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GEEF: raising the awareness of family enterprise issues in Europe

Krister Ahlstromis a busy man. As head of one of Europe's biggest independent companies, Finland's Ahlstrom Corporation, he oversaw enormous change as the business diversified and globalised from its origins in the paper industry.

Ahlstrom himself built a reputation as a sound corporate thinker, a man who has won widespread acclaim for his ideas on corporate governance, and on the management of change within family enterprises. As a result, he is in demand at numerous conferences and seminars.

He is also a leading light in GEEF, the umbrella lobby for several organisations in the European family business sector. Formed four years ago, GEEF sought to emulate the successful lobbying achieved by industry groups in the UK and Spain, and sought to spread that influence across Europe.

Today GEEF is playing a key role in raising family enterprise issues within the power-base of the European Union in Brussels.

Families in Business Editor, Barbara Murray, caught up with Ahlstrom to find out his views on the key issues facing the sector in 2001, and beyond.

Barbara Murray (BM): GEEF is trying to further the interests of family business in Europe by bringing awareness of the specific challenges the sector faces to politicians in Brussels. Why are family business leaders so keen to give up their time to do this?

Krister Ahlstrom (KA): GEEF is an 'association of associations'. However, for all practical purposes it is run by people who have run family businesses. Originally, we saw that the Family Business Network was doing a superb job in the education and networking field. But there is a need for political lobbying, to place family firms on the political map. Some countries have already done a wonderful job -- UK and Spain are the best examples -- but we felt it was also necessary to work with the Commission in Brussels.

The owner's voice has not been heard as there isn't really any relevant organisation for it. Industry associations, and I know them from the inside, speak for the business or for management. Owners have stepped forward because they have something new to say.

BM: Who exactly do you work with there?

KA: We work with the Directorate of Enterprise and Innovation which is headed by Commissioner Erkki Liikanen. Entrepreneurship and innovation are both in his field, and we work not only with him, but with his whole staff. We have also contacted other politicians around Europe. We had felt that family firms had been forgotten -- I was even greeted on a few occasions in Brussels with the question: 'Why are you here? Family firms are a thing of the past. 'But nowadays many relevant people in Brussels realise the importance, the volume and the important position of family firms in the European context.

The Lisbon Declaration in the Spring of 2000 was very important because that was when the EU adopted an entrepreneurial agenda. However, it did not address family firms at all. Instead it leaned towards supporting start-up companies. We have been arguing to the Commission that it is fine to support start-ups, but you should not forget that there is a large body of family firms who are experienced entrepreneurs and who need only a little support to continue to be important employers and forces in the economy. We pointed out recently to the Commission the contradiction of on the one hand spending tax money on unproven start ups while on the other end of the spectrum having inheritance tax rules that make the business transition from one generation to another difficult.

BM: Are the members prepared to make a significant commitment to support GEEF?

KA: Yes, we all work voluntarily, although we have also hired a public relations company to carry out supporting work. I would say that family companies in general have an ethos of working for the greater good, to be responsible citizens. In my own case, I probably commit to several days a month, and we pay our own travel and expenses.

BM: What makes the family business so different to the extent that there should be a special lobbying group? What are the challenges?

KA: The main challenge is that nobody has so far forcefully discussed the ownership issues involved in taking businesses forward. Family firms are the first ones to openly discuss the powerful issues that exist within their businesses, for instance the dedication and the commitment to the long term. We have not been clamouring for attention but we think it is now time to do so.

BM: What is it about family ownership that leads to there being some kind of need for protection or help or support? What makes it a challenge for these firms to survive and continue?

KA: Firstly, family firms have a slightly different role in society. In view of this, they are usually not driven by greed, like some start-up firms can be, but are driven by the will to achieve endurance. The need for support comes from both the fact that there is very little knowledge and understanding of family firms in political circles. Another issue is that, due to demographics, there will be an accelerated rate of generation shifts in the next five years. Inheritance taxes or 'gift'taxes, are too confiscatory. Politicians inadvertently hurt entrepreneurship in Europe. So we want to raise their level of knowledge and awareness.

The sad statistics are that only 20-24% of companies manage the transition from first to second generation and only 3-4% from second to third. Family companies employ some 100 million people in Europe, and 1. 5 million firms will go through a generation shift in the next 5-10 years. In other words, there is a big potential for mistakes affecting entrepreneurial activity in Europe. Politicians must understand what is at stake.

BM: So how far have you come towards achieving that goal?

KA: We have definitely received recognition in Brussels, and I must say that the Commission is incredibly helpful today. However the real issues of taxation are beyond the Commission, and are really matters for member states. We try through the Commission to find ways to interest the member states themselves. They have suggested to us that we identify good 'benchmarks' regarding tax issues so that the Commission can pass them on to the member states. Those will not only cover family firm issues, they also cover broader industry issues with a view to making Europe more entrepreneurial.

BM: The challenge, then, is to try and find ways of measuring the financial benefits of not levying inheritance and gift taxes from family businesses, if that money can be retained within the company, and used to create more growth?

KA: It is incredibly difficult to establish a cause and effect relationship between taxation and success of any firm, so instead we are comparing the taxation methods and levels of various member states, in order to identify a connection. But you cannot say that by simply lowering taxation you will increase employment.

BM: Could there be an argument that the people who are relatively wealthy should not be able to avoid being taxed like everybody else?

KA: It is not about 'making rich people richer'. The problem is that inheritance tax is usually paid for by taking money out of the company, which can hurt the company. What we want is some form of easing of regulation, so that if the owners elect to continue the business then the money should also stay in the business. It is a question of keeping capital within the company and allowing it to develop favourably.

BM: You mentioned the UK and Spain as possible models for change. What are conditions like in those countries?

KA: In Spain and the UK family firm owners were being heavily taxed at the point of generation shift. But now the situation has been eased considerably, and we would like the other member states to do likewise.

BM: In Spain and the UK those changes largely resulted from family businesses making their case known and exercising influence.

KA: Absolutely. The Brussels Commission does not have the competence in legal terms to tell member states'governments what to do about tax, but they can try to persuade them. What we are doing in Brussels is attempting to create a favourable climate, so that the organisations within member states might have an easier task ahead.

We've done some work in Finland as well. It hasn't progressed as much as we would have liked but at least we have a proposal for support to ease the tax rate which is now before parliament. In other countries the centre of gravity is moving towards action by the national family business associations. We have promised ourselves that by the Spring of 2002, when entrepreneurship will again be on the EU agenda, we will have achieved a clear recognition of the role of family firms, and the need to consider their special situation.

BM: And then will you review whether GEEF continues?

KA: We will review whether and how it continues.

BM: Let's move to a micro level in terms of help for family firms. If your work persuaded member states to ease inheritance tax and encourage the retention of capital within businesses, would that be enough or would they need more help?

KA: Family firms need a lot of the kind of help provided by the FBN, such as networking, education etc. If you look five years ahead the majority of activity will be in that field rather than in political lobbying. I think that FBN has an incredibly important role to play.

BM: Why is networking worthwhile?

KA: Networking among family firms helps them understand their own situation, the realities of their situation and, of course, how to use the right methods, such as family councils and educating the next generation.

BM: Do you think that families need to learn about themselves in order to make their businesses more productive and better able to survive?

KA: I think the most crucial question is that when the family firm moves into the second, third and fourth generation, the family understands the harsh realities of business life. It is a struggle and they have to be united behind the company, or the company will go bankrupt or slowly fade away. Over the years when I have been speaking to many family firms it has been surprising to see how little the ensuing generation understand those realities, unless they are businessmen and businesswomen themselves. Sometimes people see it as a power play, or they might be incredibly naive – these are the dangers. On the other hand if there is unity, then families can be a great driving force. And because they are usually very people-oriented then employees feel secure and other business associates feel secure in dealing with family firms.

BM: As a family business owner yourself, with all your experience of Brussels and so many family businesses, what advice would you offer to politicians, and what would you say to family business owners at this time?

KA: To the politicians I would say they must understand what an important role family businesses play in the general economy. To families my advice would be to say that running a business with a significant number of people involved is something that requires a lot of responsibility and learning and knowledge and you cannot sit back and say 'because we've done this for five generations we know everything'.

It's not what you are, it's what you've accomplished that's important. So don't be complacent or arrogant. 

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