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Views and nightmares of Swiss family businesses

Carlo Marelli has been a member of the board and CEO of an internationally operating family business in Switzerland for many years and has gained extensive experience and knowledge, becoming a specialist in dealing with the specific issues that face family businesses.

Through its ongoing research surveys, Grant Thornton has examined family businesses in 26 countries around the world, exploring their views and concerns and providing a snapshot of over 8,700 business owners worldwide. The results in Switzerland show an unexpected overall consistency with the rest of the world, with only a few minor deviations.

Swiss family businesses: the facts
In the recent global survey, 540 Swiss businesses of various sizes were included. Of these businesses, 48% involved the first generation, 26% the second generation, while 11% of the companies were managed by the third generation. Companies in the second generation consisted of 70% sons or daughters, 28% grandchildren and 2% siblings of the founder.

Not surprisingly, most Swiss family business owners (82%) would like their sons and daughters to work in the business, yet many showed an unexpected tolerance towards their children's own career choice by specifically stating that their children could join the family business if they so desired.

Also, more than half the respondents (51%) gained prior work experience of between one and nine years before joining their own family business, with only a minority (5%) of owner-managers joining the business directly after school.

Views and nightmares in Switzerland
Questioned about the issue that elicits their greatest concern, the Swiss respondents expressed a grave worry about safeguarding the family wealth tied up in the business. Ranking number two  – differing from the global average – is the negative impact of divorce on their business.  This high rating in Switzerland is possibly influenced by the revised Marriage Law and Inheritance Rights, where wives benefit from a much stronger position than in the past, and any post-divorce financial settlement is of vital importance to the business.

Ranking as the third nightmare among Swiss owner-managers, although positioned only at number eight on a global level, was the question: "How would my life change if I were to expand the business?" Further analysis shows that this anxiety registered just a passing concern to larger companies. Although no clear pattern for this disparity emerged from the survey, many of the small- to medium-sized family businesses in Switzerland are involved with expansion issues in order to increase their profitability and secure their market position. However, the possible negative implications that might jeopardise their company's independence, loss of control plus capital funding of expansion projects, are sources of apprehension to most owner-managers.

The threat of a serious disagreement with a business partner ranks as number four among the worst fears of owner-managers in Switzerland and the worry of what they can do if their children do not perform well in the business takes fifth place. Again, here is evidence that the majority of Swiss respondents share the sentiments of owner-managers worldwide.

Relationships between the family and the business
The survey also covered issues involving the overlapping of interests between the family and the business, which resulted in both strong positive and negative reactions.

The three statements that elicited the strongest agreements worldwide were:

- family and business affairs should be kept separate (72% of the respondents agree with this statement);
- children who join the business should start at the bottom (68% agree); and
- it is important that children are interested in the products and markets of the business (63% agree).

The necessity of separating the affairs of the family and the business is also recognised in Switzerland and is paramount in the ranking, standing in first place. In second place among Swiss family businesses, although contrary to the global finding, is the belief that parents should retire when the children are ready to take over the business. A more detailed view indicates that this opinion is more evident in larger companies. On the global average, however, this statement takes a meaningless seventh place. Comparable to the international trend is the opinion that children who join the business should start at the bottom and work their way up the family business ladder.

Worldwide, the strongest disagreements were elicited by:

- sibling rivalry in the business is good for the business (80% disagree);
- children should receive shares only on the death of the previous generation (70% disagree); and
- family members are entitled to differential pay arrangements than the rest of the employees (58% disagree).

Further surprising results about Swiss family businesses are:

- 57% of the family businesses believe that there should be a criteria to decide how family members should join and leave the business; and
- only 37% of the respondents agreed with the statement that management successors should be chosen from the family (underlined by the fact that 49% of owner-managers are against having their children's education geared specifically towards the needs of the business).

The views and concerns of family businesses follow a global pattern.

The short-term profitability is not a paramount issue for family businesses, but maintaining family wealth and securing the sustainability of the business is. This goal is to be achieved by a careful handling of the family resources on the one hand and preventing personal conflicts with business partners and family members on the other. The Swiss respondents believe that willpower and competence are of utmost importance when engaging family members to take over management positions. Respondents generally agree that an objective remuneration policy for family members working in the business is essential.

Switzerland, however, does not follow the global trends in two instances. The first irregularity surrounds the general fears of Swiss respondents regarding the changes expected with an expansion of the business. It appears that Swiss family businesses are confronted with larger competitors, as well as larger clients at home and abroad. To deal with the issue of growth, Swiss owners try to secure their market position and to reach economies of scale. However, growth could cause problems concerning independence and finance, which will lead to sleepless nights.

The second disparity from the global average concerns the younger generation. On the global level, owners place marked emphasis on the importance of their children being interested in the products and the markets of the business. In Switzerland this issue played no major role (ranking only sixth on their list of nightmares); the issue of handing over the business carried much more weight. The reason for this significant shift may be linked to the the fact that Swiss family business founders are mostly members of the post-war generation. Thus, they are now at the threshold of handing the business over to the next generation.

To be able to face the challenges of the future, family businesses and their advisors need to address the specific issues facing the family and the business as an entity. In addition to the commercial aspects, issues concerning relationships, personal priorities, views and fears of the family members have to be taken into consideration. Only through a holistic approach can these problems be recognised and resolved, guaranteeing an effective solution for the mutual benefit of all parties concerned.

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