of view of the level of employment does not differ from the structure of other enterprises. Micro-enterprises prevail in this respect (90%). The total of 9% of family enterprises are entities employing from 10 to 49 persons and only 1% belongs to the category of mediumsized enterprises. From the point of view of the average number of employees, no distinctive features differentiating the family enterprises from the non-family ones were noticed, although the number was slightly lower (5.8) in the first category of enterprises than in the latter (7.7). Research results illustrating the internal structure of companies from the point of view of the employment level are consistent with the results of other studies on family enterprises that have been carried out in Europe so far in most countries the MSME prevailed among family companies For example, in Denmark there are no family enterprises employing more than 100 employees, in Finland almost 100% of family enterprises are companies of the MSME sector and their internal structure is similar to the structure of Polish FE (micro- 86%, small 12%, medium-sized 1%); in the Netherlands the analogous share amounted to 97% (micro 76%, small 17%, medium-sized 4%). The Irish and Lithuanian family enterprises also have a similar structure (micro- and small enterprises represent 98% of them). In Luxembourg, MSME companies have a slightly lower share among family enterprises 70%. However, there are also countries in which the share of family enterprises in the group of large enterprises is high (e.g. in Belgium it amounts to 50%). In: Overview of Family Business Relevant Issues, KMU Forschung Austria Austrian Institute for SME Research Contract No. 30-CE /00-51, Final Report Vienna 2008, p

56 Chart 11. Structure of family and non-family enterprises according to the number of employed persons 100% 80% 60% 40% 20% 1% 9% 2% 12% 90% 86% persons persons 1-9 persons 0% FAMILY ENTERPRISES NON-FAMILY ENTERPRISES Source: MSME study, exploratory phase, N=1280 Legal form The most popular legal form of family enterprises is the economic activity conducted by natural persons (sole traders). The total of 81% of family enterprises and almost two thirds (63%) of non-family enterprises operate under such a form. Almost one fifth of family enterprises (19%) operated under more advanced legal forms (other than economic activity of a natural person), whereas among the nonfamily companies that share was 37%. Noted differences were significant statistically. Where family enterprises operated under a different legal form (other than economic activity of a natural person), they most often constituted civil law partnerships (6%) and registered partnerships (5%) as well as limited liability companies (4%). The last form of activity was clearly preferred by non-family enterprises (18%). The observed difference was significant statistically. Chart 12. Structure of family and non-family enterprises according to the legal form of activity Source: MSME study, exploratory phase, N=1280 Area of activity PKD sections 56

57 The smallest disparities from the point of view of the share of family and non-family enterprises concerned section H (hotels and restaurants) and section I (transportation, storage and communications) 50% each. Also in the case of section G (wholesale and retail trade) a relatively balanced (especially when compared with other PKD sections) share of family (41%) and non-family (59%) enterprises could be observed. In the above PKD sections, the share of family businesses is above average. Family enterprises were very rarely present in the group of entities operating in section M (education 6%), but it is easy to understand taking into consideration the nature of this section (prevailing share of public sector). Family enterprises were also rare in section E (electricity, gas and water supply 13%), section F (construction 18%), C (mining 21%) and O (community, individual, services activities and other 23%). 57

58 Mining Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade Hotels and restaurants Transportation, storage and communications Financial intermediation Real estate services Education Healthcare and social welfare Community, individual, services activities and other Chart 13. Share of family businesses in different PKD sections 100% 80% 21% 40% 13% 18% 41% 50% 50% 30% 35% 6% 28% 23% 60% 40% 20% 79% 60% 87% 82% 59% 50% 50% 70% 65% 94% 72% 77% 0% NON-FAMILY ENTERPRISES FAMILY ENTERPRISES Source: MSME study, exploratory phase, N=1280 The observed differences in shares in particular PKD sections naturally translated into a diversified internal structure of family and non-family enterprises. Entities from section G wholesale and retail trade were more often found among family enterprises than the non-family ones (44% of family businesses and around one third of non-family businesses - difference significant statistically). At the same time, the share of construction companies was rather insignificant. Only 4% of family enterprises operated in the construction sector, whereas the respective share of nonfamily companies equalled 11% (difference significant statistically). In the case of remaining sections, no differences between family and non-family enterprises were observed. 58

59 Chart 14. Structure of family and non-family enterprises according to PKD sections Source: MSME study, exploratory phase, N=1280 Share of family businesses per voivodeship The share of family enterprises in the MSME structure of individual voivodeships was very diversified. In Opolskie and Kujawsko-Pomorskie voivodeships it was very high and amounted to 64% and 55% respectively. Family enterprises made up half or almost half of the MSME sector in voivodeships: Dolnośląskie, Świętokrzyskie, Wielkopolskie and Małopolskie. At the same time, family enterprises had low shares in MSME in such voivodeships as: Lubuskie (18%), Zachodniopomorskie (21%), Podkarpackie and Lubelskie (23% each). 59

60 Chart 15. Share of family enterprises in MSME according to voivodeships 100% 80% 50% 55% 23% 18% 23% 30% 29% 35% 36% 45% 64% 38% 49% 28% 42% 21% 60% 40% 20% 50% 45% 77% 82% 65% 55% 70% 36% 77% 71% 64% 62% 51% 72% 58% 79% 0% Dolnośląski Lubelskie e Kujawskopomorskie Łódzkie Mazowieckie Podkarpackie Pomorskie Świętokrzyskie Wielkopolskie Lubuskie Małopolskie Opolskie Podlaskie Śląskie Warmińskomazurskie Zachodniopomorskie NON-FAMILY ENTERPRISES FAMILY ENTERPRISES Source: MSME study, exploratory phase, N=1280 Establishing the causes of observed differences is very difficult. Surely, they are not related to the basic socio-economic development indicators, since among the leaders are both the best-developed voivodeships (such as the Wielkopolskie Voivodeship), but also the voivodeships characterised by lower development indicators (e.g. the Świętokrzyskie and Kujawsko-Pomorskie Voivodeships). In both groups there are the "agricultural" voivodeships (e.g. Kujawsko-Pomorskie and Lubelskie) as well as voivodeships characterised by limited resettlement flows after the 2nd World War (e.g. Wielkopolska and Kujawsko-Pomorskie). One of the rare variables which differentiates both groups is the population density, which is lower in voivodeships with a low share of family enterprises. However, it is unlikely that only this factor played an important role in this respect. Estimated number of family businesses in voivodeships Voivodeships are heterogeneous in many ways - for example they differ in the number of registered and active business entities. Thus, basing only on the data 60

61 collected during the study in order to characterise Polish family entrepreneurship in individual voivodeships may result in an incorrect interpretation of such information. Limited share does not have to mean that there are few family enterprises (in absolute values). At the same time, large share of family enterprises in the MSME structure of a given voivodeship does not have to automatically translate into their large number. That is why, in the subsequent stage of the analysis of acquired data and the existing information concerning Polish MSME sector, the share of family businesses from particular voivodeships in the general structure of family enterprises in Poland was estimated 41. Conducted analyses have shown that family entrepreneurship is basically parallel to the regional distribution of enterprises in general (number of all enterprises in particular voivodeships). Such entrepreneurship is best represented in voivodeships with a high level of socio-economic development. In general, over half (58%) of family enterprises is concentrated in five voivodeships: Mazowieckie (14% of all family enterprises), Śląskie (12%), Dolnośląskie and Wielkopolskie (11% each) as well as Małopolskie (10%). On the other hand, the smallest share was noted in the following voivodeships: Lubuskie (only 1%), Podlaskie, Warmińsko Mazurskie and Podkarpackie (2% each), Lubelskie and Zachodniopomorskie (3% each). If we were to search for common features of enumerated voivodeships it would probably be the low level of population density, relatively weak development centres and a high level of unemployment. In the case of unemployment it is less often registered in statistics of Podkarpackie and Lubelskie voivodeships, it has to be kept in mind however that 41 Due to the lack of data concerning the percentage of active enterprises in particular voivodeships, it was assumed that the level of activity in each voivodeship equals 0.48 (for micro-enterprises), 0.28 (for small enterprises) and 0.51 (for medium-sized enterprises). These are the average values for the entire Polish MSME population (see: Report on small and medium-sized enterprises in Poland in ; PAED, Warsaw 2009). At the same time, enterprises constituting an economic activity of a natural person not employing any workers, were excluded from the analysis. At this stage, data from the CSO report on micro-enterprises in Poland was used (due to the lack of current CSO data concerning micro-enterprises, the 2003 data was applied). That is why, obtained results should be treated as estimated values, although it should not be assumed that they differ significantly from real values. 61

62 hidden unemployment may occur there. Due to the agricultural nature of these voivodeships, labour force surplus may be located in the agricultural sector (family enterprises). It was particularly visible in , when the low GDP of the above-mentioned voivodeships was not accompanied by a noticeably high level of employment. At the same time, voivodeships with a small number of family enterprises display a relatively low level of income per one inhabitant as well as a somewhat low level of investments. Chart 16. Share of particular voivodeships in the structure of family businesses Source: MSME study, exploratory phase, N=1280 Structure of family businesses according to the size of the city When analysing the significance of family businesses, it should be underlined that they play an important role within the local community. Due to the nature of described enterprises, their owners are not inclined to migrate and do not think about looking for a location rent (the best from the economic point of view geographical location for an enterprise). Family enterprises constitute an important element of local communities not only due to their contribution to the regional economy or to creating new workplaces. They are very often strongly involved in building local communities 62

63 they are more willing than the large, non-family business entities to allocate financial resources for the support of local cultural initiatives or for sponsoring small, local sports clubs. This willingness stems most of all from the unique values of family companies that oblige them to take socially responsible actions for the benefit of the local community. In both groups, over half of companies are located in cities populated by more than 200 thousand inhabitants, whereas very few businesses (5%) are seated in rural areas. A rather small percentage of companies (10% of family enterprises, 6% of remaining companies) has its registered office in towns of up to 20 thousand inhabitants. Family enterprises more often than the non-family ones are located in smaller cities of up to 49 thousand inhabitants. This feature may result in the fact that in their relatively small communities, interconnected with less formalised relations, they are more "visible" and thus they are more willing to take action within this environment (aiming at, for example, sustaining good renown in a long-term perspective). Chart 17. Structure of family enterprises according to the size of the city Family enterprises (N=407) 5% 10% 18% 15% 52% Non-family enterprises (N=873) 5% 6% 11% 23% 55% village city below inhabitants city from to inhabitants city above inhabitants city from to inhabitants Source: MSME study, exploratory phase, N=

64 Structure of family businesses according to the age of the enterprise Data coming from foreign studies on family companies show that family enterprises are statistically older than the non-family businesses 42. Estimating and comparing the age of family and non-family enterprises is particularly interesting in the Polish context due to a somewhat short and historically dependent entrepreneurship tradition. It turned out that the average family enterprise age is about 14 years, which is similar to that of non-family enterprises. However, in the group of family enterprises there were more companies which had been present on the market for more than 10 years, which constitutes a confirmation of a trend observed in other countries. On the other hand, it was among the family enterprises that more companies which had operated on the market for a short period of time, i.e. from 3 to 5 years, were noted. Such companies were born from the young entrepreneurship, which - at least in part - stemmed from the will to profit from a good economic situation and the possibilities offered by Structural Funds (15%, which is 5 percentage points more than in the case of non-family companies; difference important statistically). Chart 18. Structure of family and non-family enterprises (MSME) according to their age less than 3 years 3% 4% from 3 to 5 years 10% 15% from 6 to 10 years 21% 31% from 11 to 20 years 37% 41% above 20 years 20% 17% I don't know / no answer 0% 1% Family enterprises (N=407) Non-family enterprises (N=873) Source: MSME study, exploratory phase, N= Differences may be quite significant, e.g. in Finland it amounts to 10 years. Cf. Overview of Family Business Relevant Issues, KMU Forschung Austria Austrian Institute for SME Research Contract No. 30-CE /00-51, Final Report Vienna 2008, p

65 Range of activity Most enterprises operate in response to demand shaped by the local market. It applies to both the family and non-family enterprises to the same degree (60%-61%). A slightly wider range, that is the territory of one voivodeship, was declared by 22% of respondents (25% of family enterprises, 20% of non-family ones). Thus, over 75% of enterprises have a rather narrow geographical scope of operation. It surely has to do with the structure of the MSME sector, where entities employing up to 9 workers are certainly predominant. It is harder for such entities to expand onto other markets and move outside of their home sales market. On the one hand, the very size of the entity is already an unfavourable factor narrow scope of activities (only the local market) was declared by 64% of micro-enterprises, 44% of small enterprises and only one third of medium-sized enterprises (differences were significant statistically). On the other hand, it is harder for the smaller entities to acquire access to external sources of financing (although the situation is definitely better than few years ago,due to the activity of public institutions, such as PAED). In the whole group of MSMEs from among the researched enterprises, we rarely dealt with entities operating on a regional (5%), nationwide (7%) or an international scale (4%). No statistically significant differences between family and non-family enterprises were noted in this respect. At the same time, only 8% of studied companies had non-local branches within their structure. It is clearly visible that barriers for entering foreign markets but also for increasing the scale of activities within the Polish market constitute a feature inherent to the whole MSME sector, irrespective of the family criterion. 65

66 Chart 19. Range of activity of family and non-family enterprises local - nearest surroundings 60% 61% voivodeship - on the territory of one voivodeship 21% 25% nationwide 7% 7% regional - on the territory of a few voivodeships international no answer 4% 6% 4% 3% 0% 2% Family enterprises (N=407) Non-family enterprises (N=873) Source: MSME study, exploratory phase, N=1280 Turnover in 2008 Enterprises were unwilling to answer to the question concerning the value of turnover in the total of 60% of enterprises refused to provide an answer. This type of issues are perceived by a large group of respondents as a "sensitive topic", closely related to business secrets of an enterprise. The non-family companies were more reluctant to answer this question. Almost two thirds refused to answer. Among family enterprises the percentage of refusals equalled 50%. After excluding those refusals from the analysis, in both categories of enterprises the most numerous companies were those with an annual turnover below PLN 500 thousand. The total of 70% of family enterprises and 62% of non-family ones obtained such a turnover. Slightly over one fourth of enterprises registered a turnover ranging from PLN 501 thousand to PLN 1 million. There were more companies with a turnover above PLN 1 million among non-family enterprises, of which 16% declared such a turnover, which was by 9 percentage points more than in the case of family companies. The observed difference was significant statistically. 66

67 Chart 20. Turnover of family and non-family enterprises in % 62% Family enterprises N=202 Non-family enterprises N=308 23% 22% 6% 11% 3% 1% 2% 0% 0% 0% < 500 thousand from 501 to 1 million from 1.1 to 5 million from 5.1 to 10 million from 10.1 to 20 million above 20 million Source: MSME study, exploratory phase, N=510 (enterprises which revealed the value of turnover) The year 2008, marked by economic crisis, for the majority of studied enterprises was a period of turnover stabilisation. If there occurred, however, any change in the value of turnover, it was of a negative nature. A decrease in turnover was noted by almost one third of family enterprises and slightly over one fourth of non-family companies. On the other hand, 21% of family enterprises and only 13% of remaining companies recorded an increase in this respect. Observed change was significant statistically. Results of the study show that family enterprises have higher resistance to the periods of economic slowdown than the non-family ones (for more on this subject see subchapter 7.3.1). 67

68 Chart 21. Turnover growth in 2008 as compared to 2007 Family enterprises (N=407) 21% 39% 30% 10% Non-family enterprises (N=873) 13% 46% 26% 15% [3] increase [2] no change [1] decrease I don't know / no answer Source: MSME study, exploratory phase, N=1280 Investments and investment plans Family enterprises do not differ from the non-family ones when it comes to investment activities carried out in Both groups of companies mainly purchased fixed assets (37% of family and 29% of non-family enterprises), invested in IT infrastructure (24% each) and carried out construction and installation works (19% of family and 21% of non-family enterprises). Less often they sought training and consulting support (13% and 14% respectively). Very few enterprises invested their funds to purchase property (2% and 4% respectively) or commissioned R&D activities (2% each). Chart 22. Investments in 2008 a. fixed assets - purchase of plant etc. 37% 29% b. training and consulting services 13% 14% c. IT infrastructure - purchase of computer hardware, software d. construction and renovation works 24% 24% 19% 22% e. real estate - purchase of new facilities f. R&D works, e.g. creating new products etc. 2% 4% 2% 2% Family enterprises N=407 Non-family enterprises N=873 none of the above Source: MSME study, exploratory phase, N= % 52% 68

69 Investment activities were mostly financed from enterprises' own funds. It is underlined, however, that non-family enterprises displayed greater efficiency in acquiring EU funds. Table 3. Sources of financing of investments Type of investment / source of financing own funds credit / loan EU funds a. fixed assets purchase of plant etc. 78% (76%)* 29% (18%) 2% (8%) b. training and consulting services 87% (89%) 0% (6%) 16% (25%) c. IT infrastructure purchase of computer hardware, software etc. 89% (92%) 12% (10%) 3% (5%) d. construction and renovation works 88% (83%) 24% (13%) 0% (5%) e. real estate purchase of new facilities small number small number small number f. research and development works, e.g. creating new products etc. small number small number small number *First value shows the percentage of answers in the group of family enterprises, value in brackets indicates the percentage of answers for non-family companies. In the case of property investments and R&D works, the percentage share was not presented due to its very small value. Source: MSME study, exploratory phase, N=1280 Results presented in the table contradict the thesis formulated in the international as well as Polish literature on family enterprises, according to which companies of this type are less willing (than the non-family enterprises) to use external sources of financing. The thesis is confirmed only in the case of EU funds which may be due to the fact that the procedure of applying for co-financing is seen as costly, timeconsuming, overly bureaucratic and without any guarantee of success. However, family enterprises' tendency to finance investment by means of credits is clearly more visible than that of non-family ones. This phenomenon can easily be explained by limited funds of family enterprises (indicated, e.g. by lower turnover), the vast majority of which operates as natural persons running business activity. Activity in domains requiring larger financial input forces such persons to use credits and loans. Perception of company s position In the quantitative study of the MSME, respondents were asked to assess their own enterprises against competitors with respect to selected factors which shape competitive advantage of an enterprise. 69

70 It turned out that the competitiveness assessment is not a variable which differentiates family and non-family enterprises. Irrespective of the type of enterprise, the following items received lowest grades: access to credits and loans, access to information concerning changes in law (e.g. economic law) as well as access to information on tenders. Areas which received lowest grades concerned domains in which the lack of competitive certainty seemed to result from internal structural barriers (most enterprises are micro-enterprises) and not from the fact of being a family business. Although the listed areas were assessed slightly lower by the representatives of family enterprises, the observed differences were not significant statistically. The competitive position was best assessed (irrespective of the type of enterprise) in relation to the quality of offer as well as client service speed and quality. Representatives of family companies were more optimistic in this case, however. Again, the observed differences were insignificant statistically. In the case of over half of areas, family enterprises assessed themselves slightly higher than the non-family ones (although the differences are not significant statistically) - all the listed features may be perceived by family companies as a natural consequence of company's high level of effectiveness and efficiency of its managers. An important question which remains to be answered is whether the high self-esteem of enterprises (both the family and non-family ones) stems from the actual high level of competitiveness. The answer is rather negative. Obtained results seem to indicate that entrepreneurs strongly identify themselves with the conducted economic activity 43 and fail to see its shortcomings in an objective way. Actually, it is quite understandable negative assessment of competitiveness of their own company would indicate low self-efficiency (in most cases we have talked to either the owners or managers of enterprises and if someone was to blame for weak economic results, it would certainly be them). 43 More favourable assessment of family companies may stem from an even greater identification with the enterprise. 70

71 This hypothesis is confirmed by other studies. For example, the research on the innovative potential of Polish enterprises has also shown a very optimistic attitude of entrepreneurs 44. The results of the research indicate that most enterprises perceive themselves as innovative, competitive and modern. It stands in stark contrast to the level of actual expenses borne by Polish SMEs on modern technologies and innovation. 44 Cf. A. Żołnierski, Potencjał innowacyjny polskich małych i średniej wielkości przedsiębiorstw [Innovative potential of Polish small and medium-sized enterprises], PAED, Warsaw 2005, available at: 71

72 3 4 5 Chart 23 Company's assessment in comparison to competition customer service quality customer service speed quality of the offer company renown working conditions of employyes prices of goods and services quality of human resources technological advancement (e.g. machines and equipment) innovation (introducing new goods or services on the market improving goods and serviced) access to information on tender procedures access to information on changes in law (e.g. economic law) access to loans and credits 4,4 4,5 4,3 4,4 4,3 4,4 4,3 4,3 4,1 4,2 4,0 4,2 3,9 4,0 3,9 3,9 3,9 3,9 3,5 3,7 3,5 3,7 3,3 3,5 SCALE: 1 - very bad 5 - very good Source: MSME study, exploratory phase, N=1280 Firmy rodzinne (N=407) Firmy nierodzinne (N=873) 72

73 7 FEATURES OF FAMILY BUSINESSES 7.1 The awareness of family nature of the enterprise The identity of family businesses Neither the owners nor the employees of family enterprises participating in the exploration quality surveys spontaneously describe their enterprises as family ones. The identity of these enterprises is defined primarily by their branch profile, size and "seniority" on the market. The family nature is one of the less important features of an enterprise, at least it is not the element that determines the perception of an enterprise. Absence of the feeling that one constitutes a family enterprise might translate into the failure to notice both the potential threats and sources of strengths of an enterprise. As mentioned before, in a quantitative survey conducted on a representative MSME sample, as many as 33% of respondents identified their enterprise with the notion of a "family business". Interestingly enough, this group included also the entities (20%) that, despite feeling as a part of a family enterprise, did not meet the criteria for the definition assumed by PAED. The MSME study did not search for the reasons of this state of affairs, although the hypothesis explaining it emerged in the course of recruitment of family enterprises for the qualitative studies. The recruitment was partially conducted with the use of data from the quantitative MSME study companies that defined themselves as family enterprises and expressed consent to the possible further participation in the survey were invited for the participation in indepth interviews. At that time, situations frequently occurred where at the stage of initial recruitment and transfer of information about the survey, the companies identified themselves as family enterprises again justifying it with family relations in the company (family atmosphere). However, the detailed verification of recruitment criteria (the family has an ownership interest, at least two family members are involved in the work for the company) has come off negatively. Another interesting example of companies were the ones that turned out to be family enterprises (they met the objective criteria), yet they did not recognise themselves as 73

74 family enterprise objectively Total a family enterprise (17%). On the basis of results of the quantitative survey conducted on a representative sample of enterprises and in-depth interviews with the representatives of family enterprises, it can be assumed that this group contains enterprises for which the concept of a family enterprise is of secondary importance or it is not quite clear (e.g. multi-family enterprises or the ones without multi-generation tradition). Chart 24 Identification with a family enterprise subjective and objective criterion family enterprise subjectively Total tak nie 33% 65% yes 36% 80%; 82% 10%; 17% no 64% 20%; 10% 90%; 87% White font percentage for the columns Red font percentage for the verses Source: MSME study, discovery stage N = The auto-picture of family enterprises The results of the quantitative survey conducted on a representative sample of family enterprises make an impression of an outright idyllic image of family enterprises. A decisive majority of respondents attributed very positive features to family enterprises and they rejected all the negative ones. At this moment it should be pointed out that, as opposed to the survey on a representative sample of enterprises from the MSME sector, the respondents were aware that their company was qualified as a family enterprise. This might be a justification of very positive opinions about family enterprises. For clear majority of respondents, a family enterprise is an enterprise with no conflicts, with good reputation, providing good working conditions, although it is demanding in relation to its employees as well. Family enterprises are wellarranged (they operate on the basis of strategies prepared beforehand), wellorganised and the company s goals and mission are shared by most employees. 74

75 Chart 25 The auto-picture of family enterprises the average assessment a trustworthy company not a trustworthy company a company whose goals and mission are shared by few employees a company whose goals and missio are shared by most employees a stable company an unstable company unknown company 1,6 known company 5,0 renowned brand 1,9 brand with low reputation low requirements towards employees 2,6 4,9 high requirements towards employees human-friendly company 5,4 not a human-friendly company 1,9 not an attractive workplace an attractive workplace 5,5 a well-organised company 2,0 a badly organised company 5,4 a company full of conflicts 2,5 a company without conflicts a company with plans for future development 4,8 a company without plans for future development, operating from day to day a company with no prospects for advancement a company in which each employee can advance Scale: 1 the statement on the left is clearly a better description of a family enterprise 7 the statement on the right is clearly a better description of a family enterprise Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610 The qualitative survey confirmed these positive opinions. In the course of conducted interviews, we heard that awareness of working in a family business (in which members of the owner s family work) has a positive influence on the perception of the 75

76 company. "Family nature" was associated with stabilisation and security of employment. Family atmosphere in such companies, flexible and friendly approach to the employee were pointed out. The experts also pointed out that spontaneous presentation of one s own company (and hence one s own family) is always composed of positive elements. Only a long and thorough discussion allows to learn the true relations prevailing in the company and to define its "condition" Exposing the family aspect Although the family aspect is assessed positively, the family nature of a company is not strongly exposed in business relations. 27% of companies admitted that they frequently emphasised the fact of being a family business. A similar percentage of family businesses (26%) declared that they do so from time to time while 14% rarely. Nearly one third (32%) of surveyed enterprises has not emphasised at all that they are a family enterprise. Therefore there is a sort of paradox at issue. Despite describing family businesses as "ideal" ones, numerous companies conceal the fact of being a family enterprise, or at least they do not expose it in marketing operations. Chart 26 Exposure of the family aspect in business relations 26% 32% 14% 27% 1% no, frequently yes, from time to time yes, frequently no, we do not emphasise at all that we are a family enterprise answer refused Source: The actual survey of family businesses, diagnosis and verification stage N = 1545 (respondents that found that the company in which they work can be defined as a family businesse) The survey results indicate that the use of family aspect (in business relations) is slightly more often practiced by companies that employ persons. In this 76

77 category of enterprises, 31% of companies frequently stress the "family aspect" whereas in the case of the remaining ones this percentage amounted to 26%. It is worth noting that medium-sized enterprises were generally able to boast longer history, they also recorded better financial results and more often undertook investment activities. Hence it could be assumed that exposing of the family aspect is related to the feeling of success of an enterprise on the market. Together with the success, the concerns about revealing the family origin of an enterprise disappear or are reduced. In interviews with entrepreneurs one could hear concerns that family nature of an enterprise could be associated with negative phenomena such as: nepotism or lack of professionalism. Among the reasons of non-exposure of the family aspect, one could also name the unawareness that the company is a family business, as well as an emerging feeling that family aspect is not necessarily suitable for marketing operations. Irrespective of the emphasis level of the nature of a family business, decisive majority of companies in which in-depth interviews were conducted responded that the family aspect is not a carefully concealed secret and that regular contractors or clients know well about the family nature of the enterprise. However, in the opinion of owners and employees, this knowledge translates into improvement of the competitive positions to a small degree, yet it is rather helpful than troublesome. 7.2 Sources of family entrepreneurship Qualitative surveys allow to indicate many various reasons for establishing a family business. The most obvious among them is the financial motive the necessity of providing for oneself and the closest ones owing to profits derived from the operated business. The establishment of a business requires also, which is obvious, the owner to be entrepreneurial, which is perceived as certain traits of character: willingness to take the risk, to take the initiative, determination to act, inventiveness. 77

78 "The other day, a friend of mine ( ) began to provide IT solutions and convinced me to that. I saw more or less how it is done, what the approach is, that one can earn money, that the profits are huge." So it was his idea and you joined his company? "No. His idea was to establish his own company. And my idea was to spy on it, just like I was taught in the economics classes see what comes off well for somebody else and do it on your own. And according to this principle, I made it" [microenterprise, the manager, exploration stage] The typical feature of companies that are at the initial development stages is small attachment of the owners to the type of operated business, which is related to the lack of certainty as regards the fate of the enterprise. They declare openness towards the possible change of the nature of enterprise (restructuring). They do not assume the company will function until the end of their professional activity. "I think I have done almost everything in my life. From gastronomy, through food shops and clothing shops. And then I met one Italian guy who infected me with it, I visited several bowling halls, watched how it [production of bowling shoes] is made in Italy. And so I decided to give it a try" [mediumsized enterprise, the manager, exploration stage] In the analysis of the sources of family-based entrepreneurship, what seems interesting is the search for additional, non-financial motives for start-up of businesses which can demonstrate themselves in the form of deeper, internal motivation to establish business or in the form of various favourable external circumstances. Survey results 45 present that in the establishment of a family business, the former ones are as important as the financial motives family enterprises are relatively often an extension of the owner s passions and likings (selfrealisation motive), or the way to function in professional life that is in accordance with one s own needs and individual life cycle. 45 Overview of Family Business Relevant Issues, KMU Forschung Austria Austrian Institute for SME Research Contract No. 30-CE /00-51, Final Report Vienna 2008, p

79 Qualitative survey of family businesses allowed for the identification of several such non-financial sources of family-based entrepreneurship: business start-up as a realisation of unique competences or passions of the owner business start-up as a result of take-over of entire or a part of another company (usually the business of collapsing enterprises) business start-up as a result of departure from another company due to problem found there (in principle the business is established in the same branch as in the case of the company that was left by the employee). Business start-up as a realisation of unique competences or passions of the owner The entrepreneurs operating a business resulting from their passion or rare competences are very commited to the enterprise s development since their motivation is internal. In consequence they are interested in new trends in the branch, they use every possibility of extending the range of offered services, they tailor them to the needs of customers. A number of small enterprises and almost all medium-sized ones covered by the qualitative survey are examples of such companies. The non-financial benefits arising from the operation of a hobby-based business seem to be an important success factor of these companies. My brother and I have established a company as I used to sew for myself. I had no money so I had to sew on my own ( ) And then these jeans sold so well so we started thinking about It, and that is how we started up our business. ( ) At the moment, as far the area and goals of business operation are concerned, the current management, what to purchase, etc. belong to my duties. Which material to choose, how to assess all the things for the tender, etc. fall for me, and my brother is really absorbed with the historical activities. Because the historical part has such a specific feature that one has to pay attention to every detail there. And this is struggling with buttons that need to be of specific colour, appropriate eagle, hat, etc. And this work involves four people, this is brainstorming. In the case of each film for which I sew clothing 79

80 they really have to check everything in detail. [medium-sized enterprise, the manager, exploration stage] "We operate in a certain niche. My husband is a motorcycle rider ( ), and this was the main reason to start. We are a flexible and young company that adjusts itself to specific needs. Apart from the service, we also sell scooters, quad bikes, sometimes motorcycles." [small enterprise, the manager, exploration stage] Business start-up as a result of take-over of entire or a part of another company (usually the business of collapsing enterprises) The entrepreneurs coming from restructured or collapsing enterprises have been mostly mobilised to establish business operation by two factors: lack of work (negative motivation) and encouraging by persons from the closest surrounding (positive motivation). "I did not want to learn and my parents have sent me to learn a profession. So I got to this enterprise. For 3 years, as a part-time student, I did A-levels. In 3 years I have become a journeyman. Afterwards, in the following 3 years I have become craftsman since in our profession you have to work very hard in order to reach the master title. Our company once belonged to Metaloplastyka Cooperative. And later the cooperative was privatised. And so we took over the premises here [micro-enterprise, the manager, exploration stage] As a principle, the entrepreneurs treat the operated business as a job instead of their own enterprise. The inclination to invest in a company and striving for its development is in such a case smaller. A specific case of extending the life of company by means of establishment of one s own business consists in taking over by an employee of a company that was previously run by another person. 80

81 My father once worked in transport, he drove a car. It was not a private business, but he drove as an employed professional. Later, when my father terminated his employment, he was simply offered to become a driver for his own account. Due to his age, he did not want to do so and thus offered it to me. And this is how my wife and me started up such business and began to work in transport. [micro-enterprise, the manager, exploration stage] Business start-up as a result of departure from another company The establishment of your own business happens to be a manifestation of your own dissatisfaction with the previous employment and the need for the creation of a friendly workplace for yourself and your family. In most cases the established company operates in the branch in which the owner previously worked. The companies established because of such motivation experience the fewest conflicts resulting from the transfer of family relations to the company since they usually have a clearly defined structure and scopes of employees duties. It is a result of using positive models by owner which existed in the previous company, and making efforts to avoid mistakes made by the persons managing it. I worked in a pizzeria. The boss made me really upset so I packed up and left in one day, I bought advertisements and simply found premises for rent on the first day after the termination of employment. And this is how it began I thought I would start up a pizzeria myself. There were not many pizzerias in Lublin, so it was a good idea." [micro-enterprise, the manager, exploration stage] 7.3 Specifics of family businesses The main feature of a family business is the correlation of the enterprise (business) with the family. A family enterprise is often described using the model composed of three overlapping subsystems. the enterprise (economic subsystem), the family and the property Ł. Sułkowski, A. Marjański, Firmy rodzinne. Jak osiągnąć sukces w sztafecie pokoleń, Poltext, Warszawa 2009, p

82 Chart 27 Model of family business system 2 2 Property Family Enterprise Source: Ł. Sułkowski, A. Marjański, Firmy rodzinne. Jak osiągnąć sukces w sztafecie pokoleń, Poltext, Warszawa 2009, p. 17, [in:] K. E. Gersick., M. McCollom Hampton., I. Lansberg, Generation to Generation Life Cycles of the Family Business, Harvard Business School Press, Boston 1997, p. 6 Each family member and persons working in an enterprise have to be situated in one of the seven sectors created as a result of overlapping of three subsystems. This theoretical model constitutes a perspective that takes into consideration various points of reference of persons, depending on the position occupied in an organisation. By defining various roles and subsystems, it allows for an easier understanding of interactions occurring inside a family business 47. The correlation of an enterprise with a family is based on the importance of the establishing family, which initially finances the business, supplies it with human resources and ideas, participates in the decision-making process. The reverse influence is equally important of the enterprise on the family. The company becomes the centre of life of the family members, which causes the professional and private roles to be often mixed up. Therefore the authority is transferred from the enterprise to home and conversely. Family members, predominantly the successors, frequently have a set career path in form of take-over of the management or ownership of the company. The business becomes a source of livelihood, but mainly 47 Ibidem, p

83 a binder, source of pride, identification and prestige 48. The relations between the family and the enterprise are presented by the table below. Table 4 Relations of a family with an enterprise in an integrated model Influence of enterprise on family Centre of family life (family life is concentrated on the enterprise issues) Professional career path (e.g. considerations about the younger generation in terms of successors, planning of career paths for them in the family business, take-over of management, and finally ownership) Source of income (the enterprise becomes the basic source of income) Source of power and influence (transfer of the authority from the company to home) Source of pride and identification (the enterprise becomes the family treasure ) Family binder (family members, to a greater or lesser degree, are involved in the matter concerning the enterprise) Rational component of activity (transfer of limited economic rationality to the relations inside the family) Source: Ł. Sułkowski, A. Marjański, op.cit., p. 32 Influence of family on enterprise Source of start-up ideas Source of essential human resources Source of start-up funds Decision-making and control centre The foundation of values of organisational culture Source of nepotism Emotional component of activity Therefore the processes occurring in the family are strongly related to the processes occurring inside the enterprise. Family problems become business problems and conversely. Interweaving of family and economic relations, making use of family human resources and funds in the development of a family business may be a source of both advantages and limitations for it. Positive consequences of the family aspect for the operation of a business have been presented below, which consist in the use of family ties in order to strengthen the competitiveness of the enterprise. However, it should be pointed out that the examination of the influence of the family aspect on enterprises is a complex problem the possible dysfunctions in this field belong to sensitive and concealed issues. Therefore it should be assumed that the picture of a family enterprise arising from the surveys might be an idealised picture that is subordinated to the natural need of advantageous auto-presentation. 48 Ibidem, p

84 7.3.1 Positive consequences of the family aspect The results of qualitative exploration surveys indicate that relying on family human resources can have positive consequences, which are particularly important at the initial business development stage in the form of: Increased confidence in employees from the family Increased involvement of employees from the family in the work for the enterprise Low level of formalisation, which translates into: o more efficient and effective communication in the enterprise o personalisation of organisational relations (paternalism, family atmosphere) Family enterprise nature is also connected with: Long-term objectives related to the expectation of steady company s growth in the long-term perspective Increased company s adaptability, ability to adjust to changing conditions of the surrounding. The above-mentioned aspects were also indicated by the entrepreneurs covered by the qualitative survey of family enterprises when they were asked to indicate the features of family enterprises that provide the company with competitive advantage over the non-family companies. However, it should pointed out that only every fourth respondent noticed this type of features in family enterprises (more frequently these were multi-generation companies operating on the market for over 10 years), every fifth respondent had no opinion on this issue and the remaining ones (56%) did not find any sources of competitive advantage in the fact of operating a family enterprise. 84

85 Chart 28 Sources of competitive advantage of family enterprises confidence common pursuing the same goal increased involvement in the company's development availability family nature of a company professionalism loyalty good atmosphere customer service stabilisation non-fixed working hours experience and tradition responsibility price competitiveness 10% 10% 9% 7% 5% 5% 4% 4% 4% 3% 2% 14% 23% 22% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 399 (respondents that notice the sources of competitive advantage of family enterprises over the nonfamily ones) a. Increased confidence in family members The manager and the owners of companies emphasise that employing family members is related mainly with greater confidence in these persons. The blood relationship, sharing values, joint responsibility for the name and the brand result in the founders' certainty that they will not be deceived by their family members. The respondents utterances presented below indicate great confidence in the family. On the other hand, they confirm the thesis that there is a crisis of social confidence among the Poles they clearly indicate a deficit of social confidence in the representatives of other social groups. "Absence of information outflow is an extremely strong advantage since the truly essential positions can be manned precisely with one s own family members, if not the closest then the more distant ones, yet it is still the family. Besides, in the case of a family argument, even if the person in question 85

86 leaves, they are still family and do not give away company s secrets or anything else that is specific for the company, the method of getting contractors they will not reveal such things outside. It is an exceptional advantage in a family enterprise. [small enterprise, an employee, exploration stage] For sure, such internal cohesion since you know that when you employ somebody from the family, it is not only because of the principle that they are family members, but with faith that they will succeed, they deserve more confidence than somebody from outside. [small enterprise, an employee from outside the family, exploration stage] "No. I do not believe that family could steal anything from the company. But such thefts depend on the employees. Family would rather not do such things. They will not plot against you, unless it is a remote family or a person that does not care at all about the subsequent opinion in the family. [small enterprise, the manager, exploration stage] The information acquired during the survey indicates that the confidence level in family enterprises is directly proportional to the level of family intimacy. In relation to persons from the close family circle, the owners declare a complete confidence. They often question the Polish proverb saying that: with family it only goes well on photos. The employees from families are often regarded as absolutely loyal and committed. It is them that are assigned with key and responsible positions in the enterprise due to conviction that they will take care of the family brand in a better way. Experts also emphasise that confidence in family members constitutes the foundation for the functioning of a family enterprise and is often its primary binder. Therefore family was frequently defined as a clan with all the positive and negative consequences (very high confidence in each other, no confidence in persons from outside the clan ). 86

87 b. Increased confidence of employees from the family In the opinion of entrepreneurs, family employees are obliged to work more efficiently, and eager to making sacrifices for the company. The employer knows all the strong and weak points of a family employee, so they are able to manage them in a better way and assign to them tasks that will make it possible to fully use their potential, as well as avoid assigning tasks in which they do not prove efficient or which are disliked by them. Employees from the family demonstrate greater willingness to work beyond the standard working hours and, if need be, they can undertake tasks on all positions, even the lowest ones involving production. Complete dedication to work in enterprises results primarily from financial responsibility borne by family members, and from the care to provide for the family. In many cases, the company s source of income represents the family s source of income (for 89% of family enterprises). Increased motivation of family members to work is noticed both by the owners and the managers, but also by the employees from outside the family. The fact that all work in the same direction, have a common goal and are fully engage their efforts, their intellect in the generation of welfare of this company. It cannot be found in companies in which a person from outside is employed, which manages the company, employees are not emotionally connected with the management, and it is simply so cold, so you come to work like a robot and work. You will not find such thing In family enterprises, there is full involvement, which also entails the employees and they approach it more emotionally, the atmosphere is better, as is the customer service, the approach, greater immunity and flexibility towards problems, changes. There is no such thing as disrespect. Everyone contributes their capacities there. [medium-sized enterprise, an employee from outside the family, exploration stage] In family enterprises, if need be, they work late in the night. And there is absolute understanding and you do not have to call anyone, like the leader in 87

88 regular companies that has to deliver a speech and say listen up guys, we are facing a problem, but we can make it, we can cope with it. And you get PLN 5 extra pay for each hour of overtime and such a thing is not to be found in a family enterprise. There is a greater solidarity if something unexpected happened, everyone came to help. In case of catastrophe the greenhouse was flooded, then everyone will come to save it. The whole family will come. In such a case, there is absolute understanding, there are no quarrels, they are put aside and nobody worries whether they get extra pay for working overtime. It is the case in the event of regular enterprises for sure. In order to properly motivate these people, you have to act properly as a leader. Here it is not the leadership that is so important. It is the blood relation that counts [expert, counselling and training, exploration stage] c. Low level of formalisation The consequence of predominant role of blood relations in business informal and emotional by definition is a low level of formalisation and bureaucratisation in the company. It results probably from the limited size of the enterprise too most family businesses are, as indicated in the previous chapter, micro-enterprises. This hypothesis is confirmed by survey results the smaller the family enterprise, the smaller the level of formalisation. Only in medium-sized enterprises, the signs of formalisation can be observed: detailed determination of position hierarchy, definition of the responsibility, description of positions, action scheme or communication structure in the company. It is frequently caused by the need of introducing ISO standards in the company, which are required by large business partners. In microand small enterprises, the procedures are developed in the course of work, without unnecessary, in the opinion of owners and managers, bureaucracy. Family enterprises feature a less complex management structure, due to which information flow, decision-making is much faster than in non-family enterprises. Key decisions are taken by the family members that find it easier to communicate with each other. Business matters are often discussed at family meetings outside the company s office. Owners of family enterprises regard absence of formalisation as an advantage of their companies since decisions are taken faster due to that. 88

89 A small-scale formalisation is demonstrated by direct and thus efficient communication in the company. In the first instance, it concerns the relations between family members, but the models thereof are transposed to other employees in the company as well. The effective method of communication between the employees from the family is indicated by all respondents, including the ones from outside the family. The communication system, developed by the family over years, using the same code and a lot of time spent together translate not only into quicker decision-making. Close family ties help family members express their opinions, especially the less positive ones. The owners and employees from the family and outside the family are of opinion that blood relations promote the resolution of conflicts. So it means that as far as the closest family is concerned, you can tell the family members everything, for instance that something should not be done this way, or that you have not done something. And in the case of an employee from outside the family, the thing looks variously, sometimes they take offence when you tell them they have not done something. [mediumsized enterprise, an employee from outside the family, exploration stage] Everything is in one group here and they (the family) always come to an agreement. If they cannot get to an agreement, they go for a dinner to their mother and come to an agreement and then it is rather settled. In the nonfamily enterprises, in which I also worked, sometimes it happenes that one guy makes a fool of another one that does not know about it. You will rather not find it here, everything is put in the same pot. [medium-sized enterprise, an employee from outside the family, exploration stage] Another manifestation of the low level of formalisation is individual approach to employees, personalisation of bonds, stimulated by a paternalistic management style. It can be concluded from the interviews with employees that do not belong to the owner s family that the attitude towards an employee from outside the family in a family enterprise is more personalised than in a non-family enterprise. It results 89

90 mainly from the direct and frequent contact between the employer and the employee. Due to involvement of the owner of a family enterprise, their constant presence in the company, an employee is able to talk to the employer at any moment, report some comments, proposals, discuss both business and private problems. The owners and managers often know about private lives of their employees. Such relations promote increased flexibility in the approach towards the employed persons. Employees from outside the family emphasised in in-depth interviews that they are more noticeable and appreciated in family enterprises than in the previous jobs (non-family enterprises). It seems to me that managing such a company allows for a greater intuition, more contact with the employees, without the intermediation of any directors or managers. Performance of strategic functions in a company by family members allows for a better exchange of information with the employees. [medium-sized enterprise, the manager] In a family enterprise, the owners have a slightly different approach towards the employee, they treat them more like their own child, which cannot be found in large corporations, where people are treated impersonally, like an object, human is like a robot, they are treated this way. They should do this and that and goodbye. There are no such emotional ties. If a problem emerges, an employer in a family enterprise attempts to resolve the problem directly with the employee, feels emotionally connected with them and they solve such problems together. In non-family ones, such situations might happen, but sporadically. [medium-sized enterprise, an employee from outside the family, exploration stage] The atmosphere in the companies is defined as family-like. This feature is indicated by all respondents the owners, employees belonging to the family and employees from outside the family. A positive atmosphere in a family enterprise is influenced primarily by relations between the employees. The description of all respondents indicates that the managers and owners often transpose home and family atmosphere to the business environment. It should be pointed out that the atmosphere described by family enterprises is surely idealised. In the opinion of most 90

91 experts, a family enterprise is a place of conflicts between the employees. However, they think the scale of this problem is smaller than in non-family enterprises or large corporations. In fact it entails no stress, I went to previous jobs slightly stressed or very stressed, and here it is different. And it is not only our impression since the surveys that we conduct among our employees also indicate that apart from the fact that they have remuneration, it is also job security and this atmosphere that are important to them. [medium-sized enterprise, an employee from outside the family, exploration stage] d. Increased adaptiveness in relation to changes in the business environment The possibility of using human resources, as well as intellectual and financial resources of the family, relying on extraordinarily committed employees whom you trust translates into better adjustment of family enterprises to the changing business environment. The conducted surveys indicate that family enterprises feature a flexible approach towards work organisation and needs of customers. Irrespective of the company s size, the owners and employes from the family often do not have fixed working hours. Family members emphasised in the interviews that they determine the time of performing their duties on their own. Due to that, work in a family enterprise allows to freely combine work with home duties and other activities. In most micro- and small enterprises there is no strict division of duties between the employees from the family. The scope of duties in a non-family enterprise is more defined everyone knows what to do. Everyone knows that they do one thing and nothing more. In a family enterprise there is no such thing as division of duties. If I do not have the time to go to the post office to send letters or take some documents then the daughter does it. Or I ask the son to retrieve s and send them somewhere. Certain duties are transferred and there is no extra pay for that. I simply do not manage to do it, I am not able to do it at a given time, so you do that. [small enterprise, an employee, exploration stage] 91

92 So the strong point is that in a family, you trust each other more than the employees. We do not work 8 hours daily, but as much as we can, we set our own work system depending on whether there is a lot of work or not, depending on the needs. We also set our time, that is if I have time in the morning, then I work in the morning, and if not I work in the afternoon or in the evening, it is up to us as well. [small enterprise, an employee, exploration stage] Irrespective of the size, family enterprises are also more responsive to their customers needs. Flexible working hours enables them to adapt to the market needs. Experts stress that family enterprises very often occupy market niches, and respond to special, non-typical, non-standard commissions. Due to facility for mobilisation of family human resources, enterprises are able to perform contracts in short time which for other companies would be beyond reach. There is a completely different approach towards the customer. Always with a smile, we always try to reach out to the customer as much as possible. If, for instance, a thing is needed, you will not hear we do not have it, see you later in a family enterprise. Instead you will hear We will get it. How can we satisfy you? How can we help you?, something like this. It is typical for a family enterprise. [medium-sized enterprise, an employee from outside the family, exploration stage] Because I think that we are considering our branch one of the few companies in Poland that can often perform so complex contracts in so short time. Including night installation and on Saturdays and Sundays too. With crazy deadlines. We manage to do that somehow. Very often there is a crisis situation, now not so often, but still a few years ago, when several supermarkets a year were being opened, a foreign delegation managing the entire network came and they gave us two nights for what we should get a week. So we do it, but it is also beyond human effort. Only because all the closest relatives get organised here. And you could say it is crazy. We save somebody s life. But this is why they give us contracts throughout the whole 92

93 year. Because it is give and take. [medium-sized enterprise, an employee from outside the family, exploration stage] Due to the above-mentioned flexibility and ability to adjust to changing market conditions, family enterprises demonstrate high resistance to the periods of economic slowdown. These entities quickly adapt to the new conditions by means of reduction of costs to a necessary minimum (resigning from all unnecessary expenditure). They can afford to reduce or even suspend the remuneration for the employees from the family for a certain time. In a non-family enterprise, such operation is more difficult to implement and requires more time. (...) we are able to endure on the basis of very low we are able to reduce the costs or salaries. It is where we are very flexible. If there is no money we simply do not receive it from the company. If it is available we share it. It is based on such a principle. [medium-sized enterprise, the manager, exploration stage] A person from the family is a bit more flexible. If there is a crisis or a sort of emergency, or no temporary liquidity. Such a situation has already nearly occurred. So you can come to an agreement with somebody from the family, don t you? I will tell my wife: OK, listen up, now we save. A cousin will understand it too. And somebody from outside will not. [micro-enterprise, the manager, exploration stage] Bureaucracy that is limited to the minimum contributes to the reduction of costs of the operation of a family enterprise. Due to huge commitment of the owners and employees, family enterprises have lower costs of control and monitoring. (...) Because any unnecessary procedures are avoided (in family enterprises). As is a system that would have to exist if it was another organisation. Many things are simplified. Time is saved. And instead of written letters, various instructions and recommendations, you pass them orally and act. So I think we have simplified procedures as much as possible. I would even say we have no procedures. Management is so direct and you get to work. We do not waste 93

94 time for any unnecessary circulation of documents. And in a non-family enterprise, I think there would have to be a system in order to administer it. To control, verify it. [medium-sized enterprise, the manager, exploration stage] e. Long-term goals, social responsibility of a business The perspective of operating family enterprises is strictly related to the perspective of family development. The main goal of most family enterprises is maximisation of the prosperity of many generations. In consequence, investment plans, goals connected with the company s growth and strategic decisions are taken precisely in such perspective. Family enterprises are motivated by the will to endure on the market for a longer time and they feature a higher level of responsibility for: the family, the employees and the local community they operate in. The owners claim that relations with the closest surrounding are most important for them and the fact how the company is perceived since it is associated with the name of the owner. It is a guarantee of the company s durability and its stability. They have enormous responsibility because the fate of many people is in their hands. It is not the case when you work in one company and your husband in another, it is something different as there is no situation in which two persons well, it happens lose their job at the same time. On the other hand, in the case of family enterprise, the entire family loses job. In the case of failure. Everyone. [expert, scientific environment, exploration stage] Because even if the owners do not talk about it, deep inside they indeed feel great responsibility for these people. I can tell you about my parents in-law that they are people that used to say: Maciek, we are responsible for 120 families. So it is not only 120 people. One the one hand, it is an advantage, but on the other hand, a heavy mental burden. [medium-sized enterprise, the manager, exploration stage] 94

95 7.3.2 Negative consequences of the family aspect The area of mutual interdependences between the family and business can be a source of numerous dysfunctions. The main axes of the conflict result from mixing up business and family relations in the company. Diverse types of influence exerted by the family character of a company are also noticed by the surveyed representatives of family enterprises, although most of them (nearly two thirds) were convinced that being a family company helps in business. Almost one third of respondents (29%) ambivalently assessed the importance of the family character of a company and found that it is sometimes helpful in the business operation and sometimes troublesome. Chart 29 Assessment of the impact of family aspect on the operation of a business it certainly helps 22% it rather helps 41% sometimes it helps and sometimes it disturbs 29% it rather disturbs 1% it certainly disturbs 0% I do not know / hard to say 7% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610 The presence of a family in a business may entail in particular: a. A too tight integration of family life with the life of the company and transposition of possible family conflicts into the area of business 95

96 b. Problems with the combination of professional and family roles by the employed family members c. Unequal treatment of employees from the family and from outside the family d. Reluctance to allow external managers to join the management. a. A too tight integration of family life with the life of the company and transposition of possible family conflicts into the area of business Operation of a company allows to satisfy the financial needs of a family and the family members in the company allow to manage a business more efficiently (due to increased confidence). However, there are goals that are to reconcile with each other: a company takes the time needed to take care of family relations and a family takes the time needed to look after the company. Each manager develops their own methods of searching for a compromise between the time devoted to work and time for the family. It is not an easy task and as a rule the owners count on the understanding of the family (customers and contractors are definitely less understanding), so they devote more time to work. An excessive commitment of family members in the operated business is a threat in the pursuit of objectives: We leave the office, drive home and sort of still remain in the company. We can take these decisions in private time as well. We have more time for the decisions than non-family enterprises. Is it an advantage or not? On the one hand, it is an advantage because if you need to change something fast in the company, then it is an advantage. We do not go out of business, we can change the branch, we can occupy another new niche for ourselves. We can devise something fast. But on the other hand, it is done at the expense of private time. And this is a small disadvantage. [small enterprise, an employee from the family, exploration stage] I was a commercial director in an enterprise that produced textiles. I got my salary each month and I was bothered by nothing. I mean, I had to settle sales, by 96

97 all means. But I finished and I put it out of my head. I tried not to talk about it at home. There were no such problems. And now there is not such discussion at home that would not be based to certain extent on the company. It is always based on it. And it is like taxes. Maybe we could buy something to deduct the VAT. It can be sad that family discussions revolve around the company. [small enterprise, the manager, exploration stage] The experts point out that the transposition of business matters to home has advantages and disadvantages. Certainly an advantage in particular in the shortterm perspective is an energetic operation of a company and its resistance to crises due to a large amount of time devoted to management and diligent consideration of each decision, as a rule in a larger group. The disadvantages of this approach include fast burnout and in consequence serious health problems. Due to the importance of the enterprise as the main means of subsistence, the exceptions are the situations of burnout whose result is the liquidation of the company. The owners of family enterprises manage them until their physical strength allows them to. Only in a situation when the organism fails, the management is temporarily yielded. This, in turn, results in serious problems in the functioning of the company due to frequent lack of other persons familiar with the operation of the enterprise. b. Problems with the combination of professional and family roles The problem indicated by owners and managers of companies is the problem of reconciling the family and professional roles in a situation when a subordinate employee or associate represents the family. In practice, this fact may mean the transposition of psychic behaviour patterns from family relation to business ones, the transposition of the hierarchy prevailing in the family to the situation in the company, treating children in the company with no regard to the economic results achieved by them. 97

98 First of all it is harder to point out mistakes of the subordinate employees from the family, to enforce orders, not to mention the dismissal, which should be certainly regarded as the factor reducing the competitiveness of a company. It was hard for me to impose some instructions on my wife and to enforce them strictly. Because I can enforce it, and at home she enforces it from me. [small enterprise, the manager, exploration stage] What differentiates family enterprises from other ones is represented by family relations: <<How can I demand anything from my daughter? And how can I enforce it? She is my little daughter, isn t she? I take into account that she might not do it, but will I be able to dismiss her in such a situation? What then? [expert, counselling and training, exploration stage] Almost every second owner/manager declares that there are no problems with the management functions performed by persons from the family. It is striking that a substantial percentage of answers (39%) neither easy nor hard, which indicates failure to notice the problem or trouble with an unequivocal assessment. Only 8% of the respondents found that managing employees belonging to one s own family is hard. Chart 30 Assessment of management of employees representing one s own family 38% 39% 10% 7% 1% 5% certainly easy rather easy neither hard nor easy rather hard certainly hard answer refused 98

99 Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1154 (companies in which persons from outside the family work) c. Unequal treatment of employees from the family and outside the family Building the identity of family enterprises is based on a strong identification of employees originating in the family with a company. Placing social confidence mainly at the family level weakens the social bonds at all remaining levels though. Survey outcome indicates that employees from outside the family are trusted to a limited extent. Usually they have to earn this confidence, either by means of commitment in the work or by means of seniority. Therefore there is an invisible ceiling in advancement for this group of employees they are not allowed to occupy key positions in the company. However, I think that an employee from outside the family, no matter how hard they tried, is always trusted less, I am not saying that it is substantial, but still a bit less. [small enterprise, an employee from the family, exploration stage] We needed somebody that would deal with the secretariat, i.e. do the paper work in this company, and since it is always connected with the receipt of money, e.g. for the issue of an invoice, payment for the purchase, various such things, and at the same time taking into consideration how the agents work, we decided that we need someone close on this position, a person whom we trust fully this is why we have secretaries from the family. [medium-sized enterprise, the manager, exploration stage] These conclusions confirm the results of quantitative survey of family enterprises too. Admittedly, most respondents declared the same level of confidence, both in the employees from the family and the ones from outside the family, but as many as 34% of the surveyed persons admitted frankly that they trust the employees from the owner s family more. The declarations of greater confidence in the family members 99

100 were most frequent in medium-sized enterprises (22% 49 ). It is probably connected with the fact that the owner in most enterprises is limited in terms of controlling all the aspects of the functioning of the company and therefore they have to rely on other persons more often (managers of departments). Chart 31 Confidence in the employee from outside the family 54% 13% 21% 3% 1% 8% you certainly trust more employees from the owner's family you rather trust more employees from the owner's family you trust employees from outside the owner's family and from it to an equal degree you rather trust more employees from outside the owner's family you certainly trust more employees from outside the owner's family I do not know / Hard to say Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1154 (companies in which persons from outside the family work) Norms of family loyalty (trusting persons from the family, obligation of family members to provide mutual assistance and support) may violate the principles of equal treatment of employees and be the source of underappreciation for the employees from outside the family (more about it in Chapter 7.5). d. Reluctance to allow external managers to join the management Supporting the enterprise's system by means of human resources might also have negative consequences because it influences the company s development causing stagnation or regression. This thesis is confirmed by many foreign empirical surveys whose results indicate clearly that irrespective of the size, family enterprises should not be limited to use family resources only. ( ) It concerns both the management 49 In the small ones 12%, in micro-enterprises 14%. 100

101 and clerical staff. Due to the combination of personnel from the family and outside it one can get higher competences and greater autonomy of employees. The excessive dependence of an enterprise from the family is reduced too. The image and external communication are improved. Therefore the ideal model assumes supplying an enterprise with competent employees from outside the family until the full professionalisation (hence including the post of manager of the entire entity) 50. The survey results indicate that the reluctance to allow external managers in the Polish companies occurs with extraordinarily high intensity. A more detailed problem description can be found in Chapter 7.4. e. Negative consequences of low formalisation According to experts, absence of formalisation may be a negative feature. It results from the concerns of the owners about excessively strict principles of functioning. Absence of formalised operation procedures or determined rules of dividing work may lead to the company being dependent on a single person that has all the knowledge necessary for the efficient operation of the company. However, despite unformalised management structure, the employees from outside the company complain about difficulties related to communication in the company or the problem of division of power only in rare cases. Generally I would associate these companies with the lack of any parameterisation whatsoever. An advancement he should learn more about this and that, and take over such responsibilities. I give him such decisionmaking powers under this responsibility. And such a budget. It is like a universe for them. They do not comprehend it. Paper work? Scope of duties? What for? We are a family, aren t we?! And this means death of the company. A suicide. [expert, counselling and training, exploration stage] The managers of enterprises do not notice this problem at all. What is defined as lack of formalisation by experts, most of them call flexibility. In their opinion, it allows to respond quickly to new opportunities emerging on the market and it is an element of competitive advantage. Furthermore, it allows to reduce the costs of 50 Ł. Sułkowski, Determinanty rozwoju przedsiębiorstw rodzinnych w Polsce, op.cit. 101

102 company s operation by assigning tasks ad hoc, usually to the employees from the family. A low level of formalisation occurs in all companies of the MSME sector irrespective of the size and it causes problems in the functioning of all types of enterprises. These problems concern mainly work organisation and management of the company. The greater the company, the more defined (customarily) the operation rules are, however, clearly most decisions even in medium-sized enterprises are taken by the manager. (... ) the bosses maintain many contacts in this family field. Even after working time, one can talk about these issues. If you are in touch all the time, then sometimes some topics may emerge even during aunt s name-day party or Christmas Eve. This contact allows to take decisions faster. [medium-sized enterprise, an employee from outside the family, exploration stage] 7.4 Ownership and management in family enterprises Ownership structure in family enterprises Due to the fact that the analysed enterprises were diverse in terms of legal status of business activity, part of analyses has been drawn up broken down by two subgroups. The first group included family enterprises registered as sole traders, while the second group covered entities operating under a different legal status. In the first group the problem of shared ownership does not exist, therefore the related questions were not asked in this group. The analysed enterprises (family enterprises excluding sole traders) were mostly enterprises with the majority share of the family (93%). Entities whose all shares were held by the founder's family (52%) were most frequent, followed by those where the shares varied from 50% to 70% (23%). In every fourteenth family enterprise (7%), the share of the family accounted for 71 to 99%. Also in one out of fourteen enterprises the family holding was below 50%. Average family share amounted to 87%. 102

103 If shared, proprietary interest in family enterprises is most often shared with another family (43%). Thus it is a situation where representatives of two or more families cooperate (multi-family enterprises). Such cases may be considered most interesting both in terms of ongoing management taking into account the visions and interests of several families, and in terms of further development of such enterprises, in particular development of processes of succession. It should be pointed out that in two thirds of cases (65%) of shared ownership with another family, its representatives were among company employees. In 40% of family enterprises where ownership is shared by the family and another entity, the participant is another person employed in the enterprise, compared to 30% of enterprises where participants are representatives of another family. 51 The shares of almost one out of ten family enterprises are held by other business entities, either foreign (8%) or Polish (1%). Similar percentage of respondents (7%) declared that shares of their enterprise were held by employees of that enterprise, not belonging to the family of the owner. Chart 32 Other shareholding entities owned by another person employed in the enterprise 40% owned by another family 30% owned by a foreign enterprise 8% owned by employees of the enterprise other than family members of the owner 7% owned by a group of shareholders 1% owned by a Polish enterprise 1% I don't know 5% 51 refuse to answer In more than one half (58%) of those enterprises family 8% members are also employees. 103

104 Source: The actual survey of family enterprises, diagnosis and verification stage, N = 64 (enterprises whose shares were not held by a single family in 100%) Presence of family in the enterprise, inter-generationality Definite majority of enterprises (89%) is held by the generation of original founders. Every seventh enterprise is held by the second generation, while only 1% is held by the third generation. Such a small share of third generation enterprises in the group of family enterprises results from young age of Polish enterprises. Chart 33 Ownership share by generations first generation - the enterprise is held by its owner second generation - the enterprise is held by children of the owner third generation - the enterprise is held by grandchildren of its owner refused to answer Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610, total shares in per cent do not equal 100 due to the fact that more than one response was possible (owners may be representatives of more than one generation at a time) Approximately 8% of enterprises were co-owned, mainly by the first and second generation (6%, with the remaining 2% representing other possible combinations of generations). Thus, in 91% of enterprises owners cover only one generation, of which 83% are enterprises held by the founder (first generation) and 8% are held by the second generation only. Similar breakdown of responses was observed in the question concerning generations working in the enterprise. The first generation (enterprise founders) works in the definite majority of enterprises (94%). Every third enterprise employs the 104

105 second generation (children of enterprise founder), with only 2% of enterprises employing the third generation (grandchildren of the founder). Common involvement of generations in work to the benefit of the enterprise is noted more often than common ownership share, which is the case in one out of three family enterprises. Most often it is the first and the second generation who works together (29%); very rarely this involves the first and the third generation (1%), the second and the third generation (2%) or all three at the same time (1%). In two-thirds of family enterprises employ only one generation. In most enterprise (65%) it is the generation of founders, while in merely 1% of enterprises it is the second generation. Chart 34 Generations of founders involved in work to the benefit of the enterprise First generation - founder of the enterprise 94% Second generation - children of the founder of the enterprise 33% Third generation - grandchildren of the founder of the enterprise 2% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610, total shares in per cent do not equal 100 due to the fact that more than one response was possible The inter-generational character, both of ownership structure and involvement in work for the enterprises, is observed the more, the bigger the enterprise. The second generation s share in ownership was noted in 14% of micro-enterprises, 23% of small and 35% of large enterprises; its involvement in work for the enterprise in case of 32% micro-, 41% small and as much as 58% medium enterprises. Another variable influences the relationship between the inter-generational character and the 105

106 company s size the company s age (since the period of its activity on the market is highly correlated with its size). Since the life cycle of a family enterprise is inseparable from the life cycle of the family, it is but natural that with the enterprise present on the market (and with its growth), new generations rise to power in the enterprise. In every fourth enterprise aged up to 3 years, the employees included representatives of the second generation, while in the group of enterprises operating for more than 20 years this share accounted for 67%. These enterprises, to a much greater extent than other companies, employed representatives of the third generation (12%). It was also the only category of enterprises employing representatives of the fourth generation (1%) Number of family members affected by the enterprise Average number of family members working (either officially or unofficially) for the enterprise equals 2.8. This average differed depending on the legal status of a family enterprise. Enterprises operating as sole traders employed on average 2.6 family member, while in the case of enterprises operating under a different status this ratio equalled 3.6. On average, family enterprises officially employ 2.4 family member. In this respect, family enterprises also vary depending on the legal status of business activity. The average ratio in enterprises operating as sole traders equalled 2.3 person, compared to 3.1 in other family enterprises. The number of officially or unofficially employed family members clearly rises with increasing size of the enterprise: microenterprises employ 2.7 person (of which 2.3 officially), compared to 4.1 (of which 3.8 officially) in small enterprises and 6.1 (which equals the number of officially employed) in medium enterprises, respectively. In 56% of family enterprises a family member may be interested in the enterprise 52, but he or she is not directly involved in work for such enterprise. Most often it is one 52 A group of respondents from family enterprises was asked about the degree of family s involvement in pursuing business. The sequence of questions was as follows: a) number of family members working for the enterprise (regardless of whether they were officially employed) 106

107 family member or two persons from the same family (20% responses respectively). The number of family members not employed, but interested in the enterprise grows with the size of the enterprise. This may result from larger number of employed family members, which automatically broadens the scope of other family members potentially interested in the enterprise. Persons working for the enterprise most often represent closest family members of the owner (nuclear family 53 ): in most cases it is a spouse (57%), siblings (34%) as well as children (27%) and parents (12%). Members of the so-called extended family are less often employed in family enterprises, although this trend seems to decrease with growth of the size of the enterprise. One out of four owners of medium enterprises declares to employ cousins and one out of twelve, an uncle or an aunt. Chart 35 Position of employees in the family with regard to the owner 57% 34% 27% 12% 9% 2% 2% 5% 4% husband / wife brother / sister son / daughter father / mother owner's cousin uncle / aunt N=517 common law husband / wife other person refused to answer Source: The actual survey of family enterprises, diagnosis and verification stage, N = Impact of generations on decision-making process in the enterprise Common work of many generations may be the source of conflict. Therefore respondents were asked to define roles of representatives of respective generations in the decision-making process. As it has already been mentioned, definite majority of family enterprises is held by representatives of the first generation (founders). Thus it is not surprising that it is the representatives of that generation who have the greatest b) number of family members not directly working for the enterprise, but rather interested in the enterprise c) number of family members officially employed in the enterprise. 53 A nuclear family is defined as a two-generation family composed of parents and their children. 107

108 impact on decisions made in the enterprise: in almost nine out of ten analysed enterprises it is a large impact, while in almost one half of enterprises this impact has been defined as very large. Chart 36 Impact of different generations on management first generation - founder(s) of the enterprise (N=468) 1% 3% 7% 31% 58% second generation - children of the founder of the enterprise (N=478) 3% 9% 14% 47% 27% third generation - grandchildren of the founder of the enterprise (N=26) 4% 7% 50% 32% 7% 1 - very small 2 - small 3 - sometimes small, sometimes large 4 - large 5 - very large Source: The actual survey of family enterprises, diagnosis and verification stage; question was asked only to those respondents who declared that the enterprise employed representatives of more than one generation Second generation is much less represented in terms of the decision-making process. Although in almost one half of enterprises this generation has large impact on the process, only in approximately one out of four (27%) enterprises their impact can be defined as very large. Obviously, the importance of decisions made by the second generation clearly rises in a situation when the enterprise is managed by that generation only. In other cases, however, the impact of the second generation does not seem large: although company founders holding shares in the enterprise admit younger generation to management, they reserve the decisive vote to themselves. The third generation has the smallest impact on the decision-making process in family enterprises. However, one should keep in mind that enterprises where persons from that generation were working for the enterprise were rare, and enterprises where such persons held shares in such companies were even rarer. 108

109 Respondents from family enterprises confirm the existence of family disputes concerning methods of running a common business. Almost one half of family enterprises declares presenting different opinions on managing the enterprise. Chart 37 Do family members working for the enterprise have different opinions on managing the enterprise? yes, often 5% yes, sometimes 28% yes, rarely 15% no 47% refused to answer 5% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610 Also the responses to the question concerning the degree of professionalised management confirm the prevailing impact of the owner (founder) on enterprise management. In the definite majority of enterprises (94%) the enterprise is directly managed by the owner; in other cases the owner most often manages through other family members working in the enterprise (5%). Only in a few cases management was delegated to an employed manager or managers. Admission of professional managers to management is rare even in medium enterprises (^%) where the need to delegate tasks and duties is certainly greater. In such enterprises other family members participate in management more often than in other enterprises (16%). However, over three-fourths of medium enterprises, despite large scale of operations, are managed directly by the owner. Therefore the obtained data show that professionalization of management, i.e. employing professional, non-family managers, is rare in Polish family enterprises. It is clear that Polish entrepreneurs seek holding power in their own hands, both in the course of setting up business and during its development, and in situations when this 109

110 is impossible, they tend to delegate it to other family members. The need to professionalise management in medium enterprises, employing from 50 to 249 employees, seems obvious, and ignoring this fact seriously limits the development potential of family businesses. Therefore it should be pointed out that there is considerable resistance in Polish family enterprises against delegating power to third party managers. This results from three coexisting factors: belief that keeping a professional manager is very expensive (monthly salary and additional expenses, such as a car or a cell phone) and that it is not equalled by potential profits generated for the enterprise by such manager fear of vesting an important part of the company ( beloved child and the only source of maintenance of the family) in a person not being part of the family and much less entrusted owners belief that they have considerable knowledge about management. If I had such a turnover and the enterprise were so structurally developed that it would generate only profits, well, maybe I would consider a manager. We are just a medium enterprise, I think that here every penny counts. Delegation of tasks to managers is not only expensive, but also I am convinced that they would not do it as the owner himself would [small enterprise, manager, exploration stage] If I were to employ a real manager, first of all, this would be a great financial burden. Second, he could just pack and leave. And here I have to admit to myself that I have done wrong. (...) I can tell you I do not see here any such manager, because we had several attempts to do it. And the main problem was the car, the cell phone and unlimited access to everything. We already had gentlemen who came here right after graduation and most of the time spent in a car, on the phone, doing nothing. Unfortunately, now the times of sales representatives are gone. And we do the trading ourselves, consequently to specific sales. We have even sold the car of our sales representative. [small enterprise, manager, exploration stage] According to the responding experts, cutting off external knowledge fosters conservatism in action. In their opinion, owners of family enterprises very rarely 110

111 depart from the once adopted track and limitation of the decision-making persons to the family alone reduced inflow of new ideas, a fresh view, which in consequence slows down development. At some point of enterprise development, the range of ideas and competences in the family is exhausted. Experts from the training and consulting services sector point out that owners of family enterprises underestimate contacts with persons from outside the family, business networks and profits from membership in organisations associating companies. Owners of family enterprises only use assistance of external experts in the case of legal counselling and accounting (albeit also in situations when it is absolutely necessary). In a few cases, managers see the problem of cutting off the external knowledge: Maybe it would be better if we had some fresh blood and we listened to another visions? Maybe closing within a single family is not exactly being open to the world. Maybe it is just certainty, less money, but smaller risk and certain job for us all. [micro-enterprise, the manager, exploration stage] As to the weaknesses of a family enterprise, well, one of the main weaknesses is certainly conservatism in action. As I have already said before, such enterprises are quite unwilling to depart from secure patterns which, in the opinion of the owners, have been functioning very well for many years. [expert, scientific environment, exploration stage] However, the definite majority of enterprises do not see the need for support of external experts at all. Only 20% of respondents asked whether basing on family members as the main staffing resource of the enterprise seriously limited development, answered affirmatively. At the same time, 48% of responses were negative and 29% of respondents could not give an unequivocal answer. Attitude towards this issue varied depending on the size of the enterprise. In family microenterprises, the majority definitely rejected the possibility of development problems. Representatives of small and medium enterprises were slightly more critical. 28% of them admitted potential threats to enterprise development in the case of treating family members as the main staffing resource. Nevertheless, even in those 111

112 enterprises different opinions were relatively often expressed (44% for small and 41% for medium enterprises). The hypothetical seeking to keep power in the hand of the family and much limited professionalization of management can be also confirmed by assessment of impact of non-family employees on the decision-making process in the enterprise. Nonfamily employees have little impact on that process, although family enterprises are not homogenous in this respect. Only in 11% enterprises the impact of non-family employees of the decision-making process was described as considerable or very big. At the same time 38% respondents declared that such employees had no impact on the process. Understandingly, the size of the enterprise was an important differentiating variable (the larger the enterprise, the larger the need to admit persons from outside the family to the decision-making process). The percentage of responses declaring large impact of employees on enterprise management rises with the increase in size of the enterprise (8% for micro-, 12% for small and 18% for medium enterprises). Chart 38 Impact of non-family employees on the decision-making process in the enterprise 38% 22% 9% 15% 11% 2% 3% very large impact large impact sometimes small, sometimes large impact small impact very small impact they have no impact refused to answer N=517 Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610 Qualitative analysis confirmed that there is a considerable gap between key nonfamily employees and the family members with regard to impact on the functioning of the enterprise. All strategic decisions are made by the manager (from the family), with "operational decisions or often just exercising orders being vested in persons not being part of the family at the very best. 112

113 Strong centralisation of power in the hands of the family is also proved by small percentage of respondents unrelated to the family of the owner (7%) who participated in the quantitative analysis of family enterprises (where respondents were to be persons having important knowledge about the enterprise). They included mostly directors and heads of departments (92%) representing mainly small (49%) and medium enterprises (35%). Only every fourth of them considered their knowledge about the enterprise very large (others considered it rather large), which confirms observations from the qualitative analysis that the level of participation of such persons in management does not match the one of family members (two-thirds of family members considered their knowledge about the enterprise as very large). As it should have been expected, persons from outside the family are less aware of the family nature of the enterprise, which is confirmed by the smaller percentage of respondents claiming that the enterprise can be considered a family enterprise (81%, compared to 96% of respondents from the family) and less often declaration of expressing familiarity in relations with business environment (53%, compared to 70% of respondents from the family). Non-family respondents do not seem to consider familiarity worth special reflection. They relatively rarely consider it to be the source of competitive advantage (12%) and even more rarely as a source of potential threats to the enterprise s competitive advantage (2%), while they often do not have an unequivocal opinion on the matter ( resorting to a I don t know answer). 90% of such respondents sees the impact of persons from outside the family on the functioning of the enterprise (compared to 66% of family respondents). However, it is not surprising, since they come from small and medium enterprises forced to use non-family human resources and their own high position in the organisational hierarchy proves that it is possible to gain such an impact. They report the problem of better treatment of family employees as often as the owners do, which does not change the fact that the scale of this problem is considered large (the issue was considered common by 46% of owners and by 44% of non-family respondents). However, non-family respondents request participation in managing the enterprise for persons from outside the family: they definitely less often agree that managing positions should be held by family members (14%, owners: 43%) and that family 113

114 employees may be trusted more than non-family employees (30% and 58% respectively). Also, respondents do not see, more often than the owners, the potential negative events in family enterprises, such as conflicts among family members, different visions of running a business, more trust towards family members than towards persons from outside the family. However, very often, when responding on such matters, they resort to the option of no answer (from 22% to 35% 54 ), which may prove that such problems indeed exist, but they are treated, clearly not only by members of the owner s family, as a family taboo. Nevertheless, considerable differences appear between family and non-family managers in terms of opinions on running a business. These differences may result in potential conflicts as to the direction of the development of the family business. Owners display a more conservative approach to management. More often than the non-family decision makers, they claim that investment should be made on the basis of own capital (59% against 40% of the non-family decision makers), that the company should develop by the "small steps" approach (59% and 43% respectively), in accordance with old and tried patterns (42% and 29% respectively). In consequence they describe prospects of the enterprise in different terms: owners, more than the non-family members, declare more often (33% against 15% respectively) that their company thinks in terms of surviving rather than development. The above is also true for medium enterprises. Non-family employees also consider family enterprises in a more sober way, disenchanting their idyllical vision created by the owners. Among features positively differentiating family enterprises from non-family enterprises, they more rarely indicate business ethics (50% compared to 58% of the owners) and greater capacity to implement innovative solutions (41% and 49% respectively). 54 The scale of this phenomenon can be better illustrated by comparison of the reported share of denials to the share of denials in the case of a typical sensitive question concerning e.g. household income (in surveys covering nationwide samples of Poles), which usually oscillates between 30% and 40%. 114

115 7.4.5 Impact of the family on different management areas Respondents also defined the impact of family members on management (decisionmaking process) in several areas of operation of the enterprise. They included issues related both to internal (such as remuneration of employees) and to external (e.g. contacts with new contractors) affairs of the enterprise. Each of the analysed areas revealed great importance of the employed members of the owner s family for the functioning of the enterprise. No areas where the impact of family members would be hardly significant were reported. Average impact of employed family members on different areas of enterprise s operations oscillated between 3.4 and The greatest impact (average 3.8) of employed family members concerned issues related to initiating trade contacts and business strategy planning. Employed family members also have considerable potential with regard to influencing current operations of the enterprise (leaves, replacement) and financial affairs (3.7). The lowest average value was reported with regard to issues relating to training (3.4 point). Such a small impact of family members on training policy should not be surprising, since the activity of SMEs, including family enterprises, is not particularly impressive in this area. Similar impact on different management areas may indicate that there is no division of competence between managers of family enterprises. Impact of family members on individual aspects of functioning of the enterprise is a function of the size of the enterprise. The smaller the enterprise, the greater is the importance of the employed members of the owner s family. However, it should be pointed out that even in medium enterprises management is based on members of the owner s family. In principle, family members are delegated to 55 A 5-level scale: 1 very small impact, 2 small, 3 sometimes small, sometimes large, 4 large, 5 very large. 115

116 locations/departments that are vital for the functioning of the enterprise, so that the owner s family had a sense of control over the entire business. Chart 39 Impact of family members on different types of decisions issues related to remuneration of employees 8% 11% 17% 33% 28% initiation of trade contacts with new contractors 4% 10% 21% 33% 31 employment / dismissal of employees 8% 11% 19% 31% 26% issues related to current functioning of the enterprise, e.g. leaves, replacements 5% 8% 21% 38% 27 issues related to planning of enterprise strategy 5% 9% 20% 35% 30 issues related to training, professional education of employees 10% 14% 20% 28% 22% Source: finance The actual of survey the enterprise, of family enterprises, e.g. decisions diagnosis on taking and verification 7% 9% stage, 20% N = 1610 an investment loan 32% 30% Organisational 1 - very small structure of family enterprises 2 - small 3 - sometimes small, sometimes large 4 - large One feature 5 of - very family large enterprises is the so-called hub and spoke hard management. to say Under such a structure, the owner is the main decisive voice in the enterprise, with small impact of other persons, in particular those not belonging to the family. Such management model is generally characteristic for microenterprises and for the part of small enterprises and one should not consider it a source of dysfunction. Nevertheless, development of organisation requires division of work and delegation of tasks, including those related to the decision-making process. The results presented above confirm this hypothesis: in most family enterprises it indeed is a strong, centralised owners power over almost all areas of functioning of the enterprise. 116

117 This picture is supplemented by data regarding organisational structure of family enterprises, in particular functioning of specialised sections/departments. Apparently, such departments function only in approximately 15% of enterprises. Most often they include customer service (7%), trading (7%) and accounting sections (6%). The existence of departments in the organisational structure depends on the size of the enterprise: they exist in 11% of microenterprises, 30% of small enterprises and 69% of medium enterprises (therefore one out of three medium enterprises has an organisation structure inadequate to its size). Chart 40 Organisational structure of family enterprises customer service department / section 7% trade department / section 7% accounting department / section 6% inventory / logistics department / section 3% production department / section 3% administrative department / section 2% human resources department / section 2% exports department / section 1% R&D department / section 1% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610 imports department / section 1% Family members there are are often no departments employed in / sections the trading in my (45%), customer service (39%) 86% and accounting departments enterprise (39%), and least often in R&D (10%) as well as imports/exports departments (between 2% to 4%) 56. Human resources from the labour market in the broader sense are also often used in production departments. N= However, one should keep in mind that conclusions are based on a small sample N=142 of enterprises having departments where family members are employed. 117

118 This seems to result from reservation of better, non-productive positions for family members. Such a strive for keeping managerial powers in the hands of relatives is also confirmed by the fact that family members are often employed in family enterprises on directorial/managerial positions (44%) or at least on specialised positions (independent experts: 59%). Only in 24% of enterprises they are employed as the rank and file. Understandingly, management functions carried out by family members in internal organisational structures were most often declared by the representatives of medium enterprises (74%), followed by the representatives of companies employing from 10 to 49 persons (66%). It the smallest enterprises the ratio amounted to 36%. It does not mean that micro-enterprises are more reluctant to nepotism, but rather reflects the natural, structural barrier. Chart 41 Functions performed by family members in the enterprise Specialised / independent experts 59% Directorial / managerial 44% Rank and file 24% Refused to answer Source: The actual 3% survey of family enterprises, diagnosis and verification stage, N = 220 (enterprises with departments) The survey revealed that respondents who considered family members more loyal and those claiming that family members are more trusted more often supported nepotism when appointing managers. Respondents who did not differentiate confidence or loyalty depending on the type of employee more often accepted admission of persons from outside the family to managerial positions. 118

119 Data concerning composition of the supervisory board and management board in family enterprises also confirm the prevailing role of the family in management structures. 5% of family enterprises has a supervisory board or other informal board supervising the enterprise. These bodies function mainly on the basis of family representatives who form part of them. On average 2.3 member of the supervisory board (or its unofficial equivalent) belonged to the family (with average number of members of the supervisory body amounting to 3.1 person). One out of twelve (8%) family enterprises has a management board, a body making key decisions for the enterprise. Similarly to supervisory boards, management boards are based on family members. With management board composed on average of 2.9 member, 2.3 on average were family members. The presented results show that a definite majority of Polish family enterprises is at the early stage of development cycle of a family enterprise, i.e. at the so-called privately held enterprise. Such enterprises are managed by founders and at the same time by their original owners. They have non-formalised relationship system and patriarchal management style. The results of this survey show that Polish family enterprises maintain privately held structure even when they are passed on to subsequent generations of founders Strategies of family enterprises Family enterprises most often apply strategies created in an ongoing manner in action, at random and not in an orderly manner. This is why such strategies are highly intuitive and they are not supported by any formalised mission, vision or strategic planning. 57 However, one should consider the fact that application of strategic management in small enterprises (covering most of family enterprises) to a certain extent collides with the need for flexible planning. In family enterprises, in particular at early development stages, efficiency of a strategy is depends on fast 57 Cf. Ł.Sułkowski, A.Marjański, op.cit., p

120 assessment of new opportunities, capacity to act without the results of detailed analyses and readiness to change strategies. One out of ten family enterprises declares having a written short-term strategy. Every third enterprise claims to have an unwritten strategy. 66% of enterprises having a short-term strategy also have a medium-term strategy (of which 16% in writing and 50% unwritten). Microenterprises most rarely have written strategic documentation (9% for a shortterm strategy and 15% for a medium-term strategy respectively), compared to medium enterprises, who most often have one (35% each respectively). One may assume that strategies of family enterprises are most often owners strategies (as it has already been demonstrated, strategic decisions in family enterprises are made by owners themselves). 7.5 Human resources management in family enterprises Human resources management is one of areas of functioning of a family enterprise where negative events may occur with regard to applying familistic practices. In extreme cases they may hamper development of an enterprise or even lead to its bankruptcy. The most often indicated source of problems may be above all nepotism, resulting from higher confidence towards family members and lower towards employees from outside the family. Therefore the majority of key positions in the enterprise is held by members of owner s family, regardless of competences and skills they may have. Consequently, there is a risk that wrong business decisions can be made. As an enterprise develops, nepotism, reflected not only by appointing family members to key positions, but also by favouring them, leads to division of human resources into family employees and others, and thus to weaker competitive potential due to demobilisation of non-family employees (e.g. the glass ceiling problem). Therefore, consequently to applying familistic practices, unequal treatment of family 120

121 and non-family employees may occur. This problem may concern both issues related to responsibility for the vested duties (higher tolerance for mistakes made by family employees) and the issues related to delegating tasks or the functioning of the remuneration system (a family member may have less duties for a higher salary than non-family employees). I can t possibly tell my daughter to get out of the company. But I can tell that to a production worker. And the production worker may say: <<gosh, he s unfair to us. He has installed his pets in the management board and he s treating us like dogs>> [expert, consulting and training, exploration stage] People from outside the family have it the harder way. Here we have an issue which is absent in other companies, that is the need to communicate to all employees that they may be sure everyone s treated the same way [expert, consulting and training, exploration stage] Problems regarding human resources management may be inflammated by little knowledge of the owner in this respect. In principle, management model is developed independently of theoretical knowledge. The basis is experience from everyday life and actions are often taken ad hoc. Although such a course of action seems to a certain extent natural in microenterprises, in larger organisational units it may be a great threat. Despite the potential problems, human resources management in Polish family enterprises, at least in the declaratory dimension, seems, however, positive. According to the majority of entrepreneurs covered by the quantitative analysis of family enterprises, a family enterprise is an attractive, friendly work environment and the enterprise itself puts high demands to its employees. Over a half agreed that promotion in a family enterprise is independent of being a member of the owner s family. It can be said that in declaratory dimension, human resources management in Polish family enterprises does not involve the problems identified by Polish and foreign researchers and experts specialising in family enterprises. 121

122 Such a favourable image changes, however, if we analyse responses to the more detailed projective questions relating to various aspects of human resources management in a family enterprise. Contrary to the common opinion that in family enterprises every employee, regardless of whether they are family members or not, may be promoted, a large group of respondents (39%) thought that the majority of key management positions should be held by owner s family members. 31% of respondents did not agree with this opinion and 28% were indifferent. 43% of respondents declared that family enterprises favour family employees, and one out of two respondents claimed otherwise. Age of the enterprise had great impact on the opinions of respondents. In young enterprises, answers denying that family enterprises are better treated are less frequent. This results from the role of the family at different stages of development of the enterprise. In young enterprises, whose market existence is not yet stable and the potential financial losses due to bankruptcy may materially affect the financial standing of the family (or even undermine its economic existence), clan loyalty reinforces the sense of security. Chart 42 Opinions on better treatment of family employees compared to non-family employees definitely common 9% rather common 34% rather uncommon 36% definitely uncommon 13% refused to answer 8% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1154 (enterprises employing persons from outside the family) 122

123 We have also asked respondents about potential conflicts between family members employed in the enterprise and employees from outside the family. The issue of conflicts is a very sensitive problem, thus one should treat the obtained results very cautiously. The analysis of the results shows that conflicts concern a relatively small percentage of family enterprises. According to declarations of respondents, in over two-thirds of family enterprises (70%) such conflicts never occur. In 14% they are said to happen occasionally, while in 11% they are rare. Respondents opinions did not depend on the size of the enterprise. Recruitment of employees in family enterprises to a great extent is based on recommendations of family members (66%), acquaintances (61%) and non-family employees (60%). These recruitment methods did not much differ depending on the size of the enterprise. However, one should note that recommendations of non-family employees were relatively rarely indicated (59%) by representatives of enterprises employing up to 9 employees. 58 We are apprehensive of employing persons from outside the family. Been there, done that. We watch them closely, because unfortunately we had problems with dematerialising things. And nobody knows who did it. Whenever we need an employee, we never put job offers in press, because it is too timeconsuming. A few calls to our friends from our industry are enough. We seek employees in our industry, e.g. we have friends in a warehouse where we buy parts and we know he s a warehouse manager, but he'd like to be a serviceman and we know he has necessary skills. [small enterprise, manager, exploration stage] Other types of recruitment, i.e. through an employment office, press announcements or online job postings and through commercial employment agencies, were declared by less than one half of respondents. Cooperation with employment offices and press announcements were the most popular solutions (33% and 30% respectively). Onefourth (25%) of family enterprises uses the Internet to this end. On the other hand, enterprises cooperating with private employment agencies were rare (9%) % of respondents from small enterprises declared using employees recommendations, compared to 67% of repsondent from medium enterprises. 123

124 Professionalised recruitment depends on the size of the enterprise and the scale of turnover. Small and medium enterprises, as well as entities reporting turnover below PLN 500 thousand per annum, more often declared using employment offices, posting press and online announcements or recruiting through private employment agencies. Table 5 Methods of recruitment Methods of recruitment Total (N=1154) Micro (N=997) Size of the enterprise Small (N=142) Medium (N=16) we use recommendations of family members 66% 65% 74% 64% we use recommendations of acquaintances other than family members 61% 59% 71% 67% we use recommendations of our employees 60% 58% 77% 71% we use the employment office 33% 30% 48% 59% we announce job offers in press 30% 28% 40% 53% we post job offers online 25% 22% 41% 55% we use a private employment agency 9% 9% 10% 25% other 2% 2% 3% 3% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1154 (enterprises employing persons from outside the family) According to most representatives of family enterprises, the problem with finding sufficiently qualified employees is not characteristic for family enterprises. Also rotation of personnel, according to most respondents, affects both family enterprises and non-family enterprises. 59 Nevertheless, it should be pointed out that among respondents emphasising differences between those two types of enterprises, the belief that family enterprises were more advantageous was more often expressed. 12% of respondents claimed that finding sufficiently qualified employees was easier in family enterprises (against 6% declaring that it was more difficult). At the same time almost one-fourth (23%) of representatives of family enterprises stated that employees less often quit in family enterprises, compared to only 5% of respondents who claimed otherwise. Experts confirmed this belief: family enterprises seek employees with greater ease, since they have family human resources at their 59 74% of respondents answered that finding employees was neither more nor less difficult compared to nonfamily enterprises. However, 62% of respondents declared that quitting was as frequent in family enterprises as in non-family enterprises. 124

125 disposal that are very flexible both in terms of time and in terms of costs (remuneration). 7.6 Succession in a family enterprise The quantitative research revealed few enterprises in which the transfer of generations took place (15%). This, undoubtedly, is the legacy of the times of the People s Republic of Poland and the functioning of the socialised economy, which led to bankruptcy of the majority of private companies. The majority of Polish private enterprises was set up after 1989, thus, the researched group cannot be expected to include a considerable number of companies in which the succession has already taken place or of those in which the issue of the succession is a particularly pressing one at the moment Succession plans Most respondents (58%) consider handing over the enterprise to the next generation. However, only 31% firmly expressed their intention to carry out the succession. More than one in ten enterprises (13%) do not plan to initiate the process of succession at all. It should be underlined that as many as one third of the researched enterprises has not yet made any decision concerning this issue. This was frequently explained by entrepreneurs as resulting from their young age or willingness to work for as long as possible. 60 When I'm retired? Oh, this is still far ahead, I believe. I would like to work for many years more. Maybe even till death, I would say. I saw such old men in the West; they were 80 and still working. [micro-enterprise, the manager, exploration stage] No, at the moment I don t think about it as my son is still too young. Besides, I can work for many years to come. [small enterprise, the manager, exploration stage] 60 One of the problems which the Polish market faces is a very low level of professional activity. As we can see here the problem of early retirement does not concern the owners of family enterprises. 125

126 The determination to carry out the succession is significantly stronger in enterprises with a certain tradition. The longer the company exists on the market, the more probable it is that there will be a firm intention to hand the enterprise over to the next generation. In the youngest companies (operating maximum for 3 years) 22% of respondents declared to decidedly plan the succession, in enterprises which operate on the market 6 to 11 years this percentage amounted to 27% and in the group of the oldest enterprises (operating for more than 20 years) to 49%. Chart 43 Intention to carry out the succession certainly yes 31% rather yes 27% rather not 8% certainly not 5% I don't know/hard to say 29% Source: The actual research of family enterprises, diagnosis and verification stage, N = 1549 (owners and members of the owner s family) The intention to carry out the succession was to less extent related to the size of the enterprise, although it grew stronger together with the increase in the number of employees. This relation may stem from the company s sense of the achieved market success, including as it seems a certain level of stabilisation. Therefore, with regard to this aspect companies operating for a longer time are in a more favourable position than other entities since handing such a company over to the successors entails lower risk. The successors receive then a fairly stable entity whose functioning will provide them (and their families) with economic security. In other words, if the owner of an enterprise is not certain of their economic security, their daily experience involves everyday struggle to survive on the market and the enterprise itself is a kind of escape from full-time employment with another company, then the support for succession is not high. 126

127 During some individual in-depth interviews with entrepreneurs there appeared a conviction that acquisition of a family enterprise does not necessarily have to constitute a benefit for the successors. On the basis of the interviews one may conclude that entrepreneurs want to ensure a better life to their children and they may not succeed in this if they do not follow the path marked out by their predecessor. Such respondents underlined the hardship of their work: for now I m still struggling, still struggling, the work in the company is toil for us. There appeared also the dissatisfaction with the professional position, which, at the same time, was linked with ambitions to provide better education opportunities to the children opportunities which would enable them to make life choices according to their own preferences and interests. I would prefer to ensure good education to my children so that they can achieve more and not suffer as we do while working in the company. I want them to find their own way of living. I want them to be educated and avoid the problems I have to handle. Maybe they won t set up their own business but will work for somebody else instead. [micro-enterprise, the manager, exploration stage] ( ) entrepreneurial parents do not want such life for their children. They do this because they were forced to or had no other choice or they simply continue something but they do not draw any satisfaction from it. Thus, they don t want their children to run the company. These children are brought up within the culture which allows them to study, graduate and choose such functions and occupations which will ensure them a future." [expert, scientific environment, exploration stage] Although nearly two thirds of family enterprises declared their intention to hand the company over to the next generation, only one third (30%) had a succession strategy (plan). Only in 10% of the companies the strategy was made in writing. The unquestioned leaders in terms of formal plans concerning the succession of the company were representatives of entities employing 50 to 249 persons. Every fifth such enterprise had a written strategy (twice more often than in other enterprises). At 127

128 the same time, only 52% of medium-sized companies planning to carry out the succession have no strategy at all, while in small companies the percentage of entities having no strategy amounted to 65% and in micro-enterprises even to 69%. Chart 44 Succession strategy Yes, we have a strategy / plan in writing 10% Yes, we have a strategy / plan but not in writing 20% refusal to answer 1% No, we do not have such strategy / plan 69% Source: The actual research of family enterprises, diagnosis and verification stage, N = 896 (respondents from the family expressing the intention to hand the company over to successors) The persons who were convinced of the necessity of handing over the company had the succession plans, both in writing and not, twice as often as other respondents. The percentage of those having the succession plans amounted in this group to 39% whereas in companies where the intention to hand over the company was only signalled (they rather consider handing the company over to the successors) this percentage amounted only to 20%. 61 The respondents assessed their knowledge on the legal aspects of handing the company over to the next generation in a rather optimistic manner. More than two thirds of respondents described their knowledge in this area as very good (16%) or rather good (53%). Only 16% admitted shortage of knowledge and solely 5% stated that their knowledge in this regard is definitely poor. While looking at the results, it seems that the level of knowledge among respondents may be in fact lower than the one declared. Particularly the percentage of rather good responses indicates that this is the case, as such answers may refer only to partial knowledge based 61 However, it should be underlined that in the companies in which the succession process (as declared by respondents) has already been decided upon, as many as 60% do not have any strategy concerning its implementation. 128

129 exclusively on the vague ideas with regard to legal aspects of the succession (e.g. transferring the experience from inheritance proceedings in which respondents took part). A definitely positive assessment of own knowledge was mainly expressed by respondents who declared having a written succession plan (68%). Such positive opinion concerning the knowledge of legal aspects connected with the succession was considerably less common in enterprises whose succession strategy was not made in writing (20%). Experts with whom we talked about, among others, the issues concerning the succession, indicate a few reasons for this low awareness of the necessity to develop a succession plan. On one hand, it results from the young age of company owners (which was also mentioned by entrepreneurs themselves), on the other it stems from the low level of knowledge on succession mechanisms (both organisational and legal). According to experts the low level of awareness and the disregard for the succession plan can be also caused by psychological factors. Family enterprise owners may fear the delegation of authority, which may correspond with the tendency to overestimate own abilities (and underestimating the skills of the successors at the same time) no one will do it better than me. Moreover, if the company is based on a patriarchal (or even authoritarian) model of management, ignoring the thoughts of the succession may be related to the fear of losing control. ( ) the founders do not see the potential successor among their children, they are not convinced whether anybody will be able to replace them. They have no child who would be able to do that. For instance, they have three children and not one among them who would be an unquestionable leader, because it must be clearly stated that not everyone can be an entrepreneur. Not everyone. Only those persons can become entrepreneurs who have this thing which we could call the leadership element. They want and are able to manage people. Secondly, the problem may be related to the fact that we believe we still are in good shape as founders and should still work until we can since no one can do it as well as we do it. The third reason is that we fear the conflicts that might spark among the siblings. Indicating one of the children as the successor inevitably causes a conflict situation in the family. [expert, scientific environment, exploration stage] 129

130 7.6.2 Potential successors More than two thirds of entrepreneurs who consider handing the company over to the next generations link succession with a particular person or persons. Half of successors (55%) currently work in the enterprise whose owner they will become in the future and 41% of them are employed on the basis of a formal agreement while the rest provides their services to the benefit of the enterprises in an informal way. 12% of successors work in other enterprises. Almost one third of respondents declared that the successors currently do not work. This fact may raise the most considerable fears. Experts underline that the basic task of the manager is a good preparation of their successors by means of work in the company or in another enterprise. Chart 45 Presence of the successor in the enterprise Yes, work on the grounds of an official contract 41% Yes, but work not on the grounds of an official contract 14% No, I/we currently work in another company 12% No, I/we don't work anywhere right now 29% refusal to answer 4% Source: The actual research of family enterprises, diagnosis and verification stage, N = 597 (respondents from the family expressing the intention to hand the company over to the successors and indicating a particular person for this role) As the future successor entrepreneurs indicated in the first place their children and then other persons from the family. During the conversations with entrepreneurs on the subject of handing over the company and their potential successors two characteristic elements appeared. On one hand, the achieved success was taken into account, which was accompanied by the intention to keep the fortune (within the 130

131 family) and have the future generations continue the work, on the other hand, however, the necessity of autonomous management of successors was considered. Although some persons were considered as the future owners, the final choice, according to our respondents, should be made by their children. Up till now I haven't really thought about it. Because you cannot force the children to do things which they do not like. If my child decides that he wants to dig ditches and this is what makes him happy, let him dig ditches. From the very beginning I raise him in such a way so that he could fulfil his dreams. At the moment he wants to be a lawyer we understand this and support him in his endeavours. But you cannot appoint somebody to manage something you have created. And, besides, he will have more satisfaction if he creates something by himself. But if he wants to, I will be more than glad. [microenterprise, the manager, exploration stage] My daughter is 11 years old but she certainly is interested. She doesn't know yet what she would like to do in her life, but, you know, I'm from a different generation, our parents couldn't offer us much, the times were different, there were no fortunes, people were happy if they owned an apartment I want to make life easier for her, she doesn t have to necessarily manage this company, I just hope that one day she will be willing to take interest in it, I just want her to have some financial backup. I hope that, if it turns out that way, she will be able to choose a proper management board which will run the company for her. I don t assume such position that because I do this and collect these assets, I want them to be handed over to the children. I don't really see it, although creating financial security is very important, I don't deny it. [small enterprise, the manager, exploration stage] In case the successors were not willing to take over the company, entrepreneurs considered two ways of handling this situation. Some of them planned to sell the enterprise and the funds gained from the sale were supposed to guarantee them financial security. Others did not intend to end their relation with the enterprise entirely but to take it onto the next level of development instead. The family members 131

132 would then become members of the board of directors and the management itself would be entrusted to external managers. When I earn a lot of money, I think I will sell it. Just sell it. [small enterprise, the manager, exploration stage] I think that even if nobody is interested in running the company, we will create some supervisory board and change the legal status of the enterprise. We will create a supervisory board comprised of our kids and they will employ the management board. They will employ specialists. [medium-sized enterprise, the manager, exploration stage] Nearly two thirds (63%) of the owners of family enterprises planning the succession conduct conversations with the successors in relation to the handing over of the company. Such talks are conducted mainly in medium-sized enterprises (77%). 62 More than the half (57%) of the future successors may boast with formal education related to the area in which the enterprise operates. In case of every third successor such education is unquestionably well-adjusted to the company profile. Planning education in terms of the future succession is more common for mediumsized enterprises. In this group as many as 49% of respondents firmly declared that education of the person who is to take over the company is related to the area of the company s operation. This percentage was by 21 percentage points higher than the one reported in the group of companies employing 10 to 49 employees and by 17 percentage points higher than the results of micro-enterprises. 62 In small and micro-enterprises this percentage was similar (60%). 132

133 Chart 46 Education of the successor certainly yes 32% rather yes 25% in some aspects yes, in some no 13% rather not 15% certainly not 9% hard to say 6% Source: The main research concerning family enterprises, diagnosis and verification stage, N = 597 (respondents from the family expressing the intention to hand the company over to the successors and indicating a particular person for this role) The researched family enterprises face a serious succession problem, should the succession result from a sudden, unexpected event (all duties have to be quickly taken over). Only 22% of entrepreneurs stated that the successor is currently very well prepared to manage the company. 43% of them assessed that their successors are rather well prepared, however, it seems that their assessment might be overestimated. Opinions of the experts also undermine the credibility of such high number of successors who would be well prepared to take over the company at short notice. 16% of respondents assessed the level of preparation to run the company in an ambivalent way and 8% expressed a negative opinion. At the same time, 14% of respondents were not able to make such assessment, which is surprising if we consider the fact that the question concerned the persons indicated by them as their successors. 7.7 The role of women in family enterprises 63 The husband-wife relation is maintained at the company level in 43% of family enterprises. The quantitative research indicated that in such companies husbands 63 The role of women in family enterprises was not the central issue of the research. Thus, the following comments are of introductory nature and would require a more thorough analysis in further researches oriented at the issues concerning women. 133

134 work together with their wives, without indicating one dominant person. The highest percentage of marriage businesses is among young companies which operate on the market for less than 3 years. In the majority of family enterprises which we encountered during the research the women s role was supervision over matters connected with administration, accounting and human resources. However, women and men perceived this role in a different manner. According to men, women perform the necessary work which is a fixed element of the company management. However, although this work is crucial for the proper functioning of the company, their work is of inferior nature in relation to the strategic business decisions made by the person managing the company, in majority of cases by the man, their husband. Men usually described the work performed by women as certain assistance, contribution to good atmosphere, creating the image (in terms of the appearance of the interiors of the company and its surroundings). Women, on the other hand, presented a detailed list of activities they perform: if they participated in taking strategic decisions, they directly declared that this was their role in the company. This kind of men s perception of the women s work in the family enterprise, more or less determined, was a fixed element of the managers way of thinking. It should be underlined that the women s involvement in the family business is not homogenous. Two extreme types of women's behaviour can be discerned here: active participation and passive presence. Women representing the first type of behaviour, despite their husbands assurances that they only handle administrative issues, in fact co-managed the company. They had actual influence on the decisions concerning all crucial issues, for example, the change of the company s legal status, extension of its area of operation, change of the production profile. This co-managing behaviour varied in terms of the scope of influence some women limited their actions to suggesting to their husbands various solutions which then turned out to be essential for the company s operation, other women took part in the management of the company in an open manner, based on partnership. However, their role was often unnoticed or undermined by their husbands. Women who are passively present accept their position in the company as well as the fact that they do not take part in the decision-making process. For many of them 134

135 such position was the result of a compromise they combined the children s upbringing and helping their husbands in administrative issues. The fact they had to stay at home limited their impact on the company s operation, but they resigned from this with full awareness and for the sake of the family. In several cases it was the women who owned (and managed) the companies examined in the quantitative research. Then they were the dominant figures while the husbands provided them with help and support. In the quantitative research of family enterprises a few other interesting, although at times ambiguous, differences among men and women have been noticed. 46% of respondents who took part in the research were women and 54% were men. The vast majority of the women who were interviewed were company owners (91%). Among the men this percentage was lower (65%), although more often directors and managers were interviewed (35% while among women 9%). A more complicated organisational structure with separated departments and managing positions is typical for larger companies as results from the research, it is men and not women who move along the promotion paths available in such companies in a more effective manner (this is characteristic not only for family enterprises). The research confirms also another regularity observed in the population women have usually a higher level of education in comparison to men (40% of women and 30% of men had higher education). Among respondents who are the company owners women prevailed (55%). This may indicate that women are more inclined to take part in the interviews or are selected as persons: better prepared to such type of social situations which are connected with representing the company outside (although such situations are less important for the business as such) having more spare time and whose work may be viewed, as indicated in the quantitative research, as less important. 135

136 The quantitative research revealed also that women perceive family enterprises in a better way in comparison to men they see them as companies ensuring people pleasant working environment (a company which is employee-friendly, without conflicts, and, furthermore, well organised). They also more frequently mentioned the lack of conflicts regarding the functioning of the company among family members (53%, men 41%). Whereas the men more often assessed family enterprises positively in terms of other aspects they were more eager to state that family enterprises are more efficient than non-family ones in terms of attracting the best employees (47%, women 39%), quick decision taking (64%, 58%) and the possibility to operate on many markets (44%, 38%). Women 64 were more inclined to notice the significant influence of the family on the company, and in particular: a substantial influence of the family on the matters connected with the everyday operation of the company (32%, men 22%) no influence on the company management exerted by the employees from outside the family (44%, men 32%). Despite the fact that women more frequently noticed the dominant role of the family in the enterprise, they were less eager to agree that in family enterprises, the employees from the family are treated better than the ones from outside the family (37% of women and 51% of men agreed with this statement). One of the hypotheses explaining the coexistence of these two seemingly opposite facts might be the realistic attitude of women towards the human resources management in a family enterprise. While noticing more often than the men the influence of the family on the business, they may be more aware of the potential problems resulting from this family character of the company. As a result, the women, motivated by a typically female need to create a positive social environment (good atmosphere at work), show more care towards the employees from outside the family since such employees have, 64 However, it should be stated that they represented smaller companies and the influence on management exerted by the family in such companies is more considerable. 136

137 according to the women, objectively difficult working conditions arising from the dominance of the family in the company. What is interesting is that men are more likely to admit to transfer the business matters on the family ground (27%, women 19%). Women, on the other hand, more often say that they do not talk about the business issues at home (37%, men 22%). It is difficult to provide an explanation for this discrepancy when we consider the fact that the majority of both women and men work in the companies together with their spouses. These results may indicate that men start such conversations more often and they consider them significant (and probably have important reasons to do so). The opinions expressed by women may, on the other hand, indicate the intention to maintain a healthy balance between different spheres of life. Regardless of the interpretation, the fact that men more often conduct conversations about the company while staying within the family sphere confirms the informal role of women in the management of family enterprises. 137

138 7.8 Segmentation of family enterprises On the basis of the analysis of the latent classes 65 we have distinguished 6 segments of family enterprises. A series of variables have been used in the analytical model, describing both the enterprise (its size, turnover, work of family members) as well as the attitude of its owners towards the family character of the company (emphasizing the family character in the business relations, assessment of the influence of the family character on the competition aspect and their approach towards the succession). The segments distinguished in family enterprises are the following: Segment 1 Achieving position the most numerously represented family enterprises segment. This segment stands out from the others in a considerable way due to a small or very small extent of emphasis on the company s family character, which is accompanied with a conviction that the family aspect is not helpful in the business. At the same time entrepreneurs from this segment are hesitant with regard to the succession. In comparison to other segments, respondents, when asked about their plans of succession, often were not able to give an explicit answer. The companies from the Achieving position group are usually fairly young (on average operating for 7 years, 16% of them have been operating on the market for less than 3 years) and employ a small number of persons as well as have no formal strategy concerning the company development (either long or short term). 65 The analysis of latent classes is one of the cluster analysis techniques. Latent classes are subgroups or segments which are not observable directly (concealed). The cases belonging to the same class are homogenous in terms of the specified criteria while the cases from different latent classes differ among each other with regard to important features. The analysis was conducted on the group of 1384 respondents. The cases with no answer to questions concerning the attitude towards the family character of the business and its use in business relations have been excluded from the analysis. The exclusion of such respondents was done due to methodological reasons. Should they be taken into account, the adjustment of the model to the data would be worse. Such worse adjustment would stem, primarily, from the fact that the mentioned missing answers may introduce an unnecessary information noise, and, secondly, their consideration would entail the change of the scale of some of the examined questions from serial to nominal, which would also adversely affect the model s adjustment. 138

139 Thus, we can state that these are the companies typical for the first stage of development of entrepreneurship and the family character in their case might be derivative. The family is for the company rather the source of personnel than of entrepreneurship. Therefore, in comparison to other segments, the family character is not underlined in business relations and is more often treated as a factor hindering the company management. The companies from this segment have not gained their position on the market yet and thus they are uncertain of tomorrow and strive to survive, which can also be an explanation for the lack of precise succession plans. However, one may not exclude that those companies may have simply a low level of awareness of the family character. The examined segment comprises 45% of family enterprises in Poland. The majority of them are micro-enterprises (55%), 38% belong to the group of small companies and only 7% are medium-sized companies. Segment 2 Collective character and beginnings of the succession plans companies from this segment do not differ much from the companies from other segments. However, one may presume that this segment comprises companies which have completed the first stage of the entrepreneurship development and, even though their position on the market has not been entirely established yet, they may look into the future with relative optimism. These companies usually have a development strategy and a very strong determination to carry out the succession. What is important, in some of those companies partial succession has already occurred. Although the ownership title still belongs mostly to the generation of the founders, there are also cases of sharing the ownership with the representatives of the second generation. One may also assume that at the further stage of development of these enterprises a gradual handing over of the company to the next generation will take place and the future successors are currently preparing themselves for the moment in which they will come into possession of the property. The evidence for this is the frequent cooperation of the representatives of the first and the second 139

140 generation this common coexistence of the two 66 generations, together with the strong determination to carry out the succession, is the most characteristic feature of this segment. Among those companies there are few young enterprises, i.e. those which have been set up already in the 21 st century. More than half of them have been operating on the market for longer than 10 years and the average time of their existence on the market is 11 years. This segment comprises 16% of family enterprises in Poland. Small companies are in relative majority in this segment (48%), companies employing 2 to 9 persons account for slightly more than one third (36%) and 16% of them are medium-sized companies. Segment 3 Professionalisation of management enterprises from this segment are relatively big and distinguished by significant influence of persons not belonging to the family on management processes. This can be associated with the fact that the companies from this segment are rather large and thus they have to rely on human resources from outside the family. The ownership title is held mostly by the first generation representatives. The cooperation among the generations is rather rare. However, it should be noted that if such company employs several members of the family, such persons are usually employed as regular workers. If we consider the fact that those companies do not expose the family character in business relations in any special manner, neither do they deny this aspect, plus there is no particular tendency towards the succession, we may assume that the family character is an issue of minor importance to them. Employing family members is rather the effect of the willingness to help the family than a consequent and purposeful creation of the family enterprise image. 66 The second generation is considerably less often allowed to the ownership than to cooperation. 140

141 This segment comprises 12% of family enterprises in Poland. It includes mainly medium-sized companies (44% of the segment) and small companies (50%). The average time of operation of a company from this segment amounts to 10 years. Segment 4 Enthusiasts of family character such enterprises often underline their family character in business relations. This attitude is accompanied by more than average conviction of the family character s positive influence on their business activity. Among them are mainly companies which have no formal development strategy as well as young companies (their average age is 8 years, 12% of them have been operating for less than 3 years). Apart from the emphasis on the family character and the positive perception of this aspect with regard to business relations, enterprises from this group are similar to those from the companies from the segment Achieving position" (in terms of number of employees and the low level of formal procedures). One may presume that both groups comprise very similar business entities. Both groups have only begun their economic activity and while the latter is aware of the family character, the former rejects to acknowledge it as a value. Enterprises from this segment constitute around 13% of the total number of family enterprises. The structure of this segment in terms of the company size is almost identical as the one in segment Achieving position it includes mainly microenterprises (56%), small companies account for 41% whereas the medium-sized companies only for 4%. Segment 5 Changing guards companies from this segment are characterised by the fact that succession has been undertaken. Such companies are owned by the representatives of the second generation, however, the representatives of the first generation can be found working in them more often than it results from the division of the shares in the ownership of a company. In other words, we encounter here a situation in which the founders retreat from the ownership but at the same time do not entirely cease their professional activity. 141

142 Such companies are also characterised by a low influence on the decision making process of employers from outside the family. Moreover, the companies from this category are usually not that young (their average existence on the market amounts to 13 years), however, they are not the doyens of the Polish family entrepreneurship either. One in ten family enterprises belongs to this segment. The most common for this category are micro-enterprises (44%), then small companies (35%) and the medium-sized ones (21%). Segment 6 Multi-generational traditionalists aware of the family character" this is the smallest segment in the entire population under research, but a very interesting one. The segment comprises the companies which are multi-generational both in terms of ownership and the common work for the company s benefit. Those companies are also aware of their family character and emphasise it in business relations. They also stand out among other companies due to their experience. This segment features doyens of business and enterprises which are as old as the Polish market itself, or even older. The average age of a company from this segment amounts to 17 years and half of them have been operating for more than 20 years. Other characteristics which distinguish such companies from companies from other segments were: the number of employees (on average they employ nearly 17 persons) and the area of operation this segment features more companies from the processing industry and fewer from the section of wholesale and retail trade. Similarly as in the case of Segment 2 Collective character and the beginnings of succession plans and Segment 3 Professionalisation of management, those companies had a formal development strategy. 142

143 This segment comprises only 5% of family enterprises in Poland. The majority of them are small enterprises (50%), however, medium-sized enterprises constitute a large share of this segment (39%, together with Segment 3 this segment is the one with the largest share of medium-sized companies). Micro-enterprises account for the remaining 11%. In conclusion, it can be stated that the division into the segments to some extent resembles the life-cycle of family enterprises, with the reservation that they are varied in terms of entrepreneurs attitude towards the family character and the number of persons employed. The segments feature the companies which have only began their activity and which differ in terms of their approach towards the family character: Segment 1 "Achieving position" (45%) versus Segment 4 Enthusiasts of family character (13%). There are also companies which have already completed the first development stage (the stage of entrepreneurship based on the family in terms of human resources, purposefully or as a necessity) and now they consider the process of succession, partially already initiating it, and introduce the second generation into the company work (Segment 2 Collective character and the beginnings of the succession plans 16%). Another important group from the point of view of the evolution of family enterprises includes companies which have already implemented the process of succession (thus, they do not belong to the group of young companies) and their owners handed the company over to the next generation which, however, still values the authoritarian management" (the employees from outside the family have little influence on the company, small number of employees). This authoritarian character may be enhanced by the involvement of the first generation (despite the completed succession). This phenomenon can be observed in the case of Segment 5 Change of the guards (10%) which probably comprises the representatives of the craft sector originating from the period of the People's Republic of Poland. We can observe also companies which are mature and involve many generations, where sometimes even two succession stages were completed, and the fact that the company is managed by the representatives of the third generation indicates that there is an ongoing determination to keep the company within the family. In view of our history, it is not surprising that the representatives of this 143

144 segment are in minority (5% - Segment 6 "Multi-generational traditionalists aware of the family character ). There are also enterprises with a strong tendency towards more professional management (Segment 3 12%). These are characterised by a high level of influence on the management of the employees from outside the family, despite the presence of family members in the company (holding various positions). Although many such companies plan to carry out the succession, the family character is treated by them as a feature of minor importance. 8 COUNSELLING AND TRAININGS FOR FAMILY BUSINESSES 8.1 Using training and counselling services A small number of Polish MSMEs (23%) used training and counselling services (in last two years). The percentage of them is similar for family businesses (25%) and non-family companies (22%) 67. Irrespective of the company type (family, non-family) there is a positive correlation between the increase of the enterprise size and using these services. In the proper research on family businesses a lower percentage of companies using training and counselling was observed (the time of reference was also last two years) 9%. The most probable reasons for this difference are various sizes of the research samples in both surveys and different sizes of statistical errors which are connected with them. What characterises the proper research on family businesses survey is higher precision of deduction (larger sample and smaller statistical error). Therefore, it can be assumed that the percentage of family businesses which benefited from trainings is closer to the estimate registered within it if one relied on the results of both surveys, the "averaged percentage of such companies would amount to about 15% Every time differences between family and non-family businesses are described, we rely on the data from the MSME study (exploratory stage, N=1,280). 68 In spite of providing actual values of this percentage, the conclusion that family businesses use training and counselling services as often as non-family enterprises should be maintained. 144

145 The biggest difference in the level of using training and counselling services is observed between micro (19%) and small enterprises (52%). The analogous difference between small (52%) and medium-sized enterprises (62%) is not as large. One can assume, therefore, that in the course of the company development, the crucial moment occurs in the phase when it is small (between 10 and 49 employed persons). This leads in most companies to start using counselling and training services. The most popular among MSMEs are sectoral and professional trainings (connected with the current activity of the company). Within the period of recent two years 42% of enterprises using trainings and counselling benefited from them. The second most often used type of trainings concerns finance and accounting (29%), the third sale (27%). Entrepreneurs invested relatively often in training and counselling services connected with improving effectiveness of obtaining funds from the EU (24%) and staff management (20%). For the remaining categories of training and counselling the percentage of responses did not exceed 20%. The interest in particular thematic categories of training and counselling services varied depending on the types of enterprises (family vs. non-family). Although the observed differences were not statistically significant, they are worth to become acquainted with. The biggest difference was registered for using sectoral and professional trainings (connected with the current activity of the company). Almost a half of non-family enterprises and only one third of family businesses benefited from them. The difference in trainings related to managing personnel was as large as 12 points. The percentage of non-family companies which invested in them was 24% in comparison with only 12% of family businesses. This difference may result from unwillingness of family companies to allow external counsellors into the area of particularly sensitive and secret familistic practices. Furthermore, non-family companies more often train their employees in the areas of personal skills (17%) than family companies (11%). On the other hand, family companies more often used sale trainings. One third of family and one fourth of non-family entrepreneurs benefited from them The most 145

146 probable reason for this is a relatively large representation (41%) of family businesses in the G section (wholesale and retail trade). 8.2 Reasons of not using trainings The persons surveyed, when asked about the reasons why they do not use training and counselling services 69, indicated most often that they did not need them (43%). At the same time, it is difficult to determine, to what degree such declarations are coherent with the actual state, and how much they stem from the lack of training needs and underestimating investments of such type. It is worth noticing that a low value of the indicator of using training services did not correspond with opinions about benefits from trainings, which were often expressed, a conviction that all employees should be able to use trainings and that prices of training and counselling services in Poland are generally favourable. 70 It seems that the source of discrepancies (assuming that trainings are useful for enterprises, why such a low number of companies employ them) can be adjusting responses of the surveyed to imagined expectations, being unaware of the needs as well as treating training and counselling services as secondary investments which are less important for the enterprise. In a situation when the usefulness of trainings and counselling is often publicly expressed by experts, the respondents may aim at adjusting their responses to experts opinions they encounter 71. What is more, the results of hitherto conducted evaluation research of programmes in which training and counselling activities 72 were 69 Results provided in this sub-chapter relate to the proper research on family businesses because of a larger sample of companies not using such trainings and large precision of deduction connected with it. 70 We asked respondets to assess several aspects of trainings and counselling in the course of the study concerning a representative sample of MSMEs. 71 After launching a number of programmes (financed from public funds) of MSME support, also the intensity of an information and promotion campaign referring to EU funding has increased. It makes the voice of experts present in the discussion more often. 72 In at least several reports from evaluation research, e.g. Phare 2002 MSME or Phare 2003 MSME it was observed that entrepreneurs often applied for funds for trainings and counselling only when the financial allocation for purchasing machines and devices had been exhausted. The interest in training and counselling appeared also when activities of this type could provide additional points in the process of applying for a subsidy from programmes which included the purchase of fixed assets. Moreover, it was reported that enterprises which have ever employed counselling or trainings are more motivated to repeat the use of activities of this type. It is also worth mentioning that the assessment of a number of aspects connected with soft investing presented in the survey of family businesses was generally more positive in the group of enterprises which employed them and also these enterprises declared more often that they would provide such investments in the nearest future (12 months). 146

147 one of the components as well as results of the family business study may indicate that training and counselling investments are treated as peripheral. A large group of family entrepreneurs (37%) motivated the lack of interest in trainings and counselling by the priority of other, more important needs. This group includes both, companies which do not have proper knowledge about real needs of their enterprises as well as those which for financial reasons, when planning investments have to choose between investing in fixed assets and performing trainings. One should remember, however, that in spite of improving access to credits and public financing of investments, financial sources of many Polish enterprises still do not allow to implement a number of investment activities at the same time. Therefore, they prefer to choose investments whose effects are measurable, visible immediately after completing the investment process. In terms of the conducted survey, one tenth of family entrepreneurs stated that they do not use training and counselling services because activities of this type do not translate into the company results. One of the popular reasons of not using trainings or counselling (37%) was the conviction that a particular company is too small to make the use of investments of this type profitable. This argument was provided the most often by representatives of micro-enterprises (38%) although, what is interesting, it appeared also in the group of small (20%) and medium-sized enterprises (5%). I think that such argumentation requires a comment since it attests to a specific perspective of perceiving training and counselling activities they are treated as adequate to the needs of larger enterprises. It may be particularly difficult to show such companies the benefits from counselling and trainings. Among the remaining reasons of not using training and counselling investments the respondents provided the following: specific character of an enterprise (6%) (deficiency of supply from companies providing training and counselling services) and insufficient funds for soft investing (7%). For 1% of respondents the reason was their dissatisfaction with effects of previously carried out training and counselling activities. 147

148 Chart 47 Reasons of not using training and counselling services by family enterprises we don't need services of this type 43% our company is too small to use services of this type 37% we have more important needs 37% training and counselling activities do not translate directly into the company results 9% we don't have sufficient funds to use training and counselling services 7% the market does not offer services of this type which would be adequate to the specific character of our company 6% we are dissatisfied with effects of the previous training and counselling activities carried out in our enterprise 1% Source: Proper research on family businesses, diagnostic and verification stage, N=1,409 (companies not using training and counselling services within last two years) Among limitations of using training and counselling services which are specific for family businesses, the following barriers should be emphasised. General reluctance of these companies to use external counselling - unwillingness to allow an external counsellor into their own backyard where the company problems are at the same time the problems of the family; Worse financial condition (smaller turnover; financing for investments comes from a credit more often than in non-family companies); Conservatism, attachment to established practices. "We have a philosophy of not grasping everything at once, as parents say, one should eat with small bites. When it is good, it is not bad, the most important is not to make it worse. I do not think I need anything. [microenterprise, the manager, exploration stage] 148

149 We gain experience on the basis of running a company and cooperating with employees, quality management etc. We are not a company which specialises in communicating with other people. We do not obtain our clients through the Internet and other sources, we do not have to talk with clients because we have our regular ones. Somebody just calls, usually me. We are not a company large enough to develop in a way which would require establishing departments. Only then, employees occupied with talking with people appear. [small enterprise, the manager, exploration stage] After these years I think it would be hard to impose anything on these managers. They have developed their own styles of management and it would be difficult to compel them to anything new. I do not know whether they are guided by some knowledge. Rather not, this has probably derived from experience. ( ) [expert, lawyer, exploration stage] 8.3 Needs of family businesses concerning training and counselling Problems of companies from the MSME sector Family businesses, as any other entity operating on the Polish market, face many problems connected with running economic activity. Most surveyed representatives of the MSME sector responded that the largest problems of Polish entrepreneurs are of financial nature, including in particular excessive taxes (72%), generally high costs of running business activity (67%) and high labour costs (50%). Among the biggest nuisances for running business one may find the following: unclear and often amended provisions (34%), high costs of credits (26%), dishonest competition (25%), unclear tax provisions, difficulties with finding employees and difficulties with obtaining EU financing (23% each). Entrepreneurs responses were independent of a kind of enterprise (family, nonfamily) with one exception. Non-family enterprises significantly more often reported a problem with finding appropriate employees (26% in comparison with 17% in family businesses, difference statistically important). The observed difference was probably an effect of different organisational structures. Family businesses are developed often on the basis of resources (also human resources) of the owner s family, thus it 149

150 may be assumed that this is the reason why they have recruitment problems less frequently. It should be remembered at the same time that when moving to the next stage of development of a family business, where it would be necessary to extend human resources of the enterprise, these are family companies where the problem of recruiting appropriate employees may be more intensive. Chart 48 Problems of enterprises from the MSME sector excessive taxes high costs of running business activity 72% 67% high labour costs 50% unclear and often amended provisions high costs of credits dishonest competition difficulties in obtaining EU financing low demand on the market unclear tax provisions legal and administration limitations competition of foreign companies difficulties in obtaining credits/loans for investments difficulties with recruiting proper employees changes in foreign exchange rates competition of large companies difficulties in obtaining credits/loans for current activity of the company dilatory courts 34% 26% 25% 23% 23% 23% 21% 19% 18% 18% 16% 14% 11% 7% Source: MSME study, exploratory phase, N=1,280 The qualitative survey reveals how the sense of being overwhelmed with problems differs in relation to the company size (micro, small or medium-sized). Managers and owners of companies from the micro-enterprises sector feel they struggle constantly to survive on the market and this is one of features of this sector. 150

151 Nowadays, the turnover has decreased and it is difficult to support a business. The situation is bad [micro-enterprise, the manager, exploration stage] It s true, it is not possible to save a lot and this month will generally will be difficult. Let us say that we will earn only the amount sufficient to cover regular payments and our current needs, to pay dwelling charges and so on. We came to a standstill. Nothing is happening." [micro-enterprise, the manager, exploration stage] Small companies which have already gone through the time of the fight with economic reality which is characteristic for the micro-sector, do not express that they feel overwhelmed with problems. Difficult situations occur from time to time and destabilize for a short period of time the company's operation, but due to mobilisation of employees, in particular of the family members, they are solved immediately. Medium-sized companies are convinced they are more resistant to problems. The current company activity is described as a systematic implementation of tasks which were planned (implementation of orders, provision of services). This relative resistance of medium-sized companies stems from, on the one hand the fact that during many years of activity they developed procedures (usually spoken, "customary", non-codified). On the other hand, their size makes them resistant to some sudden changes (employee s departure, more active marketing actions of the competition). Private companies have such a problem that firstly you have a lot of work because the company is small and due to this you have several functions to fulfil. Then you are so overworked you feel like you were dying and you employ somebody. Your profits decrease because this person consumes the money earned but you have more time to rest. Then profits start to rise and they finally come back to the original state namely relatively large profits but you don t have to work so much. Fortunately, we are in phase three." [medium-sized company, the manager, exploration stage] 151

152 8.3.2 Problems of family businesses A large majority of family businesses, when asked about specific problems caused by the family nature indicated no such issues. One fourth of family companies admitted that they have such problems. The most often indicated issues were: generational differences in thinking (6%), family quarrels which influence the company operation (5%), large involvement in the company operation/no family life, potential consequences of failure which affect the entire family, difficulties in managing family members, general difficulties in making decisions and no successors (2% each). The analysis of quantitative and qualitative data collected in the course of the study allows to distinguish two types of problems: problems the managers of family businesses are aware and unaware of Problem areas managers are aware of Mangers of family companies and their owners report problems which can be classified into the following areas: a. problems connected with challenges of economic situation; b. legal and administration provisions; c. staff management. None of these problem areas is reserved exclusively for family businesses, all of them appear in all companies of the MSME sector. For family businesses we may observe a slightly higher intensity of problems of some type, however, neither owners nor managers and employees of family businesses are not aware that because of the family nature of a company they can be more exposed to some of these risks. a. Problems connected with challenges of economic situation 152

153 Changes in the competitive environment are a significant source of problems for companies of the MSME sector: emerging dynamic competition, reducing demand for a product or service (e.g. as a result of an economic crisis). The quality of being a family business neither protects a company against such problems and nor intensifies them. Family businesses have, however, some resources which allow to deal with such crisis situations in a shorter time. Firstly, they can temporarily suspend or reduce remuneration of employed family members which increases their financial liquidity. Employed family members usually are tolerant in such situations and agree to them for the good of the company and family. Secondly, they can react in a faster and more efficient way to opportunities which appear in the company surrounding even in the most difficult times. Running a business as ours, one has to be able to adjust flexibly. Large corporations have fixed rules which make it possible to find some irregularities. These procedures are, however, aimed at mediocrity - they do not allow for blunders but do not enable to perform brilliant actions. Because they reject extremes. Taking us, when an opportunity, a chance, appears we can react and use it. These are we who risk our property and we are those responsible. We are not subject to a director who will look at an indicator and decide that we would not get a bonus. [medium-sized company, the manager, exploration stage] b. Legal and administration provisions This is a problem area for all companies from the MSME sector which is generally diagnosed by lawyers as a result of absence of legal culture. Owners of micro and small companies (slightly less frequent for medium ones) combine the opinion that legal services are too expensive for them with a conviction that their competence concerning knowledge of law is sufficient. As a result, a standard entrepreneur who has a micro, small or medium-sized enterprises relies on his accountant or accounting office and their advices in relation to legal provisions. Only medium-sized 153

154 companies in extreme, emergency situations (e.g. a co-owner dies) hire a law office to solve a particular problem. I know also many things from accounting offices which inevitably serve such small companies which cannot afford legal advice or think such services are too expensive. These companies force such assistance from their accounting offices, while it should be legal aid. Therefore, it is clear that they need help, cannot deal with some issues, however they save money or do not have them to such an extent that they use help from accounting offices as long as possible while these offices do not always have proper competence and often their advice is even incorrect." [expert, lawyer, exploration stage] In family business, the level of confidence in lawyers is low, distrust I encounter is much stronger than in other companies. I don t know why it is like that. These companies believe rather in themselves and that jointly they will be able to deal with all issues." [expert, lawyer, exploration stage] c. Staff management A few respondents (with higher awareness about competence required for management) emphasised that they would like to compare their ideas for motivating employees and managing remuneration system with an experts opinion Problem areas managers are not aware of Because of the fact that the quality of being a family company does not result in differentiating companies in terms of their every-day operation, owners, managers and employees do not perceive problems resulting directly from the family nature of the company. What skills do you need to make your company successful? As for today, I need nothing else. If we were planning to change the nature and range of our services, I would probably need something. But in the 154

155 present situation, my brother and I need nothing. [micro-enterprise, the manager, exploration stage] I see no need to be interested in any kind of management. It seems to me that since we have been making out for almost 11 years and we are quite successful, I don t think we need anything like that. [micro-enterprise, the manager, exploration stage] Well, I don t know, maybe if we were about to extend to several tens of persons, we would actually need some trainings concerning management of a company. For the time being, I control everything and it is OK (...) You know, in a month we may collapse or become millionaires. If we collapse, the company won't exist. If we are millionaires, I will continue my activity." [microenterprise, the manager, exploration stage] In spite of optimistic entrepreneurs declarations, the analysis of empirical material confronted with experts statements revealed the following problem areas family companies are not aware of: a. general knowledge about management, general managerial competence; b. staff management; c. successors. Risk resulting from underestimating problems of the first two areas were particularly strongly emphasised by experts from training companies. And then there are in fact tears because these people drive in first gear which ruins the engine because the market is demanding, orders are coming and it is a scandal not to complete an order. They suffocate. There is a man after two heart attacks. These are authentic cases. And only then he wakes up to the problem and says: for heaven s sake, I don t have such knowledge alone. And finally he hires a consultant. Where did he meet him? By accident at a conference where I presented something, since this guy did not have time to have a look at a newspaper. He thinks that he has no time. He speeds every 155

156 day with these empty barrows. [expert, counselling and training, exploration stage] a. General knowledge about management, general managerial competence Most managers share a conviction that they have sufficient competence to manage a company. Only few persons admitted that a look from the outside at the company operation could bring positive solutions. On the other hand, experts, mainly representatives of training companies, indicated that such situation are problematic: not only do managers lack proper knowledge about the bases of entrepreneurship and management, but also they are not aware of their low competence concerning this matter. In our case such knowledge is not required, it was needed a little at the beginning but we managed to do everything on the basis of our experience. We provide the same services all the time. Thus, we know, what to do. We don t need external person s knowledge for providing services of this type. [small enterprise, the manager, exploration stage] Experts pointed out that family businesses, much more often than non-family companies, are managed by persons who have no theoretical background concerning management. Mangers of non-family companies are more often graduates of studies connected with management or in the course of their work were delegated to relevant courses and trainings. Family businesses, on the other hand, were much more often established on the basis of competence of an idea initiator concerning a particular area, irrespective of his skills or knowledge in relation to management. Additional factors which cause that managers do not participate in courses and trainings involving this area are more preservative manner of managing funds combined with plenty of manager s responsibilities Who in Poland teaches Mr Zdzisław, who has been running a business for 15 years that his company is in a certain stage and for a long time has been ready for changes in the manner of management? For example to give the 156

157 company into executive director s hands. Who in Poland says entrepreneurs that there are three most crucial decision-making areas: strategy tactics operations? Nobody [expert, training company, exploration stage] The most often described example of bad organisation of work in a family business is authoritarian management of the entire company by the owner, which does not allow to develop more extended structure of professional relations which would distribute responsibilities among a wider group of employees. An employee who works in, for example, the department of advertising, often does not know something and does not approach his direct superior, the boss s daughter, with problems which often happen, but goes with them to the company owner, omitting his daughter. Most often, owners of such family businesses create around themselves an impression of an absolute monarch (...) Later, this monarch holds a grudge against the employee because he bothers him with trifles, while the employee complaints that he is the owner and who else should help him with problems? [expert, lawyer, exploration stage] In one family business, the owner wanted to create an organisational structure, draw up regulations, it was a company which had been in trade for many years. Only he seemed to want, but didn t at the same time. He wanted to established regulations but he did not want to share his power with anyone. We could theoretically create such regulations but nobody would obey it in practice, he could not bear the idea that he would share his power. [expert, lawyer, exploration stage] Failure to establish vertical structure of relations is linked with unwillingness to employ professional managers which makes it impossible for the company to enter another development stages. A company established on a family is in Poland more vulnerable to extend the early development stages beyond the moment when the management style has to be changed." [expert, training company, exploration stage] 157

158 b. Staff management The analysis of the available material, confirmed by experts statements, indicates huge risk of problems resulting from improper staff management for family businesses. The following problems accumulate in family companies in terms of staff management: reluctance to employ persons from outside the family for key positions in the company; relations between a family (including inter-generational relations); relations between members of the family and persons from outside. reluctance to employ persons from outside the family for key positions in the company; Managers of family businesses admitted that they employ persons from outside the family reluctantly for positions were key decisions are made. Most companies treat this as completely unacceptable. According to the managers, it is however, seen as a strong side of family businesses, not their weakness: this makes them feel that they control the situation as a result of the trust in family members, as contrasted to persons from outside the family. Experts highlight, however, that inability to share power at a certain stage of the company development is an important limitation to its correct development: the company cease to develop because the manager is not able to control more issues or development of the business will be accompanied with growing frustration and health problems of the manager who will be excessively loaded with duties. relations inside the family The vast majority of respondents emphasise that conflict situations which take place in a family are transferred into the company operation. Owners of such companies do not, however, think that any changes in this situation are required: firstly there are always slight misunderstandings in families, secondly the fact that they are 158

159 transferred into the company operation does not cause, according to owners, serious threats to its activity. According to experts, such conflicts should not be neglected. Usually, the family has specific methods of dealing with them: they are more or less functional from the psychological point of view. The same conflicts, when they are transferred to the company, often happen to be very destructive. Similarly as for other issues concerning management, owners and managers do not perceive problems which are created in the area of inter-generational relations. As a matter of fact, they admit that their children who participate in the company operation (are formally employed or help informally) have often different opinions in key issues of carrying out business (e.g. development plans, methods of current client service, method of organising financial and legal structure). The younger generation is much more targeted at a greater momentum in preparing company development plans (expansion into new markets, extending the range of products or services) and have open attitudes towards using new technologies (e.g. Internet money transfer instead of traditional ones performed in a post office). Conflicts start when these ideas are confronted with a preserving approach of the parent generation which occupies the management positions in the company. Parents-managers treat all conflicts concerning this as "normal", standard conversations with a child. Nevertheless, a discussion which can be treated as a normal talk with a child in a family, at home, cannot at the same time the be a conversation between the superior and employee. Failure to separate emotions connected with family issues from the substantive conversation concerning professional matters was a problem which was observed often. I order to manage the company well, as an owner or president of a company, I have to be able to make specific orders and execute their fulfilment. Such owner has to be able to reward and punish. The problem occurs when the marketing director is my daughter or son. Or my mother-in-law is my accountant. After all how to punish my mother-in-law? [expert, counselling and training, exploration stage] 159

160 A father is not necessarily acquainted with for example the Internet, computer, but the son is. In relation to this, there is a continuous conflict between them concerning the silly issue of whether the money transfers should be performed by post or the Internet. If they have seven or eight hundred transfers monthly, one can calculate the difference in the amount of money. Each transfer in the post office costs five zloty, in the Internet one zloty. Theoretically, I should not know about these transfers, but there were such huge frictions between the father and son concerning this matter that even I learned about it." [expert, lawyer, exploration stage] The overlapping family and working relations may, however, be particularly problematic. Persons influenced by this process do not usually are aware of it. relations of family members with persons from outside Employing both, family members and persons from outside the family disturbs the standard system of professional relations. A manager who is not aware of the risks can easily and, almost always, unconsciously lead to disturbances in the company operation, demotivating the staff or quarrels within it. One of consequences of bad managing staff from the family and outside it, described in literature, is a low level of integration into the family of employees who are not family members. The study showed that two phenomena should be distinguished: very high level of integration into the company of employees from the family (in comparison with whom the involvement of employees who are not family members always seems less strong); greater tendency of family companies to create pathological interpersonal situations which result in a low level of integration into the company of employees who are not family members. c. Succession Succession is a process which distinguishes family businesses from other companies of the MSME sector. As it was presented in sub-chapter 7.6, MSMEs in Poland are 160

161 so young that most of them have not experienced passing ownership to the next generation. What is more, owners postpone the moment of starting preparations for this process to a non-specified future. As a result, family businesses have not established: methods of preparing a successor to take over the management; legal solutions enabling to perform succession in the simplest way; mechanisms securing the departing senior. Entrepreneurs do not clearly declare a need of trainings concerning this area (only few of them mention issues concerning legal solutions). The analysis of company policies and information provided by experts allow, however, to state that this is one of the most significant areas of training needs specific for this particular group of companies. In the closest or more distant future, every family company will encounter this problem and almost none of them is prepared for this. Do you see a need of trainings concerning handing over the company, succession? I do not plan such activities, not in 10, 20 years. Are you not interested in it from the legal point of view? No, definitely not. I know, however, that the tax office will do its best to fleece me completely. Poland is a difficult place to make a business. [microenterprise, the manager, exploration stage] "Even if inter-generational continuity is not planned, our activity is often proceeded just in case, if in a longer time perspective a daughter or son will not be successful in what they do, they can always come back here and will be secured." [expert, lawyer, exploration stage] 161

162 8.4 Interest in training and counselling services oriented at family enterprises Previous experience with training for family enterprises None of the companies participating in the qualitative survey has taken part in training intended for family enterprises. None of them received a proposal of such training or has heard about companies that offer such training. In the quantitative survey of family enterprises, the use of such services was declared by a trace amount of enterprises only 2%. When asked to provide details of training themes, the representatives of these companies usually talked about "management training". Frequently subjects were mentioned that were not related to the family enterprise theme occupational safety and health, acquisition of EU funds, sales, contacts with customers. Only seven family enterprises (nearly 0.5% of all respondents) have named the development of family enterprise as training subject. On this basis and on the basis of analysis of existing data 73, a conclusion can be drawn that training and counselling market for family enterprises (in terms of their specific needs resulting from family nature) does not exist in Poland. 73 The best compendium of knowledge about the forms of support awarded by business environment institutions related to counselling and training for SMEs is KIGNET: KIG s [National Economic Chamber] system of support for entrepreneurship of Polish enterprises. The entities participating in the project include: economic chambers, employers' associations, associations of head technical organisations (approximately 100 organisations in total). Services that can be found there are divided into the following categories: counselling, training, financial and information services. Unfortunately, although the base is very vast, there are no counselling and training services oriented at FEs. In Poland there are two non-governmental organisations whose projects are aimed towards FEs only and they are: Family Enterprises Initiative Association, whose goal is to provide mutual assistance, but also to acquaint decision-makers, media and other interested parties with the issues of family enterprises, and Family Business Network (Poland) established on the initiative of the Wyższa Szkoła Biznesu National-Louis University in Nowy Sącz, whose goal is to organise conferences, seminars and workshops aimed at the provision of support for companies in the field of practice of managing family enterprises. The additional operation areas of the organisation are: support for family enterprises in the resolution and overcoming of internal and external difficulties in the process of their development and establishment of a forum for sharing information between the members of Family Business. FBN Poland co-operates with the global network of family enterprises that associates 1,300 entrepreneurs from over 40 countries. None of these organisations (neither FEI nor FBN Poland) has conducted an organised training and counselling business oriented at FEs before the survey. 162

163 General interest in training and counselling services offered to family enterprises As mentioned above, one of the barriers for using training and counselling can be constituted by entrepreneurs being unaware of certain needs. Therefore we have asked whether they would be willing to use counselling services consisting in conducting an analysis of training needs of the enterprise. Interest in such a service was very low. Only 4% of respondents answered "definitely yes" and 11% "rather yes". Interest expressed by medium-sized enterprises was clearly higher. In almost every third such company (31%), interest was expressed in the mentioned counselling service whereas in the case of micro- and small enterprises, the percentage amounted to: 19% and 14% respectively. Chart 49 Willingness to use counselling services analysis of training needs of an enterprise rather yes 11% rather no 36% definitely yes 4% I do not know/ hard to say 11% definitely no 38% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 1610 The respondents were also asked about their assessment of interest in training and counselling services oriented at family enterprises. The survey used three-stage method of asking questions to the representatives of family enterprises about the interest in a training service oriented at specific needs of respondents. In the first step, a question was asked directly about the interest in such a service. In the second step, all respondents were presented with the potential themes of trainings/counselling, and those who previously declared no interest in training were asked whether after getting acquainted with training themes, they would be interest in it. In the last step, those that still expressed no interest, were asked whether 163

164 financing of the designed service by the European Union funds would cause their attitude to be changed. 164

165 Chart 50 Will to use training and counselling services for family enterprises 1. For start, please state whether you would like to use training and counselling services oriented at family enterprises? We mean training and counselling that concerns specific needs of family enterprises. [N = 1610] "definitely no" + "rather no" 81% "definitely yes" + "rather yes" 9% 2. Earlier you have said that you would like not to use training and counselling services oriented at family enterprises. And now, after having learned the potential theme range of training and counselling services oriented at family enterprises, would you be interested in use these services? [N = 1299; sample from "Step 1" minus the interested persons and hesitating ones] Please assess which of the training and counselling services presented to you in a moment are in your opinion most attractive and which ones are the least attractive. While assessing, please take into consideration the needs of your company. "definitely no" + "rather no" 83% "definitely yes" + "rather yes" 12% 3. And if training and counselling services were co-financed by EU funds, would you be interested in using these services? [N = 1074; sample from Step 2 minus the interested persons and hesitating ones] "definitely no" + "rather no" 83% "definitely yes" + "rather yes" 9% Total interest (percentage to the total number of respondents N = 1610) Step 1. 9% Step 2. 10% Step 3. 6% Total 25% The values found in the yellow fields are percentaged on the basis of the number of respondents answering a question about the interest in a service in the appropriate step. Therefore these percentages illustrate the size of groups expressing interest in the service in the following steps. These groups are separable the questions about interest in the service in the following steps were answered by those that did not express interest in the previous step. The values found under the "Total interest" are percentaged in relation to the total number of respondents.

166 As indicated by the Diagram above, only 9% of the total number of family enterprises have expressed the will to use training/counselling oriented at family enterprises in the first step. In the second step, and thus after having learned the themes of potential training/counselling, additional 10% of the total number of surveyed companies were interested in such services. In the third step when the information that such services are provided free of charge has been presented additional 6% of family enterprises expressed interest in the participation. In total, every fourth family enterprise would be interested in such services. The interest in training was the highest in the group of enterprises operating on the market for 11 to 20 years. Over one third (36%) of the representatives of this group were clearly interested whereas in the remaining groups of companies isolated on the basis of age, the percentage of persons declaring the will to use the training ranged from 14% to 26%. The interest in this part (a statistically significant difference) was expressed by respondents declaring the will to transfer the company to the successors. In this group, the willingness to participate was declared by 32% of respondents (more by 21 pp than in the group of companies with negative answers to the question about succession). Assessment of detailed training themes The respondents were presented with over a dozen of possible themes of training and counselling services oriented at family enterprises. The task of the respondents was to indicate such a service that they regard as the most and the least attractive from the point of view of enterprise's needs. 74 On the basis of received results, after the application of Max-Diff analysis 75, average indicators of preferences for each training and counselling service have been received. 74 The respondents saw several sets of training and counselling services on the screen. Each set contained four services out of which the respondents indicated the least and the most attractive counselling service. 75 The MaxDiff technique is used to examine the importance/ preferences towards numerous objects. The most important advantage of the MaxDiff technique is the simplicity of the task faced by the respondent: they are supposed to indicate the object/value among other ones that is most important/attractive for them and the one that is least important/attractive. Due to advanced analytical models (hierarchical Bayes), the technique allows to estimate the preferences of respondents in reference to the examined objects/values. The average preferences towards these objects are scaled in such a way as if the respondents divided 100 points among them. Due to

167 Training and consulting services that met with the biggest interest pertained to building strategies and plans for the development of a family enterprise (average preference indicator 9.13), followed by the methods of accounting for obligations towards Tax Office by a family enterprise (8.12) and on the third position strategic management in family enterprises (7.79). Training in creating common vision of the enterprise s development by persons belonging to different generations (7.14) was also rated relatively high. The lowest value of the preference ratio was recorded in the case of such training as: transferring the management to an external manager (2.88), introduction of corporate management rules in a family enterprise, e.g. the establishment of a management board or a supervisory board (3.89), method of transferring the company to the successors (4.3), method of recruiting employees from outside the company (4.34) and methods of transferring the assets to the younger generation (4.37). MaxDiff, the limitations of traditional methods of assessing the importance can be avoided (assessment on scales, ranging): it allows to examine the preferences towards a very high number of objects; the task for the respondent is simple and it eliminates the imperfections of human perception; acquired preferences are comparable, constant, highly differentiating both the objects and the respondents. 167

168 Chart 51 Average preference indicators for training and counselling services oriented at family enterprises Chart 51 Average preference indicators for training and counselling services oriented at family enterprises Issues related to the ownership of an enterprise, e.g. Should ownership be shared? How should ownership be shared? Division of shares between the family and the shareholders/ investors; 6.22 Management of employees from the family; 4.82 Building the strategy and plan for the development of a family enterprise; 9.14 Strategic management in family enterprises; 7.80 Influence of the family relation on the business operation and of business relations on the functioning of family; 5.95 Management of employees from outside the family; 4.86 Methods of settlements with Tax Office by a family enterprise; 8.12 Transfer of assets within a family (e.g. to the younger generation); 4.37 the company; 5.83 Managing a family enterprise in the process of transferring the power to the younger generation; 5.12 Methods of settlements with Tax Office by a family enterprise; 7.15 Separation of business-related work from private family matters (education about the division of roles separation of homerelated roles from the functions fulfilled in Identification of various perspectives in the experience of older and younger generation; managing the company; 5.58 Prevention of conflicts and management of conflicts; 5.14 Methods of transferring the assets within a family (e.g. to the younger generation); 4.47 Methods of recruiting an employee from outside the family; 4.34 Methods of transferring a family enterprise to the successors; 4.30 Introduction of corporate management rules in a family enterprise, e.g. the establishment of a management board or a supervisory board; 3.89 Transfer of management to an external manager; 2.89

169 Afterwards, with the use of cluster analysis by means of k-means method 76, segmentation of family enterprises has been performed according to their training needs. The segmentation has been limited to the group of enterprises expressing interest in using training and counselling services oriented towards family enterprises (in one of the steps described above the value of this group amounts to 25% of the total number of family enterprises). As a result of conducted segmentation, 4 main segments of companies were created according to declared training needs. These are the following segments called conventionally: The hesitating ones This group features the absence of leading training need. The respondents are interested in the participation in training, nonetheless the interest in almost all presented training types was maintained on a similar level. It is the largest segment of family enterprises interested in training. 49% of interested ones were found in it, which constitutes 12% of the total number of family enterprises at the same time. Therefore this segment definitely requires counselling in the field of training needs of an enterprise, although the need for such training is declared by 37% of its representatives. The segment structure according to the enterprise size class is as follows: micro- 88%, small 11%, medium-sized enterprises 1%. Every third company belonging to this segment has been assigned to the group of family enterprises called "Achieving position". Every fifth one belonged to the "Enthusiasts of family character" segment, 16% were in the company group called "Changing guards". Slightly over one tenth (12%) were the enterprises belonging to the group called "Collective character and beginnings of succession plans" and 6% to the "Professionalization of management" group. Small enterprises from the group "Multi-generation traditionalists aware of the family character" had a 2% share. At the same time, 10% of enterprises from this group of training needs were represented by companies that have not been assigned to any segment of family enterprises. 76 It is a multidimensional technique allowing to detect correlations between objects. Cluster analysis allows to carry out the aggregation of objects into uniform groups and replace the object of this group with its representative (averaged object) 169

170 Pro-development ones instrumental use of family nature They feature increased interest in training related to building strategy and plan for development of a family enterprise and strategic management of family enterprises. Training in accountability of obligations towards the Tax Office in family enterprises has been rated relatively high as well. It seems that interest in this training is caused to a greater degree by the will to increase knowledge in the field of building strategy, management and finance, instead of conviction that these areas might be specific for a family enterprise. The representatives of this group would be interested in such training irrespective of the fact whether they were oriented towards family enterprises or towards the representatives of the MSME sector in general. However, it should be pointed out that this segment is interested in the analysis of training needs of enterprises to the greatest degree (56%). Therefore, it is not excluded that instrumental treatment of the family character is caused by the awakening of awareness of family character and openness towards new educational experience aimed at improvement of the enterprise s efficiency. It is the second largest segment of family enterprises interested in training. It has included 22% of companies interested in the offer of training and counselling services for family enterprises, which constitutes 5% of all family enterprises. Segment structure: micro- 90%, small 8%, medium-sized enterprises 2%. In this needs segment as well, the enterprises from the following groups could be met most frequently: Achieving position (37%), followed by "Collective character and beginnings of succession plans" (26%), "Enthusiasts of family character" (16%), "Professionalisation of management" (8%), Changing guards (5%). Every twelfth company included in the needs segment in question has not been assigned to any segment of family enterprises. Pro-development ones awareness of the family character This is the group that is close to the group "Pro-development ones instrumental use of family nature" in terms of interests. Therefore its representatives express great 170

171 interest in the fields of: strategy and development, management and accountability of obligations towards the Tax Office. However, at the same time, needs resulting from the family nature of an enterprise are being revealed in this segment: creation of a common vision of company s development by persons belonging to various generations and influence of family relations on the business operation and of business relations on the functioning of family. High awareness of problems arising from the family character and specified theme expectations from training indicates that companies from this segment demonstrate the lowest interest in the counselling service consisting in the diagnosis of training needs (23%). This segment encompasses 14% of companies interested in training, that is 3% of family enterprises. Segment structure: micro- 84%, small 14%, medium-sized enterprises 2%. Also here enterprises from the "Achieving position" segment were represented and they had a 24% share in the needs segment in question. The second position was shared by enterprises from "Changing guard" and "Enthusiasts of family character" (20% each), the third one "Collective character and beginnings of succession plans" (13%), the fourth "Professionalisation of management" (4%). As many as 20% of companies from this group have been assigned to none of the six basic segments of family enterprises. The ones indicating "mature" problems This is the only segment in which emphasis was put on the need of using training in problem areas that are most significant for family enterprises. The preferences of respondents were focused on the issues of succession and synergy of generations in the management of an enterprise. The respondents from this group were interested in training (counselling) in the transfer of property (to the next generation), management of a company in the course of transferring the power to the younger generation, transfer of the company to the successors and creation of a common vision of company s development by the persons belonging to different generations. Despite relatively unequivocal training preferences, every third enterprise from this segment (36%) expected a professional diagnosis of training needs. 171

172 The segment in question represented 14% of the companies interested training and 4% of the total number of family enterprises. The segment structure according to the company s size is made up just like in the case of the remaining segments: micro- 90%, small 9%, medium-sized enterprises 1%. In this segment, again the companies from the "Achieving position" group were the most popular ones (33%), yet the enterprises from the group "Collective character and beginnings of succession plans" were also numerous (32%). Every fifth company from the segment in question belonged to the "Enthusiasts of family character" group, 6% to the "Changing guard" group and 4% to the "Professionalisation of management" group. 5% of enterprises "indicating mature problems" were the companies that have not been classified in any of the six main segments of family enterprises. The conducted segmentation of interests in training indicates that: Interest in the training services for family enterprises is not large it is expressed only by every fourth family enterprise. Even among the companies that express interest (25%), there are mainly enterprises with no defined training needs (the hesitating ones 49%) and the ones in which problems related to the family aspect are treated as secondary in relation to the problems of the entire MSME sector in Poland (prodevelopment ones instrumental use of family nature 22%). The companies that are aware of the family nature of their enterprises and specific problems resulting from it represent a minority of Polish family enterprises. They can be divided into: enterprises that notice their specific nature (family nature), although problems that are common for the entire group of Polish entrepreneurs (Pro-development ones awareness of the family character 14%) predominate in them. These enterprises demonstrate the needs typical for family enterprises. companies that can be defined as "the ones indicating mature problems" (14%). They are aware of the family character, which is accompanied by 172

173 the preference towards training tailored to specific needs of family enterprises. Table 6 Preference indicators for particular training themes Interest in training (average preference indicators for the entire population covered by the survey) Interest in training among the representatives of family enterprises that expressed interest in training Segment size 100% (N=1610) 100% (N=397) Building the strategy and plan for development of family enterprise Methods of accounting for obligations towards Tax Office by family enterprises The hesitating ones 49% (12% of the entire surveyed population) Prodevelopment ones instrumental use of family nature of an enterprise Prodevelopment ones awareness of the family character The ones indicating "mature" problems 22% (5%) 14% (3%) 14% (4%) Strategic management in family enterprises Creation of a common vision of company s development by the persons belonging to different generations Issues concerning the ownership of an enterprise (shares held in an enterprise) 77 Influence of family relations on the operation of a company and of business relations on the functioning of a family Separation of work in a company from private family issues (learning the division of roles separation of home roles from the functions fulfilled in a company) Finding diversity of perspectives in the experience of the older and younger generation of company s managers E.g. should the ownership be shared? How to share the ownership? Distribution of shares in a company between the family and other shareholders / investors. Allowing external investors to have shared ownership. 173

174 Prevention of conflicts and management of conflicts in a family Management of a company in the course of transferring power to the younger generation Management of employees from outside the family Management of employees from the family Methods of transferring a family enterprise to the successors Methods of transferring the assets within a family (e.g. to the younger generation) Methods of recruiting employees from outside the family Transfer of management to a external manager Introduction of corporate management rules in a family enterprise, e.g. establishment of management board or supervisory board Transfer of property within a family, e.g. to the younger generation Share of companies isolated on the basis of size classes in particular segments 2-9 persons 88% 90% 84% 90% persons 11% 8% 14% 9% persons 1% 2% 2% 1% Three highest rated trainings have been distinguished by means of this colour The trainings that occupied position from 4 to 6 in terms of preference have been distinguished by means of this colour The lowest rated trainings have been distinguished by means of this colour 174

175 8.5 Preference towards the method of organising training and counselling services oriented at family enterprises Training and counselling In the qualitative survey, one can notice differentiation of preferences towards the forms of support according to the company s size. Micro- and small enterprises interested in the award of support declare readiness to participate in open training gathering the representatives of various family enterprises. However, it was frequently pointed out (by both the managers and the experts) that the highest efficiency would be achieved by grouping companies according to branches represented by them. Medium-sized enterprises prefer internal training conducted solely for employees of their companies or individual counselling in the form of audit of organisational structure and method of managing the personnel. Persons selected to participate in training In the opinion of most respondents, it is the company owner (61%) and other employed family members (62%) that should take part in training oriented at family enterprises. Due to the performed owner and manager functions, these persons might have the most problem with reconciling the professional roles within a family enterprise and at the same time they are the employees that will be most probably bound with the enterprise in the longer perspective. Therefore investments made in the skills of these employees seem a rational choice. The respondents more rarely selected persons working in a company from outside the family as candidates for training (21%). Only every fourteenth respondent claimed that persons not working in a company and coming from the family should participate in training. In the opinion of experts, the validity of participation of a particular person in training should be defined in accordance with the training theme. 175

176 Chart 53 Employees selected to participate in training oriented at family enterprises owner's family members working in the company company owner 62% 61% employees from outside the owner's family 21% owner's family members not working in the company hard to tell 7% 13% hard to tell 4% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 397 (the respondents expressing willingness to use training and counselling services for a family enterprise 78 ) The entrepreneurs were also asked how many employees could participate simultaneously in one-, two- and three-day training. The entrepreneurs were not willing to allow a loss of the company s capacity (family members are usually company s employees) to an excessively great extent. The answer usually was that only one family member could participate in such training (43% for one-day training, 49% for two-day ones and 48% for three-day ones respectively). The second quite frequently selected answer was "two family members" (32%, 21% and 18% respectively). Three and more family members could participate in one-day, two-day and three-day training in 17%, 11% and 7% of companies respectively. Time and place for training The qualitative survey allowed to isolate two entrepreneur groups: the ones preferring short "condensed" training during work time, and the ones that declare willingness to take part in a trip for several days combined with additional attractions of integration and entertainment nature. The preferences of respondents in relation to this aspect of organising training turned out to differ they decided they would prefer that the potential training took place after the enterprise s operation time (48%) as frequently as in the working time 78 In any of the "steps" presented in Chart

177 (50%). The distribution of extreme answers (definitely beyond the working hours, definitely within the working hours) is balanced 16% and 14% respectively). Most respondents (55%) would like to have training in the place of residence while every third one (36%) has indicated the work location. It can be clearly seen that family enterprises that expressed the willingness to participate in training strive for reconciliation of work and training and they do not want the employees to be detached from their everyday duties. However, the quantitative survey has shown that the proponents of combining useful and pleasant aspects (educational objective with entertainment and integration) identified in the qualitative survey belong to minority only 8% of respondents would like the training to take place outside the work place and place of residence in the form of travel training. 177

178 Training duration In the case of cyclic training, the entrepreneurs would definitely prefer such a training that would last maximally 3 months (79%) and would not take more than 2 days per week (82%). The structure of above-mentioned answers indicates that entrepreneurs count on high training efficiency in a short time. It is understandable, especially when you look at the small number of persons working in these companies. An enterprise deprived of even one working person might translate into serious consequences for the functioning of the company. Only every sixth entrepreneur would decide on training lasting more than 4 months whereas every seventh ones on such that would take 3 days a week for an employee. Chart 54 Optimal training duration according the respondents I do not know / answer refused 5% over 12 months 2% from 7 months to 12 months 2% up to 1 month 41% from 1 to 3 months 38% from 4 months to 6 months 12% Source: The actual survey of family enterprises, diagnosis and verification stage, N = 397 (the respondents expressing willingness to use training and counselling services for family enterprises 79 ) Training form Polish family enterprises definitely prefer training in the traditional form providing an opportunity of direct contact with the instructor/ teacher. As many as 56% of respondents have indicated this training form as the most convenient for them whereas 25% have named mixed training type (partially traditional and partially webbased) as the most attractive form of conducting them. Only 17% of respondents have indicated training conducted via the internet as the form they would be most pleased with. 79 In any of the "steps" presented in Chart

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