Has France got a problem with family businesses? Yes, says a top financier

France has some of the world’s best-known family businesses. Names like L’Oreal, LVMH and Hermes are among the most famous. But when it comes to the all-important mid-sized ones, which generate most of an economy’s growth and employment, France falls behind much of the rest of Europe. And their numbers are likely to fall further if the government does nothing to promote them, says a top French financier and business professor.

Cyrille Chevrillon, the founder of the investment group Groupe Chevrillon, and a professor at the Paris business school HEC, reckons family businesses have been so ignored by successive French governments that the sector faces an existential threat. “If we don’t act to promote these family businesses (the mid-sized ones), we are going to lose many of them and unemployment, already of a big problem in France, is going to go up even further,” Chevrillon told Family Capital.

The author of a book promoting the family business sector in France called Les 100,000 Familles, Chevrillon says there are only 3,500 independent “entreprises de taille intermédiaire”, or mid-sized companies, in the country. This compares with 15,000 in Germany, 13,000 in Italy, and 11,000 in Switzerland.

The attitude towards family businesses in France is generally negative, says Chevrillon. This attitude stems from the negative view put forward by post-World War Two left-leaning French governments that the country was governed by 200 families. “French values and culture place importance on things like our empire, civil service, and military,” says Chevrillon. “You look at the streets of Paris and many of them are named after generals. Our culture hasn’t been kind to the important role of family businesses in the economy.”

Chevrillon adds that the French obsession with equality has meant many of his fellow countrymen have been uncomfortable with inheritance. And this is reflected in the tough tax regime around inheritance and dividends in the country, arguably the most draconian in western Europe. “The French prefer large enterprises usually run by former government officials, whereas the family company was mainly regarded by our authorities as a source of tax.”

Chevrillon says his book Les 100,000 Familles, which calls for governments and society to do more to promote family businesses, has been pretty much ignored by French politicians. “I have sent my book to all the leading politicians in France and have got none, or scant responses from them. They don’t show any concern.”

Against this background, France has been a fertile hunting ground for private equity groups and foreign investors looking to buy family businesses, adds Chevrillon. He quotes a recent EY study that predicts 20% of the country’s mid-sized businesses will sell up in the next two years. And at least three-quarters of these sales will be to investment groups and foreign buyers, which aren’t going to preserve the family business culture.

Chevrillon says the demise of the mid-sized family business sector in France will have a devastating effect on the already stretched French economy. “Where these family businesses are based in the regions of France outside of Paris, they are so important to the local economy. There is a cluster of businesses that depend on these businesses. Who will buy the bread from the local boulangerie, use the local doctor, or support any of the local shops in the community if these businesses are closed?”