Happier family businesses are controlled by one family, not branches of them

As family businesses move to one generation to the next, family ownership is increasingly likely to be based on different branches of the family, but this isn’t leading to better businesses, nor happier families.

Research by KPMG and Zeppelin University in Germany found a clear trend towards family control of businesses moving towards shareholder circles that organise around branches, and away from single-family ownership. But the research also found problems with this trend towards branch ownership for both the business and the family.

Control through branch ownership is usually organised by each branch making a decision and each branch deciding on who’s going to be their representative. Under this structure, shareholders can only sell shares to others within their branch. But the one family, or extended family ownership structure functions as one unit and all members of the family think as one family. One leader is chosen to be the representative of the family for the business and decisions are made through the majority, not through the branches.

Alexander Koeberle-Schmid, a family business specialist and business coach at KPMG in Germany and one of the authors of the report, says that what typically happens when family businesses grow and move from one generation to the next is that they tend to organise themselves as branches.

“But looking at this trend through the prism of family governance, it becomes evident that the cohesion of families that classify and organize themselves as one, or an extended family is significantly higher than that for branch organizations,” he says. Koeberle-Schmid adds that this is because the one family model is more likely to instill thinking that encourage family solidarity.

The study also found that members within the one, or extended family structure are more likely to be happier, with more than 90% of the families under this model of ownership saying they are part of a strong community, compared with 77% for the branch ownership families. Family members within the one, or extended family structure also felt they had more opportunity to actively participate in the company, or the family; whereas members of branch family structures felt less engaged with the business they own.

“The attachment to the business is higher when ownership is organised through one family, and the cohesion within the family is also higher,” says Koeberle-Schmid. “From a business perspective, you always want a family to be unified.”

For the research, KPMG spoke to 85 family businesses of varying sizes across Germany.