Unlocking the Potential of Family Businesses

The 5th International Family Firm Conference organized recently by the prestigious Corvinus University of Budapest, brought together experts and successful business leaders from Hungary and abroad to shed light on the immense potential of family businesses in Hungary and the challenges they are facing. The conference, where the main focus was HR activities, delved into the reasons why working for a family business is an attractive proposition, explored the keys to success for small and medium-sized enterprises (SMEs), and addressed the obstacles they must overcome to thrive in the international market. As the backbone of the Hungarian economy, family businesses are poised to make a significant impact, but they need to adapt and embrace change to realize their full potential.

The 5th International Family Firm Conference highlighted the immense potential of family businesses in Hungary's economy. While facing unique challenges, family businesses can thrive by embracing professionalism, modernizing HR practices, and fostering a culture of trust and innovation. With government support and the exchange of experiences between countries, Hungarian family businesses can position themselves higher up the value chain and contribute significantly to the country's economic growth. As they adapt, evolve, and inspire the next generation, family businesses are shaping the future of Hungary's business landscape. “When we talk about small and medium-sized enterprises (SMEs) in Hungary, most of them are actually family businesses. This also means that where there is family involved, people have a heartfelt interest in something. That obviously brings a different attitude compared to when the company is run by a manager, whose qualities may be equally good, but who is still an outsider in a sense,” said János Berényi, former Consul General with the rank of Ambassador to Germany.

Uphill battle for family businesses
A survey conducted in Germany showed that more than 80% of employees are of the opinion that family businesses provide a more favorable working environment than larger corporations do. Rainer Kirchdörfer, Chairman of Germany’s Stiftung Familienunternehmen, believes that employees in a family-owned company do not think in months or quarters, but rather in generations. “It's not all about profit in these family-owned companies. It's how to bring the companies to the next generation,” noted Kirchdörfer, who set up the foundation 20 years ago with his partner to bring the thought and the vision behind family-owned companies in Germany to the whole European Union. The foundation supports the Center for Family Business at Corvinus University in cooperation with the Péter Horváth Foundation. Hungarian family businesses encounter a set of unique challenges, dr. György Drótos, Associate Professor at Corvinus University, said at the conference. Their smaller size, limited visibility, and fewer financial opportunities put them at a disadvantage compared to larger counterparts. Furthermore, concerns raised by employees, such as limited career prospects, commuting difficulties, and conservative corporate culture, contribute to the struggle family businesses face when trying to attract quality workforce. Professor Drótos noted that Hungarian family businesses are also exposed to a less favorable economic environment for micro, small, and medium-sized enterprises (SMEs). With near-full employment and a demographic downturn, finding skilled workers becomes increasingly difficult. Furthermore, multinational corporations often lure away the talent pool, posing a threat to the growth and sustainability of family businesses. Rising wages are particularly burdensome for small family companies, making it challenging for them to compete in attracting skilled employees. "If you look at the outflow of labor, we are in deficit, with more skilled workers leaving than coming in. It doesn't help that the workforce is being siphoned off by the multinationals, by the mega-investments. From the perspective of family businesses, the jobs thus created are more of a threat," according to the expert.

The allure of multinationals
A survey presented by Professor Drótos revealed that more than 60% of family business leaders believed it is significantly more difficult to compete with multinational corporations for talent in the labor market. However, it's not solely external factors that hinder family businesses. Many of them prioritize finance and accounting while underestimating the importance of human resource (HR) management. The lack of emphasis on HR and the prevalence of family members in key positions undermine positive changes and perpetuate a perception that multinationals offer better working conditions and career opportunities. Dr. Éva Vajda, Adjunct Professor at Corvinus University, emphasized the need for family businesses to adapt their organizational cultures as they grow. Smaller family businesses excel at fostering a culture of mutual care and personalization, which can be compromised as formalization takes hold. The challenge lies in striking a balance between maintaining the family-like nature of the business while embracing the professionalism associated with multinational corporations. Building a strong corporate strategy, integrating HR practices, and providing a sense of belonging, developmental opportunities, and clear career paths can help retain talent and ensure long-term success.

Navigating generational change
One of the pressing issues facing Hungarian family businesses is the transition from one generation to the next. Unlike more developed economies with established traditions of handing down family businesses, Hungary lacks such a framework. László Palkovics, President of the Széchenyi István University Foundation, stressed the significance of this problem, as nearly four out of ten Hungarian companies are grappling with generational change. Sharing experiences and knowledge between German companies, with their long-standing family business traditions, and Hungarian businesses is crucial for a successful transition.

FAMILY BUSINESS IS A QUALITY
Interview with Rainer Kirchdörfer, Chairman of the Stiftung Familienunternehmen

How did the idea of the foundation come about?
My partner and I set up this foundation 20 years ago. Our purpose was to bring the thought and the vision behind family-owned companies in Germany to the whole European Union. We thought – and are still thinking – that doing business as a family in a family-owned company is totally different from business made by stock-listed international globalized companies. In a family- owned company, you are thinking not in months or in quarters, you are thinking in generations. This long-term thinking makes a difference. It's not all about profit in these family-owned companies. It's how to bring the companies to the next generation. It's a tight connection to the employees what has made family-owned companies so successful. We have advised many family-owned companies over these two decades and they said “look, we are successful, we are the most successful kind of companies here in Germany but the newspapers and other media only presents the negative side of the family. When there is a problem in the family, the Bild Zeitung and FAZ is full of information and they don't bring out the positive side.” We are here to do something for the reputation of family-owned businesses. That was the purpose of our founding.

How successful has it been spreading your ideas in the European Union?
Let's start with Germany. I think we have been one of the most – perhaps, the most – successful organization founded in the last 20 years for bringing forward this form of doing business. We started with about 20 or 30 business owners gathering in a living room of one of the owners where we presented our vision, our idea. Today, we have about 700 family-owned companies who support the foundation, and the average size of these supporting firms is about 4,000 employees. So, it's a big circle of family businesses and our purpose is to research the specifics of family businesses. Worldwide, we look at the differences in how family businesses are doing in 21 countries including Germany, Japan, the United States, the United Kingdom and others. Thus, we have more than 200 studies concerning different issues and items, and we have all these studies made available on our website free of charge.

Is it possible to implement the German model in other countries?
We have an office in Brussels, and we have this department here in Corvinus University, the Center for Family Business, a small co-investment with the Péter Horváth Foundation. I believe that when you look at this issue, first you have a look at the families, and then you have a look on the different situations for family businesses in the different countries. When it comes to entrepreneurial families, the problems and the challenges are the same in Europe. It's the same research we do concerning Hungarian families as we do with French families or German families, because the problems which the families are bringing to the companies are the same. There are problems in between family members, there are problems with family who live abroad, there are problems the family has with an investment in a family business compared with possible investments in the stock market, for example. We research these problems, we make studies on how to solve them and we make proposals to the government on what the framework of business needs to be to resolve these problems. So that's the same all over the European Union. However, when it comes to the specific markets businesses are operating in, the situation is totally different. The Hungarian market is totally different from the German market for family-owned businesses. Still, when we have the chance, we bring to mind that family business is a quality, not a question of science.

How can your foundation help in putting all this into practice?
It is a difficult question. There are organizations interested in the science part only. They are doing research, they are working with universities, they bring out studies, and only scholars are reading these studies. Our approach is totally different, the most important part of our organization are the entrepreneurs. We have 60 entrepreneurs on the curatorium, or advisory board, of our foundation. These people are owners of big companies, with many of the big brands in Germany represented. The curatorium also includes the representatives of smaller companies as well as researchers. For example, the former president of the Fraunhofer Institute is a member of this body, which also includes some former politicians. Together, we establish what the long-lasting questions and problems for family-owned companies are. After having extrapolated these problems, we go into research and then we make a study and then we put these studies into practice. The transfer happens through conferences, but also face-to-face discussions with scientists, with entrepreneurs, and also with politicians. Thus, I believe that the transformation between theory and practice in our foundation is very good.

FAMILY BUSINESS: A HEARTFELT INTEREST

János Berényi's connection to Stiftung Familienunternehmen dates back to the years between 2015 and 2021, when he was Consul General with the rank of Ambassador in Stuttgart.
"In this position, I have, of course, had the pleasure of meeting top leaders of the German economy, including Rainer Kirchdörfer, who is the current Chairman of the Stiftung Familienunternehmen. I also had excellent relations with his predecessor, Professor Brun-Hagen Hennerkes.
They asked me to help them, through the activities of the Center for Family Businesses, which they also support financially at Corvinus University, to further impress upon people's minds that when we talk about small and medium-sized enterprises in Hungary, most of them are actually family businesses. This also means that where there is family involved, people have a heartfelt interest in something. That obviously brings a different attitude compared to when the company is run by a manager, whose qualities may be equally good, but who is still an outsider in a sense.
This feeling and experience, which has been there for hundreds of years, is harnessed in Germany by family businesses, which have grown out of this size and are now among the largest. The foundation wants to transfer these experiences and best practices within the framework of Corvinus University. In Hungary, unfortunately, 40 years of communism did not allow this kind of organizational development. And after this period, it was too late to start."