Czech family companies in the spotlight

Photo: Carl Dwyer / freeimages

No less than three government ministers attended an international conference about the role and status of Czech family firms this week. As well as the conference itself, interest has been sparked by the anomalous position of family firms in the country amid new moves to give them a clearer and higher profile role as many face up to crucial decisions.

Karel Havliček,  photo: Filip Jandourek
Family firms at the crossroads, that was the title of the conference hosted by the country’s most prestigious business school, Prague’s University of Economics. And it was not by chance that the university was involved. It has launched a so-called Centre for Family Business, to promote teaching, research, consulting and awareness of many of the specific problems facing family firms. The university says that it’s initiative mirrors a growing interest across Central Europe in family firms.

And there’s a simple but compelling reason for this spike in interest. After being wiped out by around four decades of communism, many Czech family firms started up again in the heady months and years following the 1989 Velvet Revolution. But fast forward around 25 years and many of those founding fathers or mothers are now facing the rather daunting prospect of handing over the family firm with sons or daughters maybe in the frontline for the succession.

Karel Havliček is the chairman of the Association of Small and Medium Sized Enterprises and Crafts of the Czech Republic, which was one of the main organisers of the conference. And the issue of resolving the succession was one that he highlighted:

“It is now becoming a very interesting moment for the business environment because the so-called older generation has been managing the companies and the new generation is coming and it is a question how they will continue. That is also the role of our association, to prepare the playing field for family businesses and also for young entrepreneurs and for the children of the older entrepreneurs which would like to continue in the business.”

“This is quite simple because we need special, or specific, support for family businesses.”

Unlike some European countries, the Czech Republic at the moment makes no special provisions for family firms, and the association feels that this should be remedied urgently.

Other European countries have already woken up to the importance of family firms. In Switzerland, for example, the tax perks and holidays that used to favour big multinationals have been ironed out with a 13 percent standard tax rate now imposed across the board. In Sweden, rules that made it almost impossible to hand over family firms to the third generation have been quashed and family firms are now flourishing. And in Germany, taxes have also been cut for family firms.

As a first step in the right direction, the Association of Small and Medium Sized Enterprises and Crafts is seeking to get an agreed definition of family firms enshrined in Czech law. That, according to Karel Havliček would pave the way for follow up measures.

“This is quite simple because we need special, or specific, support for family businesses. In Europe as a whole, the small businesses as family businesses are generating more than 50 percent of the GDP. In the Czech Republic, they are generating only 30 percent of the GDP. We have no statistics and we really need statistics and numbers. We have to know more about the level of family businesses and we need the Czech government to support family businesses with specific structural funds, European funds, and national funds.”

Photo: Carl Dwyer / freeimages
And while the raft of Czech ministers on display, finance minister Andrej Babiš; minister for industry and trade Jan Mládek; and minister for regional development Karla Šlechtová, were willing to support the idea of a new legal definition of family businesses in the Czech Republic, they were a lot more wary of the support that might follow. Andrej Babiš, himself the founder of the biggest agro-chemical group in the country, parts of which have been spun off to family members, admitted that he was in a conflict of interest position on the issue. Other ministers pointed out that this will be a question for the next government rather than this one giving the fact that parliamentary elections are due next Autumn and there is virtually no chance of new legislation being introduced and passed now.

But Prague’s University of Economics is seeking to fill a gap and redress a generally recognized business imbalance caused by the focus on big multinationals with the launch of its own family business centre. Jiří Hnilica is the director of the new centre and explained its background and context:

“Your boss maybe your father…that’s it. It’s simply about the family, the family complexity and family issues and the business issues that merge into one.”

“We have a very strong network of business schools where family business centres are already established, like Esade, Bocconi, Vienna University of Economics and Business. We have a space here, not only within the university but also within the economy. The aim of the Family Business Centre is to get together academia, the companies, and of course, the governmental institutions to increase the competitiveness of family businesses.”

Family businesses are generally reckoned to have a lot going for them. They are reckoned to be highly flexible and able to react fast to a changing environment thanks largely to their uncomplicated decision making structure. They often build strong relationships with their customers and are deeply rooted in the communities where they belong. That means they are likely to be a permanent part of the business landscape for a long time to come and not temporary feature taking the tax breaks and then disappearing somewhere else. They also have the advantage of often being economically counter cyclical, doing slightly worse in the really good times but weathering the bad times a lot better than the bigger companies. But there are downsides as well. It’s often not a case of not taking the work back home with you, because for family firms the co-workers and work accompanies them almost all the time.

Jiří Hnilica,  photo: archive of Prague’s University of Economics
Sometimes, family firms are over cautious and wary of taking on debt. And the founders can very often struggle with the succession issue, often preferring not to bring it up at all until it is too late for an efficient handover or being fixated on finding a replacement that is almost a clone of themselves. But the perhaps incestuous relationship between family and firm is perhaps the most difficult to manage. Jiří Hnilica again:

“Your boss maybe your father…that’s it. It’s simply about the family, the family complexity and family issues and the business issues that merge into one. So, you have fathers, mothers, sisters, within the family. The non-family members of the company look at you, you look at them, and this brings this complexity. It’s not that easy to fire your son and if your son intends to work at your company what do you do? Those are the facts and it is a question of how to harmonise the vision of the family and the vision of the company so that both support each other and they don’t go against each other.”

But the new centre is looking to a fairly wide recruitment pool taking in students and mature students with and without family business backgrounds. But bridging the generation gap is one of the major priorities.

“We will have a special course for family business strategies and we will be opening a so-called minor specialization for family businesses. At the university we have more than 15,000 students, so we have a cohort from which we can select from, and of course, our target are the successors. So there are the students that are the successors and the students that are interested in management consulting in this area or simply interested in family businesses as such are also welcome. But successors, they are our primary target.”

“Successors, they are our primary target.”

And it’s generally admitted that for many family firms the succession can be a much more difficult obstacle to overcome than founding the company in the first place.

“The owners, mostly the founders of the companies, are very good businessmen – also maybe very good fathers and mothers – but they have never experienced how to give the company to their children and how not to make the successor generation angry and how to simply carry on with the business.