GEEF, as the European representation of owner-managed and family enterprises, welcomes the Commission's initiative to publish a Green Paper on Entrepreneurship in Europe. The companies represented by GEEF are run by one or more entrepreneurial personalities who, with their families, own a significant part of the capital.
Owner-managed and family businesses (OFB) provide almost 70% of the employment in Europe. Thus, they are a very significant factor in European economies and it is crucial for the future of the European economy that public administrations in Europe are aware of their uniqueness and recognise their importance and dynamic potential in a globalising world.
In short, owner-managed and family businesses represent economic and social gain. Their qualities include:
- long-term horizons/employment culture;
- responsible ownership/community involvement;
- Counter-cyclical investment, etc.
Entrepreneurs represent the 'opportunity/risk taking' culture in the following industries:
- traditional industries and services;
- new high-tech industries;
- new services and fashions.
Entrepreneurs and their companies are recognised by the Commission as being the real engines of growth and innovation and, whether established businesses or one-man start- ups, are vital to our economy. Still, more emphasis should be given to the benefits for a country which has a strong and successful entrepreneurial culture.
The Green Paper offers an excellent opportunity for policymakers on the national and European levels to gain a better understanding of the characteristics of family enterprises when designing the regulatory framework for an economy. GEEF suggests that more consideration should be paid to the unique needs of OFBs, and how both the size of the companies and the quality of their management could affect the prosperity of Europe.
Sustaining and growing existing businesses
The Green Paper recognises the potential of Europe's existing firms, but only as a secondary priority. But the maintenance of existing firms is top priority as they can expand rapidly in a favourable business environment. If they cease to operate, they put their labour forces back on the market and reduce the competitiveness in their particular industry. It is crucial to create favourable conditions for entrepreneurs to remain in business and also to encourage new entrepreneurs. These businesses are the foundation of societies' wealth for economic development, job sustainment and job creation. Furthermore, an unfriendly business environment suffering from hostile tax provisions and over-regulation has negative effects on both the present and future:
- it discourages the growth of existing businesses and endangers their existence;
- it gives a negative message to any would-be entrepreneur.
Entrepreneurs are driven by many different motives, and European policy makers should stress the positive impact of enterprise creation on the economy. There should be no apology for the fact that entrepreneurs are driven by a desire to succeed and, in particular, to build a successful and profitable business.
'Responsible ownership' is also an important tenet of many family businesses. Although family businesses' corporate social responsibility (CSR) procedures can be rather informal in nature, they tend to be quite effective. Regulations on CSR would lead to a formal implementation of these policies, resulting in higher costs to meet the legal minimum standards required of them. Thus, if designing a new policy, such an outcome must be kept in mind.
Entrepreneurs need to make profits to survive. The existing tax systems within Europe are contra-productive in this respect. Only appropriate tax measures can contribute to the development, growth and survival of firms. Family businesses can be particularly badly hit because of the link made in some tax systems between the capital base of the enterprise and the private ownership of the capital. The need to review the means to accumulate capital by bringing an end to recurring taxation should be highlighted. A simple tax base is an option with proportional, rather than progressive, tax rates. There should also be equality between business and financial investment.
EU financing instruments
GEEF believes that financing instruments provided on both the EU and member states level should only be issued as a last resort. The political framework has to be designed in a way that companies are able to finance their own growth and development. The regime of taxation plays a crucial role in this regard.
As long as policymakers believe that they should provide additional programmes they should give the transfer of business the same support they are giving the setting up of new businesses. The programmes should also become less bureaucratic so the target group is not overlooked.
Transfer of business
A significant number of family businesses will face a transfer of ownership in the next decade. Faced with retirement and succession problems many of these businesses may close down and six million jobs could be lost. To prevent this from occuring there should be no financial burdens imposed on the transfer of business. It is important to stress that taxes levied on the transfer of business should at least be reduced so that assets remain within the enterprise. Also, succession pacts should be legalised in all European countries. The EU Commission's Expert Group on Transfer of Business has published a report in 2002 which should be taken into account by both European and national lawmakers.
Policymakers should value and treat the taking over of an existing business in the same way as the setting up of a new one.
Family businesses have an important part to play in entrepreneurial education and culture because of their strong local links. The entrepreneurial tradition can be particularly strong within families – sons and daughters even of a first generation entrepreneur will often be inclined to set up their own business and may have access to finance and other support when they begin. Families are an excellent incubator for entrepreneurial activities. Encouragement of entrepreneurial activity in family businesses by allowing an early handover to a younger generation (whether within or outside the family) can be an effective route. In this regard, taxation and other provisions can help to encourage this process. Creating a favourable environment for doing business and being an entrepreneur or business owner is the first step towards creating long-term success.
Furthermore, family business owners can act as convincing ambassadors and mentors for entrepreneurship in schools and university programs. For example, in Germany members of the Association of Independent Entrepreneurs invite pupils to share an entrepreneurs working day (Schüler im Chefsessel). They also give lectures at schools and within university programmes. Many family business owners are already used to the role of tutor and this should be encouraged so that entrepreneurship is given a more positive profile in society's eyes.
The incidence of business start-ups is very much linked to how society perceives business, or enterprise. The Green Paper shows that a majority of Europeans would rather be employees than independent workers. A study carried out by Deusto University (Spain) on the absence of business vocations among their students, taking into consideration the available text books, came to a clear conclusion: education received in schools and, more precisely, text books underestimated the perception of businessmen, who were frequently linked to social conflict, accumulation of wealth and economic and social inequality. This loss of prestige in the eyes of young people has a very direct relation with the lack of business vocations and with the conformism of the young population.
Business support organised by public authorities tends to be of a poor standard. A recent research study undertaken by the University of Warwick in the UK showed that those companies who have received governmental 'support' are less likely to be successful than those who have relied on their own endeavours, ideas and resources.
Market regulation and policy making
The Commission's Economic Policy Guidelines for 2003 as well as the Joint Employment Report show that labour markets in Europe are highly regulated, though the degree of regulation differs notably in the member states. Labour markets in Europe are much stiffer than in the US and, according to figures in the Green paper, there is a difference of more than 20 points between the two in relation to the percentage of people that would prefer to work on their own. If we compare the European labour market with the American one, it is clear that Europe has a lack of flexibility in its labour market, both in supply and demand. This is harmful both for the businesses and the unemployed. To create more long-term jobs, administrative barriers, and in particular employment protection, need to be lowered on both European and national levels.
GEEF supports the Commission in its aim to motivate governments and not to relax their efforts for reform. As motivating as the 'Ten commandments for employment reform' may be, they must not lead to further regulation of the labour market. Labour markets must function as markets again where the principles of supply and demand are the governing rules.
Deregulation or even liberalisation of markets is essential for creating an entrepreneurial environment. GEEF welcomes the efforts the Commission and especially the DG Enterprise have undertaken so far. All EU policymakers should check whether regulations imposed on their markets are absolutely necessary and what the associated implications on businesses would be.