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Family Businesses in Germany: Significance and Structure

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Business Review

Family Businesses in Germany: Significance and Structure

Sabine B. Klein
Family Business Review 2000 13: 157
DOI: 10.1111/j.1741-6248.2000.00157.x

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 ARTICLES

Family Businesses in Germany:

Significance and Structure
Sabine B. Klein
This paper shows the relevance of family businesses to the German economy and their structure
with respect to ownership, governance, and management. The data show that ownership, rather
than governance or management, is the key to differentiating family from nonfamily businesses.
As governance and management are more complementary to each other, families in German fam-
ily businesses seek influence either through family members on the supervisory board or on the
management board. The empirical data from this study is based on a clear definition of family
business and a random sample, and it provides the basis for further investigation into German
family businesses.

Introduction nesses are considered to be a significant and im-

The literature, as well as consulting and train-
ing, on family businesses in Germany mainly
takes a succession point of view. Politicians and
researchers focus on succession in family busi-
nesses and the problems that may arise from it.
In 1989, Albach and Freund stated that disconti-
nuity in family businesses may cause serious prob-
lems for the German economy (Albach &
Freund, 1989, p. 19). Zucker and Borwick (1992)
estimate that only 50% of family businesses make
it to the second generation. Recent data from
Schröer and Freund, based on tax statistics and
extrapolations, state that 321,837 of 1,554,766
family businesses in Germany will be passed down
to the next generation within the next 5 years
(Schröer & Freund, 1999, p. 17).
Family business facts are classified as “based
on actual empirical research which uses a precise
definition of a family business” (Shanker & As-
trachan, 1996, p. 108). Shanker and Astrachan
classify the family business statistics into four cat-
egories: so-called “street lore” statistics, educated
estimations, extrapolations based on known data
or small samples, and family business facts.
There are no facts concerning family busi-
ness and the German economy (Shanker & As-
trachan, 1996, p. 108). Although family busi-
portant part of the German economy (Freund,
Kayser, & Schröer, 1995), the data concerning
German family business is rather poor compared
to those of other countries (Welsch, 1991). The
data available so far is deduced from tax statistics
(Freund, Kayser, & Schroer, 1995), estimated
(Reidel, 1994), or based on a specific approach
related to a hypothesis (for example, Goehler,
1993; Gerke-Holzhäuer, 1996) rather than a rep-
resentative approach.
Because there is no reliable information con-
cerning the number and structure of family busi-
nesses in Germany, questions about the significance
and structure of German family businesses cannot
be answered satisfactorily. It is impossible to com-
pare family and nonfamily businesses in Germany
or German and non-German family business.
Any further investigation into German fam-
ily businesses requires knowing how many Ger-
man businesses are family businesses, their sizes,
how many people they employ, which generation
is in charge, how closely they are held, and how
they are governed and managed - as well as a pre-
cise definition of family business. “One very basic
and foundational problem concerns defining ex-
actly what is meant by the term family business”
(Litz, 1995, p. 71).

FAMILY BUSINESS REVIEW, vol. XIII, no. 3, September 2000 © Family Firm Institute, Inc. 157

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Klein
The Definition of a Family Business. When
comparing data, which definition of “family busi-
ness” you use is critical (Welsch, 1991). Using
different definitions with the same database pro-
duces widely varying results (Shanker & Astra-
chan, 1996). According to Westhead, Cowling,
and Storey (1997, p. 17), despite one set of data,
the percentage of family businesses in the UK
ranges from 15% to 78.5%, depending on the
criteria used for being a family business.
Shanker & Astrachan (1996, p. 109) came
up with three groups of family business defini-
tions: a broad one (effective control of strategic
direction, intended to remain in family), a middle
one (founder/descendants run company, legal
control of voting stock), and a narrow one (mul-
tiple generations, family directly involved in run-
ning and owning, more than one member of
owning family having significant management
responsibility).
The classification of family business defini-
tions makes it possible to compare even data that
is based on different types of definitions provided
the definitions are modular and the data allow
working out figures with different definitions.
Modular in this respect means that the different
parts of the definitions (e.g., ownership, control,
and management) are defined separately and
empirical data illustrate these different modules.
This classification will help to make the defini-
tion more transparent.
The decision whether to classify a business
as a family business should be a function of the
data based on the definition and not of what a
researcher, company, and/or family members
decide. In addition, the definition has to encom-
pass all types of family businesses and draw a clear
boundary between family and nonfamily busi-
nesses. Beyond that, there must be the possibil-
ity to classify different types of family businesses.
The main problem in defining family busi-
ness is the broad variation of the examined sub-
ject. Some authors argue that a sole-proprietor-
ship is a type of family business (Alcorn, 1982;
Barnes & Hershon, 1976). Under the heading of
family businesses are small, medium, and large
companies; family-owned, family-managed, fam-
158
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ily-controlled businesses subsumed; and founder
companies that are “potential family businesses”
but clearly not nonfamily businesses.
“A less restrictive definition permits a more
restrictive definition if desired and yet allows
empirical assessment of the effect of the type and
degree of family involvement” (Winter,
Fitzgerald, Heck, Haynes, & Danes, 1998, p.
242). If one agrees that in every economy the total
amount of privately held companies can be clas-
sified as either family or nonfamily businesses,
then the family influence on the business seems
to be the distinguishing feature of whether or not
a business is defined as a family business. Whether
this influence derives from ownership, control,
or management is the defining feature of a fam-
ily business.
The research on German family businesses,
therefore, is based on the following (broad) defi-
nition:
A family business is a company that is
influenced by one or more families in a
substantial way. A family is defined as a
group of people who are descendants of
one couple and their in-laws as well as
the couple itself. Influence in a substan-
tial way is considered if the family ei-
ther owns the complete stock or, if not,
the lack of influence in ownership is bal-
anced through either influence through
corporate governance (percentage of
seats in the Aufsichtsrat, Beirat, or oth-
ers held by family members) or influ-
ence through management (percentage
of family members in the top manage-
ment team). For a business to be a fam-
ily business, some shares must be held
within the family.
( SFam ) ( MoSBFam ) (MoMBFam )
If SFam > 0 SFI: ( Stotal ) + ( MoSBtotal ) + (MoMBTotal) ≥ 1
S = stock; SFI = substantial family influence;
MoMB = members of management board;
MoSB = members of supervisory board;
Fam = family member
 Family Businesses in Germany: Significance and Structure

Table 1. Structure of the Sample and Number of Family Businesses in Germany

1) (2) (3) (4) (5) (6)
No. of FBs2 FBs2 (Shanker FBs in
Turnover in Companies1 (Klein df.) & Astrachan Germany
Mill DM in Germany Total 2 middle df.) (Klein df.)
2-10 211,758 243 163 (= 67.08%) 142 (= 58.4%) 142,047
10-50 50,084 226 155 (= 68.58%) 141 (= 62.4%) 34,348
50-100 6,388 162 104 (= 64.20%) 93 (= 57.4%) 4,101
100-250 3,700 166 84 (= 50.60%) 67 (= 40.4%) 1,872
250-500 90 42 (= 46.67%) 32 (= 35.6%)
500-1,000 2,209 42 12 (= 28.57%) 9 (= 21.4%) 807
>1,000 87 26 (= 29.89%) 18 (= 20.7%)
Total 274,139 1016 586 (= 58.09%) 502 (= 49.4%) 183,175

1
All German companies that are registered in the German Trade Register (register of companies) with a
turnover of >2 million DM in 1995.
2
Companies in the sample.
3
The omitted data are not provided by the German Yearbook, which only gives data on companies with >250
mill. DM turnover. For the purposes of this study, I chose to subdivide this category because companies of
250-500 mill. DM turnover are different than companies with >1 bill. DM turnover.

The SFI indicates a family’s influence on
the business through ownership, management,
and/or governance. This article asks for a SFI
of at least 1 or more to classify a business as a
family business.
Data Collection, Structure of the
Sample, and Basic Results
This study posed the following questions: How
many family businesses compared to nonfamily
businesses do we have in Germany? Are there
differences between family businesses and
nonfamily businesses concerning age, turnover,
employees, corporate governance, and so on?
What types of family businesses do we have in
Germany with respect to ownership structure,
generation, size, etc.? Are there differences be-
tween German and non-German family busi-
nesses?
To obtain representative data, a question-
naire was sent in 1996-1997 to 6,000 companies
registered in the German Trade Register with a
turnover of at least 2 million DM (in 1995). The
companies were chosen as a random sample from
the Hoppenstedt data bank, which encompasses
about 98% of all registered companies in Ger-
many. The sample was stratified disproportion-
ately with respect to turnover for the large sec-
tion of small companies and the small number of
big companies. From each of the five turnover
classes the Statistical Yearbook of Germany pro-
vides, 1,200 companies were chosen at random
(see Table 1). This was necessary to obtain a suf-
ficient sample size of bigger family businesses for
purposes of analysis. From the 6,000 companies
questioned, 1,085 returned valuable information.
The questionnaire consisted of four modules:
a general section, an ownership section, a corpo-
rate governance section, and a management sec-
tion (see Appendix 1). The questionnaire pur-
posely did not include a direct question on
whether the business is considered to be a family
business.
The data were analyzed using SPSS (Statis-
tical Package for Social Sciences, a special soft-
ware designed to analyze empirical data) on the
basis of the above-given definition, but can also
be used with other definitions, such as Shanker
& Astrachan’s (1996), Stoy Hayward’s (1989),

159

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Klein
Westhead, Cowling, and Storey’s (1997), and oth-
ers’ insofar as they are quantitative definitions.
Table 1 shows the structure of the sample
and the number of family businesses in Germany
according to different definitions: the one given
in this article, which does not require manage-
ment involvement but substantial family influ-
ence, and the one that Shanker & Astrachan
(1996, p. 109) give as a so-called middle defini-
tion, which requires not only family influence but
also involvement of the family in management.
The number of all German companies
shown in column (2) comes from the Statistical
Yearbook of Germany (1995, p. 536). Column
(3) shows how many companies in the turnover
classes answered the questionnaire. Due to the
lack of differentiation in the Statistical Yearbook
of Germany concerning the turnover class with
more than 250 million DM turnover, the differ-
entiation could be made only after receiving the
questionnaires. This lack of differentiation is also
the reason why in columns (2) and (6) the three
highest turnover classes are counted as one.
Columns (4) and (5) give the numbers and per-
centages of family business in the sample based
on two different definitions - this paper’s and
Shanker & Astrachan’s middle definition (1996).
To require management involvement of the fam-
ily reduces the number of family business by
about 10%. Column (6) gives the total number
of family businesses per turnover class in Ger-
many based on this paper’s definition.
The remainder of the paper uses the broader
definition that includes family-owned but not
family-managed businesses in the group of all
family businesses. In Germany, nearly 60% of all
companies are family businesses. The percent-
age differs with the size of the company. Two-
Table 2. Comparison of the Percentage of Family Businesses in
European Countries
German FBs Spanish FBs German FBs
Broad definition Broad definition Middle definition
(turnover) (turnover) (turnover)
58% 71% 49%
160
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thirds of companies with a turnover from 2 mil-
lion up to 100 million DM are family businesses,
nearly 50% of the companies with a turnover
from 100 million up to 500 million DM are fam-
ily businesses, and nearly 30% of the companies
with a turnover of more than 500 million DM
are family businesses.
Comparing the German data with other
countries’ data requires noting the definitions
that the different countries use. In this paper, the
German data is compared to data of countries
where the given definition can be classified in
the Shanker & Astrachan framework (1996). Ac-
cordingly, there are fewer family businesses in
Germany than in Spain (Gallo & Garcia Pont,
1988), the UK (Leach, Kenway-Smith, Hart,
Morris, Ainsworth, Beterlsen, Iraqi, Pasari, 1990),
and the Netherlands (Flören, 1998).
Flören (1998, p. 123) and Leach et al. (1990,
p. 3) define a family business in the more restric-
tive way (middle definition), asking at least for a
significant proportion of top management to be
drawn from one family, whereas Gallo and Garcia
Pont (1988) refer only to influence through own-
ership of voting shares — more than 10% and
more shares than the next three shareholders
(broad definition). Due to the broad definition
and the modular structure of the questionnaire,
it is possible to match the data from the German
sample with those of the other countries. To do
so, the data from all of the countries were ana-
lyzed the same way. Table 2 shows the results of
the pairwise comparison.
Differing definitions and different sampling
criteria severely compromise the comparability
of the figures in Table 2. Nevertheless, the num-
bers indicate the importance of family businesses
in different European countries.
British FBs German FBs Dutch FBs
Middle definition Middle definition Middle definition
(turnover) (employees) (employees)
76% 49% 74%

Figure 1. Generation in Charge in European Family Businesses
80%
70%
60%
Percentage of FB
50%
40%
30%
20%
10%
0%
Germany
Although Gallo and Garcia Pont (1988) used
a broad definition, there seem to be fewer family
businesses in Spain than in the UK and the Neth-
erlands. The reason for this may lie in the sample
itself because Gallo and Garcia Pont generated
it randomly from a universe containing 80% of
all Spanish companies, whereas Leach et al.
(1990) and Flören (1998) generated their data
from nonrepresentative populations.
The findings clearly indicate fewer family
businesses in Germany than in the other three
European countries. Goehler (1993) states that
family businesses have clear advantages over
nonfamily businesses in less developed markets
than in markets in their later phases of the life
cycle. Moreover, family businesses also have ad-
vantages in the group of small and medium en-
terprises because they do not have to separate
ownership and management and, therefore, do
not incur as high transaction costs as nonfamily
businesses (Schmidt, 1995, p.37).
A highly developed economy with a high
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Family Businesses in Germany: Significance and Structure
1st
2nd
3rd
4th or higher
UK Netherlands Spain
percentage of large and old companies, as found
in Germany, does not, therefore, provide the
same chances for family businesses as does, for
example, the Spanish economy. On average,
Spanish family businesses are younger and
smaller than German ones. Seventy-two percent
of Spanish family businesses had a turnover of
less than 1,000 million PTA (Pesetas - ca. 10
million DM) (Gallo & Garcia Pont, 1988),
whereas only 67% of the German family busi-
nesses had a turnover of up to 10 million DM.
Although the reference years (1987 in Spain, 1995
in Germany) differ, the data suggest differences
in the family business structures in both coun-
tries. The difference among the German and
Dutch and British family business percentages
seems to be even bigger. However, given the un-
certainty of the different data, a matched sample
with a corresponding questionnaire should be
carried out to evaluate the findings.
Whereas 75% of Spanish family businesses
are in the founder generation, only 39% of the
161
Klein
Figure 2. Number of family Businesses and Nonfamily Businessess in
Germany According to Founding Period (Projection Based on Sample)
35,000
30,000
No. of Businesses
25,000
20,000
15,000
10,000
5,000
0
Until 1871-
1870 1913
German family businesses are in the first gen-
eration. Compared to the Netherlands and Spain,
there is a remarkable number of family businesses
in Germany and the UK that are held within the
fourth or a later generation (see Figure 1). The
Spanish situation might be based on the end of
the Franco regime in 1975. With the death of
General Franco in November 1975, the consti-
tution in 1978, and the membership in the EC in
1986, Spain was no longer isolated from West-
ern Europe. Entrepreneurship and initiative be-
came increasingly normal and desirable.
Structure of Family and Nonfamily
Businesses in Germany
Table 1 above shows that around 183,000 com-
panies of the 274,000 German companies regis-
tered in the German Trade Register with a turn-
over in excess of 2 million DM turnover in 1995
are family businesses. With increasing turnover,
the percentage of family businesses decreases.
Therefore, on average, family businesses experi-
ence less turnover than nonfamily businesses (-
162
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Number NFB
Number FB
1914- 1946- 1960- 1970- 1980- 1990-
1945 1959 1969 1979 1989 1996
Founded Between
.253) (see Appendix 2).
Family businesses employ fewer people on
average than nonfamily businesses (-.185, (see
Appendix 3). The correlation between turnover
classes and employee classes of family and
nonfamily businesses in the sample is nearly the
same (.833 nonfamily businesses and .840 family
businesses) (see Appendix 4). The relevant dif-
ference between German family businesses and
nonfamily businesses is the size - whether mea-
sured in turnover or in employees. So, the first
results are that there are more family businesses
in Germany than nonfamily businesses in total
number and that the family businesses are on
average smaller than the nonfamily businesses.
One reason for these first results might be
that growing companies need more capital and,
therefore, sell stock to nonfamily members,
thereby becoming nonfamily businesses. But if
that is correct, then family businesses should, on
average, be younger and nonfamily businesses
older. However, this is not the case. German fam-
ily businesses are older than nonfamily businesses
(-.102) (see Appendix 5).
 Family Businesses in Germany: Significance and Structure
Of the businesses that were founded up to
1960 and were still around in 1996-1997, more
than 70% are still family businesses (see Appen-
dix 6). One can assume that nearly all businesses
were founded as family businesses until the
Weimarer Republik, when the idea of
nonpersonal liability became more accepted.
Many large companies that are today nonfamily
businesses, like Siemens or Daimler-Chrysler,
were founded and run as family businesses in their
early years. Some family businesses disappear
because the family no longer maintains their in-
fluence, they are sold, or they fail to meet the
market requirements and are shut down.
But new family businesses are founded and
there are still more family businesses founded
than nonfamily businesses. So the question
whether family businesses are a thing of the past
(Aronoff & Ward, 1995) in Germany can be
clearly answered, “No.”
Moreover, Figure 2 indicates that many fam-
ily businesses have managed to pass down the
torch. Being a family business obviously was not
only a burden but also an opportunity.
After the reunification of Germany in 1989-
1990, the pattern changed. One can assume that
only a few businesses founded after the reunifi-
cation have changed their status from family to
nonfamily business so far because they have not
existed for a long time. The more distant the
founding period is from the date of answering
the questionnaire, the more companies might
have changed from family to nonfamily busi-
nesses by selling stock partly or as a whole to
nonfamily members or other companies.
Following the reunification, nearly as many
nonfamily businesses were founded as family
businesses (see Figure 2). One reason might be
that other companies founded many businesses
in the so-called “Neuen Bundesländern” (new
countries). Another reason might be that
founders are more conscious about reducing li-
ability by taking in other companies or venture
capital firms as (minority) shareholders. More-
over, a lot of companies in the Neuen
Bundesländer were refounded by management
buyouts or buyins.
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There is also a sociological explanation for
the high percentage of nonfamily businesses
founded after 1989-1990. A family business needs
a family to support it, and where you do not find
a strong sense of family you will not find as many
strong family businesses. In East Germany, the
former German Democratic Republic, family was
not as important as in the western part of Ger-
many. In the “Grundgesetz” of the
Bundesrepublik Deutschland (constitution), the
family is protected; however, the German Demo-
cratic Republic was a socialist country where fam-
ily was not a value but more or less a relict of
former times.
Finally, in Germany there is the saying, “One
family business, three generations.” Today, some
new businesses (for example, the software busi-
ness) are founded by a group of specialists. It takes
some time to decide whether only a few partners
remain and to start to build the company for the
next generation or whether to spread the capital
more widely by going public or by offering stock
options for employees, etc. Also, today some new
businesses are founded and supported by a fam-
ily and then sold after a short time. The family
gets engaged in something else, often founding
a new business. So on one hand, the “One busi-
ness, three generation” pattern is changing to-
ward a “One generation, three businesses” pat-
tern, whereas, on the other hand, the support of
the family when founding a business is in some
cases replaced by the support of a group of friends
and/or colleagues. A new field of family business
research will explore this new framework, its ac-
companying problems and opportunities, the in-
fluence of the family on the fast-growing busi-
ness that is not intended to be kept within the
family, and the influence of the business on the
family and the future of the family.
Ownership Structure of German
Family Businesses
Ownership is one of the criteria that defines a
business as a family versus a nonfamily business.
Early studies of family businesses are based on
a two-circle idea: the business, on one hand, and
163
Klein
Figure 3. How Much Stock Does the Family Own in German Family
Businesses (Based on Sample, See Appendix 7)
In 1% of all FBs
In 9% of all FBs
In 11% of all FBs
In 79% of all FBs
the family, on the other (Donnelly, 1964; Danco,
1975; Barnes & Hershon, 1976). Later studies
show a more differentiated picture of family
businesses. The two-circle model became a
three-circle one (Tagiuri & Davis, 1982), includ-
ing ownership as a separate circle. “Even more
than the family name on the door or the num-
ber of relatives in top management, it is family
ownership that defines the family business”
(Gersick, Davis, McCollom-Hampton, &
Lansberg, 1997).
The forms of ownership differ from busi-
ness to business, from stages of the family, as well
as from stages of the company, the country, etc.
The data in Figure 3 show the organization of
family business ownership in Germany. Owner-
ship in German family businesses is very closely
held. Although this empirical study uses a broad
definition of family business, in 80% of all Ger-
man family businesses, the family completely
owns the business.
Figure 3 shows that in only 1% of German
family businesses does the family own less than
half of the shares. In 9% of all German family
businesses, the family holds a so-called simple
majority, in 11% a qualified majority, and in 79%
the family owns all of the stock. Although own-
ership was not the only criterion through which
164
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25%-49.9% Stock Owned by the Family
50%-74.9% Stock Owned by the Family
75%-99.9% Stock Owned by the Family
100% Stock Owned by the Family
the family could influence the company, it is the
relevant one. In Germany, the average percent-
age of stock in the family business that the fam-
ily owns is 95%. In nonfamily businesses, where
the family still owns some shares, they own, on
average, 12% of the shares.
Figure 4 shows that there are hardly any
businesses with a substantial family influence (SFI
>1, as defined above) in which the family owns
less than 50% of the stock, but there are some
businesses in which the family owns more than
50% of the stock without substantial family in-
fluence.
There are only 10 companies with more than
100 million DM turnover with substantial fam-
ily influence, although the families do not own
half of the stock. Most of the companies with less
than 50% stock owned by the family that are still
family businesses make less than 10 million DM
turnover per year. It is interesting to find family
businesses in which the family holds less than
50% of the stock only in the first and second
generations.
Compared to nonfamily businesses, there are
fewer family businesses with only one stock-
holder, but more with two and up to 10 stock-
holders. On average, nonfamily businesses have
more stockholders mainly because there are more
 Family Businesses in Germany: Significance and Structure

Figure 4. Percentage of Family-Owned Stock in

German Family Businesses and Nonfamily Businesses
Number of Companies in the Sample

500
450
400
350
300 FB
250 NFB
200
150
100
50
0
0%-9.9% 10%-24.9% 25%-49.9% 50%-74.9% 75%-99.9% 100%

Percentage of Stock Owned by the Family

Table 3. Percentage of Stock that the Family Owns in Different Sizes of

Companies (Turnover in Million DM)
Turnover 100% Stock 75%-99% Stock 50%-74% Stock 10%-49% Stock Total
2-10 108,472 10,331 13,774 2,583 135,160
10-50 26,642 3,303 2,862 661 33,467
50-100 3,391 473 197 39 4,101
100-250 1,421 248 203 0 1,872
<250 558 159 70 10 797
Total 140,484 14,514 17,106 3,293 175,397

nonfamily businesses than family businesses with bers start to sell their (small) stock owned or
more than 100 stockholders (see Figure 5). whether because by selling stock the number of
Family businesses show a negative correla- stockholders increases. In either case, what
tion (-.263 on a 0.01 level Pearson correlation) Mittelsten-Scheid (1985) says about family busi-
(see Appendix 9) between the number of stock- nesses in their later stages may be true - namely,
holders and the percentage of stock that the fam- that with the increasing number of family mem-
ily owns. The more stockholders there are, the bers, there is a tendency for distance to increase
less capital remains in the family, as illustrated in between family members as well as between fam-
Figure 6. It is not possible to decide based on ily members and the family business. According
this data whether the number of stockholders to Mittelsten-Scheid, the management of the
increases first and the percentage of stock owned family becomes one of the most critical tasks in
by the family later drops because family mem- this stage to keep the business in the family and

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Klein

Figure 5. How Many Owners Are There in German Family Businessess and
Nonfamily Businesses? (Based on Sample, See Appendix 8)

35%

30%

25%
FB
20% NFB

15%

10%

5%

0%
1 Owner

2 Owners

3 Owners

4 Owners

11-24 Owners

25-49 Owners
5-10 Owners

50-100 Owners

>100 Owners
Figure 6. Number of Family Stockholders and Percentage of Stock
that the Family Owns

100%
90%
80%
100% of Stock in
70% Family
60% 75%-99.9% of Stock
50% in Family

40% 50%-74.9% of Stock

in Family
30%
0%-49.9% of Stock in
20% Family
10%
0%
Stockholders

Stockholders
2 Stockholders

3 Stockholders

4 Stockholders

5-10 Stockholders
1 Stockholder

11-24

>25

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 Family Businesses in Germany: Significance and Structure
the family in the business.
As the number of stockholders increases, the
capital held within the family diminishes. It seems
that there would be a correlation between the
percentage of stock held within the family and
the generation in charge, but that is not the case.
The data show no significant correlation (.063)
(see Appendix 9) between generation and stock
that the family owns in family businesses. So, for
family business owners who want the business to
remain a family business, it is vital not to divide
shares but to keep them within only a small group
of owners, maybe even in the hands of only one.
Corporate Governance in German
Family Businesses
Corporate governance in the German legal sys-
tem is organized differently than it is in the
Anglo-American system. Although the ideal of
directing, controlling, and accounting for the
companies’ activities at the highest level
(Neubauer & Lank, 1998) is the same in Ger-
man family businesses as it is in Anglo-American
ones, the organization is different. As in France
and the Netherlands, in Germany one finds a
strict division between the top management, the
so-called management board, and the supervi-
sory board (if there is one). To be a member of
one board makes it impossible to become a mem-
ber of the other as well. Additionally, a supervi-
sory board in Germany is required only for one
particular entity, the Aktiengesellschaft (limited
company). All other companies do not require a
supervisory board by law, although owners are
free to opt for one if they wish.
These boards can be organized as the own-
ers decide. The supervisory board of the
Aktiengesellschaft is called “Aufsichtsrat” and its
organization is based on the Aktienrecht, the
framework for the Aktiengesellschaft. The alter-
native form of a supervisory board usually is called
“Beirat” or, occasionally, “Verwaltungsrat.”
The task of directing, controlling, and ac-
counting for company activities in a family busi-
ness that is not an Aktiengesellschaft (AGs) is the
responsibility of the family owners and, where
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applicable, of other owners. German literature
about corporate governance in family businesses
recommends a supervisory board to ensure that
family conflicts do not seep into the company
too easily (Hennerkes, 1998).
Although a supervisory board is recom-
mended, only one-third of German family busi-
nesses have one, versus two-thirds of nonfamily
businesses. There are many reason for this. First,
many families do not like external control. To
install a supervisory board with nonfamily mem-
bers would mean to let them at least partly con-
trol the company. Second, some families dislike
control from the family even more, so installing
a supervisory board with family members does
not seem to be a good idea as long as they are on
the management board. To have a supervisory
board in a family business, therefore, correlates
negatively with family members on the manage-
ment board (-.249) (see Appendix 10).
Third, the Aktiengesellschaft that requires a
supervisory board is not found as often in family
businesses. Only 4% of the family businesses in
the sample are Aktiengesellschaften (AGs),
whereas 20% of the nonfamily businesses are AGs
(see Appendix 11). Family businesses in Germany
prefer the GmbH (company with limited liabil-
ity) (52%) and the GmbH&CoKG, a mixture of
the KG and the GmbH that combines the ad-
vantages of the KG (in terms of taxes) and the
limited liability of the GmbH (30%).
Finally, family businesses are smaller than
nonfamily businesses. It would be interesting to
see whether the size of the company influences
the existence and size of a supervisory board.
Figure 7 shows that you find more supervisory
boards on average in bigger companies. The size
of the company correlates positively with the ex-
istence of a supervisory board in the group of
family businesses (.446) (Appendix 10) as well as
in the group of nonfamily businesses (.555), but
in family businesses the supervisory board tends
to be smaller than in nonfamily businesses (see
appendices 12 and 13). The more a company
grows, the more important the task of long-term
and high-level controlling, directing, and ac-
counting becomes in family as well as nonfamily
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Figure 7. Supervisory Boards of Family Businesses and Nonfamily

Businesses and Turnover

120%
Percentage of Companies Within the Turnover
100%
Classes with Supervisory Boards

80%
NFB
60%
FB

40%

20%

0%
2-9 10-49 50-99 100-249 250-499 500-999 >1,000
Turnover in Million DM

businesses. should be entrepreneurs, family business owners

With an increasing number of owners, the from other family businesses, managers of com-
ownership structure becomes more complex and panies in other branches with relevant know-how
there may be, for example, owner-managers, in specific areas, and so on. Examples would be
owners who depend on the dividend, in-laws, and politicians if a relationship to politics is impor-
nonfamily owners. As a result, the management tant for the company or scientists with special
of ownership becomes increasingly important. knowledge of the company’s field.
German supervisory boards in family businesses In Germany, one-third of family businesses’
are meant to build bridges between the owners, boards have a banker as a member, one-third have
on the one hand, and the management team, on a lawyer as a member, and one-quarter have an
the other hand. Complicated situations can arise, accountant. There are fewer supervisory boards
especially when there are owners who are also of nonfamily businesses with accountants and
managers and owners who are not on the super- lawyers as members than family business super-
visory board. Therefore, academics and consult- visory boards, more with entrepreneurs, and
ants ask for highly qualified independent board slightly more with retired managers. In two-
members (Hennerkes, 1998). thirds of the family business supervisory boards,
Hennerkes (1998) warns against the com- there are owners of the company, and owners are
pany’s accountant, lawyer, or banker becoming a board members in about three-quarters (72%)
member of the supervisory board. If there are of the nonfamily business boards (see Figure 8).
matters to discuss with them, they could be asked To try to explain why many supervisory
to attend the board meeting on a supplementary boards of family businesses are composed in a
basis. Because the company is their client, they way that experts warn against, we should look at
may not be sufficiently independent to give the search and nomination procedures as well as the
best advice to the family company. personal aims and interests of the people in-
Ideally, members of the supervisory board volved. For example, with whom will an entre-

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 Family Businesses in Germany: Significance and Structure

Figure 8. Professions of Board Members of Family Businesses and

Nonfamily Businesses’ Supervisory Boards (Multiple Answers Possible)
80%

70%
Percentage of Boards Where

60%
They are Members

50%
NFB
40%
FB
30%

20%

10%

0%

Lawyer
Retired Manager

Entrepreneur
Banker

Another Company
Owner

Others
Manager of

Accountant
Profession

preneur looking for members of a newly installed ers. Most nonfamily members on the board are
supervisory board talk? Perhaps with his or her not owners of shares (see Figure 9). So the typi-
partner, other family members, or someone who cal board member of a German family business
is familiar with the company’s structure, market, supervisory board is either a family member with
and problems. If this is the case, in many cases at least some shares or a nonfamily member with-
the confidant may well be the lawyer, the accoun- out shares. Family businesses have smaller boards
tant, or the banker. For them, as well as for the on average than nonfamily businesses.
family members, it is important to become a Whereas supervisory boards in German
member of the board to protect their individual nonfamily businesses have 7.25 members on av-
interests instead of having external experts su- erage (see Appendix 12), family business boards
pervise and control them. only have 5.14 members on average. This differ-
In addition, external expertise on the board ence is due not only to the larger average com-
may highlight the lack of qualifications of other pany size of nonfamily businesses, but is also
members, especially family members. The data found in the same turnover categories.
indicate that at least some supervisory boards of
German family businesses are so-called “fol-
lower-boards” (a board whose members do not Management in Family Businesses
question the proposals or decisions of the in Germany
owner(s) and/or manager(s) but just follow the The top management board of any German com-
owner and/or manager’s opinion). pany consists only of executives of the company.
Most members of family business supervi- Some family-controlled businesses have only
sory boards come from the family and are own- nonfamily members on the management team,

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Figure 9. Where Do Supervisory Board Members of German Family

Business Boards Come From?

120

Number of FBs of the Sample 100

(Multiple Answers Possible)
80 Not Owner
Owner
60

40

20

0
Family Member Nonfamily Member

Figure 10. Percentage of Family Members on the Management Team

In 7% of FBs, 9%-25% of the

Management Team are Family
In 8% of FBs, 60%-80% of Members
the Management Team are
Family Members

In 14% of FBs, no In 44% of FBs, the Complete

Family Member Is on Management Team is from the
the Management Family
Team

In 27% of FBs, 29%-50% of

the Management Team are
Family Members

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 Family Businesses in Germany: Significance and Structure

Figure 11. Management Involvement of the Family and Turnover

100%
Percentage of Family Businesses with X Percent of

90% 100% of Mngn.

Management Involvement from the Family

from Family
80%
51%-99% of Mngm.
70% from Family
50% of Mngm.
60%
from Family
50% 33%-49% of Mngm.
from Family
40%
0.1%-32% of Mngm.
30% from Family
Nobody in Mngm.
20% from Family
10%

0%
2- 10- 50- 100- 250- 500- >1,000
9 mil 49 mil 99 mil 249 mil 499 mil 999 mil mil
Turnover in Million DM

whereas others are completely family managed. required level of professionalism rises with the
Fourteen percent of German family busi- size of the company.
nesses have no family member on the manage- In family businesses with high levels of fam-
ment board, whereas in 44%, family members ily involvement in management, there is signifi-
completely control the board (see Figure 10). cantly less involvement in the supervisory board
There are mixed boards in 42% of the family (-.249) (see Appendix 15). Families can influence
businesses in Germany. Appendix 14 shows a the business through management involvement
negative correlation between the management and/or involvement in the supervisory board. If
involvement of the family and the turnover (- they are on the management board, there are
.356). Data do not indicate whether the turnover fewer supervisory boards. And even if there is a
is lower due to family involvement (for example, supervisory board, the family is not as highly in-
lack of professionalism or higher risk aversion of volved as it would tend to be if not represented
family members), the fact that because of the in management.
lower turnover no external manager could be Although the data do not explain why fami-
found, or the fact that adequate salaries could not lies organize the way they do, it is safe to assume
be paid. that supervisory boards in family businesses with
In larger companies, the percentage of fam- family involvement in the management have
ily members on the management team is smaller other functions compared with family businesses
(see Figure 11). One reason might be that larger without family involvement in management.
companies have larger management teams. Not Families represented in management obtain in-
every family has as many capable members as the formation about the day-to-day business, and
management team needs. On the other hand, the they influence it. They are free to look for board

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Klein
members who bring in some knowledge and/or
competence that the family does not provide. On
the other hand, if the family is not represented
in management, or is too big, or in conflict, the
controlling and accounting for functions of the
supervisory board becomes more important, and
family members need to be represented to gain
information and influence.
Outlook
The acquisition of family business facts requires
a clear definition of a family business. To help
further investigation of family businesses, a less
restrictive modular definition that permits a more
restrictive one, if needed, and one that could be
more easily compared to other definitions may
be useful. Moreover, it would be helpful to col-
lect empirical data in a way that permits analysis
based on different definitions.
In Germany, family business research is still
in its infancy, despite the fact that families influ-
ence most German businesses in a substantial
way. Family business research is relevant to the
German economy. In the case of the larger com-
panies with more than 1 billion DM turnover,
30% are family businesses.
The key to German family businesses is own-
ership. German family businesses are closely held
by the family. Above that, the data show a nega-
tive correlation between the number of share-
holders and the percentage of shares that the fam-
ily own. For family business owners and their
consultants, this means keeping the number of
shareholders restricted to keep the business in
the family. For politicians, on the other hand, this
means supporting family businesses by support-
ing and protecting private ownership. To reduce
ownership rights and to increase ownership re-
sponsibilities means to reduce the attraction of
becoming or staying a family business owner.
Whether the higher percentage of family busi-
nesses in Spain and other countries is a result of
the ownership conditions offered by the politics
and laws of these countries can be answered only
by further multinational research. Further inves-
tigation should deal with the questions of how to
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improve ownership conditions in Germany to
encourage people to become entrepreneurs and
how to make Germany more attractive to family
business owners (so that they would come to and
stay in Germany).
The two-level board system in Germany
provides different conditions, especially for fam-
ily businesses. Families tend to be either involved
in management or in the supervisory board. The
more capital a family owns, the less they tend to
install a supervisory board. The one-level board
system might provide some interesting advan-
tages, especially for family businesses - for ex-
ample a more intense exchange of information
between the management and the nonmanaging
members of the family or the idea of accompa-
nying a process rather than to control the results.
The results show that both family business own-
ers and their consultants should pay more atten-
tion to the persons they ask to join the supervi-
sory board to make it a group that is indepen-
dent and competent to help the business and the
family.
With ownership as a key to family businesses,
the succession problem should be approached
from the ownership perspective. One can assume
that the succession process is different in differ-
ent generations and under different cultural con-
ditions in different countries. Long-term research
is needed to answer questions such as whether
the succession process itself is a problem or
whether it just brings up unsolved problems from
other areas, whether different ideas of family are
relevant (e.g., in the United States and the south
of Europe), whether the one-level or the two-
level board system provides advantages especially
in the succession process, and so on.
Despite the importance of family businesses
in Germany, so far there is only one chair of fam-
ily business at a university. To gain from experi-
ence in other countries, German researchers
should join existing international networks or
initiate new ones.
 Family Businesses in Germany: Significance and Structure

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Sabine B. Klein is a lecturer for family businesses and the chair of economy of small-and medium-size companies
at the University of Trier, Germany.

The author would like to thank Professor Lutz von Rosenstiel, University of Munich, and Herrn H. Juchems,
ASU Bonn, for their support collecting the data; Professor Axel Schmidt, University of Trier, for his comments
on earlier drafts of this paper; and especially Mrs. Tina Ashcroft and Mrs. June Cullen for their help with
English syntax.

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Appendix 1: Translation of the Questionnaire (shortened version)

A. General Questions
1. In which branch does your company mainly work?
2. In which legal form is your company organized?
3. What was the turnover of your company in 1995?
4. How many employees did you have in 1995?
5. When was the company founded?

B. Ownership
1. How many owners does your company have?
2. Do descendants of the company’s founder and his or her family still hold shares/capital today?
3. What percent of capital do the founders or/and their descendants still own?
4. In which generation of the family is the company owned?

C. Corporate Governance
1. Do you have a governance board?
2. If yes, what type of board do you have?
3. How many members does the board have?
4. Are there descendants of the founding family on the board?
5. If yes, how many of the board members are family members, in-laws, nominated by family members, or
strangers?
6. What types of professions are represented on the board?

D. Management
1. How many members are on the highest management team (Unternehmensleitung)?
2. How many management members are family members?
3. Do you work as a team or with a speaker or a chairman (Vorsitzender der Geschäftsleitung)?
4. If you have a chairman (Vorsitzender), is he or she a family member?

Appendix 2. Correlation of Turnover and Familyness of the Business

(Significant Family Influence as Defined in the Paper)
Turnover FB = 1 (Filter)
Turnover Pearson Correlation 1.000 -.253**
Sig. (2-tailed) - .000
N 1,016 1,016
FB = 1 (Filter) Pearson Correlation -.253** 1.000
Sig. (2-tailed) .000 -
N 1,016 1,029

**Correlation is significant at the 0.01 level (2-tailed).

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 Family Businesses in Germany: Significance and Structure

Appendix 3. Correlation of Employees and Familyness of the Business

(Significant Family Influence S.O.)
Employees FB = 1 (Filter)
Employees Pearson Correlation 1.000 -.185**
Sig. (2-tailed) - .000
N 1,017 1,017
FB = 1 (Filter) Pearson Correlation -.185** 1.000
Sig. (2-tailed) .000 -
N 1,017 1,029

**Correlation is significant at the 0.01 level (2-tailed).

Appendix 4. Correlation of Turnover and Employees in Family Businesses

and Nonfamily Businesses in the Sample
FB = 1 (Filter) Employees Turnover
NFBs Employees Pearson Correlation 1.000 .833**
Sig. (2-tailed) - .000
N 431 430
Turnover Pearson Correlation .833** 1.000
Sig. (2-tailed) .000 -
N 430 430
FBs Employees Pearson Correlation 1.000 .840**
Sig. (2-tailed) - .000
N 586 586
Turnover Pearson Correlation .840** 1.000
Sig. (2-tailed) .000 -
N 586 586

**Correlation is significant at the 0.01 level (2-tailed).

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Appendix 5. Correlation of Age and Familyness of the Business

FB Founding Period
FB Pearson Correlation 1.000 -.102**
Sig. (2-tailed) - .002
N 1,029 946
Founding period Pearson Correlation -.102** 1.000
Sig. (2-tailed) .002 -
N 946 946

**Correlation is significant at the 0.01 level (2-tailed).

Appendix 6. Percentage of all Family Businesses and Nonfamily Businesses

Founded During Different Periods of Time (Based on Sample)
-1870 1871-1913 1914-1945 1946-1959 1960-1969 1970-1979 1980-1989 1990-1996

FB 8.47% 19.52% 18.97% 17.50% 7.92% 8.29% 8.84% 10.50%

NFB 9.18% 15.88% 15.38% 13.65% 9.68% 8.19% 7.44% 20.60%

Appendix 7. Percentage of Stock that the Family and Number of

Stockholders Own
0%-9.9% 10%-24.9% 25%-49.9% 50%-74.9% 75%-99.9% 100%
of Stock of Stock of Stock of Stock of Stock of Stock
Owned Owned Owned Owned Owned Owned Total

0 1 0 0 0 119 120
2 Stockholders 0 0 1 11 14 145 171
3 Stockholders 1 1 1 10 8 79 100
4 Stockholders 0 0 2 5 14 48 69
5-10 Stockholders 0 0 1 12 20 52 85
11-24 Stockholders 0 0 0 4 4 13 21
> 25 Stockholders 0 0 0 10 7 7 24
Total 1 2 5 52 67 463 590

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 Family Businesses in Germany: Significance and Structure

Appendix 8. Number of Stockholders in Family Businesses and Nonfamily

Businesses (Based on Sample)
FB1 NFB1 FB2 NFB2 FB3 NFB3
1 Stockholder 119 131 119 131 20.27% 31.64%
2 Stockholders 169 85 338 170 28.79% 20.53%
3 Stockholders 100 49 300 147 17.04% 11.84%
4 Stockholders 69 29 276 116 11.75% 7.00%
5-10 Stockholders 85 41 638 308 14.48% 9.90%
11-24 Stockholders 21 13 367 227 3.58% 3.14%
25-49 Stockholders 10 4 370 148 1.70% 0.97%
50-100 Stockholders 5 4 375 300 0.85% 0.97%
> 100 Stockholders 9 58 900 5,800 1.53% 14.01%
Total 587 414 3,683 7,347

1
Number of businesses with x stockholders in the sample.
2
Number of stockholders in the businesses.
3
Percentage of all family businesses or nonfamily businesses with x stockholders.

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Appendix 9. Correlations Between Ownership, Turnover, Number of

Stockholders, and Generation in Charge
Ownership Turnover Owners Generation
NFBs Ownership Pearson Correlation 1.000 -.113* .060 .040
Sig. (2-tailed) - .019 .216 .712
N 437 430 429 88
Turnover Pearson Correlation -.113* 1.000 .335** .255*
Sig. (2-tailed) .019 - .000 .018
N 430 430 422 86
Owners Pearson Correlation .060 .335** 1.000 .248*
Sig. (2-tailed) .216 .000 - .021
N 429 422 429 86
Generation Pearson Correlation .040 .255* .248* 1.000
Sig. (2-tailed) .712 .018 .021 -
N 88 86 86 88
FBs Ownership Pearson Correlation 1.000 -.009 -.263** .063
Sig. (2-tailed) - .837 .000 .151
N 592 586 590 517
Turnover Pearson Correlation -.009 1.000 .368** .222**
Sig. (2-tailed) .837 - .000 .000
N 586 586 584 513
Owners Pearson Correlation -.263** .368** 1.000 .367**
Sig. (2-tailed) .000 .000 - .000
N 590 584 590 515
Generation Pearson Correlation .063 .222** .367** 1.000
Sig. (2-tailed) .151 .000 .000 -
N 517 513 515 517

*Correlation is significant at the 0.05 level (2-tailed).

**Correlation is significant at the 0.01 level (2-tailed).

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 Family Businesses in Germany: Significance and Structure

Appendix 10. Correlation Between Turnover and Supervisory Board

Turnover Supervisory Board
NFBs Turnover Pearson Correlation 1.000 .555**
Sig. (2-tailed) - .000
N 430 425
Supervisory board Pearson Correlation .555** 1.000
Sig. (2-tailed) .000 -
N 425 431
FBs Turnover Pearson Correlation 1.000 .446**
Sig. (2-tailed) - .000
N 586 582
Supervisory board Pearson Correlation .446** 1.000
Sig. (2-tailed) .000 -
N 582 587

**Correlation is significant at the 0.01 level (2-tailed).

Appendix 11. Rechtsformen of German Family Businesses and Nonfamily

Businesses in the Sample
NFB % of all NFBs FB % of all FBs
Einzelfirma 6 1% 17 3%
OHG 3 1% 9 2%
KG 10 2% 43 7%
GmbH & Co.KG 57 13% 175 30%
GmbH 247 58% 305 52%
AG 87 20% 26 4%
Others 18 4% 6 1%
Total 428 100% 581 100%

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Klein

Appendix 12. Members of the Supervisory Board

Turnover in Million DM
2-9 10-49 50-99 100-249 250-499 500-999 > 1,000 Total
NFBs 3 Members 5 12 12 16 9 1 1 56
4-5 Members 8 3 8 19 4 6 48
6-7 Members 1 4 5 11 14 8 4 47
8-11 Members 2 5 3 12 4 2 9 37
>11 Members 1 2 5 11 11 12 44 86
Total 17 26 33 69 42 29 58 274
Average 5.15 5.58 5.70 6.38 7.02 8.03 10.32 7.25
FBs 3 Members 12 18 16 21 9 3 79
4-5 Members 9 11 9 13 8 2 3 55
6-7 Members 3 3 3 5 9 2 8 33
8-11 Members 2 3 1 3 4 2 15
>11 Members 1 5 1 2 7 16
Total 27 32 31 45 30 10 23 198
Average 4.67 3.84 4.40 4.86 5.37 8.20 7.41 5.14

Appendix 13. Correlation Between Turnover and Number of

Board Members
Turnover Number of Members
NFBs Turnover Pearson Correlation 1.000 .674**
Sig. (2-tailed) - .000
N 430 430
Number of members Pearson Correlation .674** 1.000
Sig. (2-tailed) .000 -
N 430 437
FBs Turnover Pearson Correlation 1.000 .517**
Sig. (2-tailed) - .000
N 586 586
Number of members Pearson Correlation .517** 1.000
Sig. (2-tailed) .000 -
N 586 592

**Correlation is significant at the 0.01 level (2-tailed).

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 Family Businesses in Germany: Significance and Structure

Appendix 14. Correlation of Family Members in Management and Turnover

Turnover Management
NFBs Turnover Pearson Correlation 1.000 -.151**
Sig. (2-tailed) - .002
N 430 423
Management Pearson Correlation -.151** 1.000
Sig. (2-tailed) .002 -
N 423 430
FBs Turnover Pearson Correlation 1.000 -.356**
Sig. (2-tailed) - .000
N 586 586
Management Pearson Correlation -.356** 1.000
Sig. (2-tailed) .000 -
N 586 592

**Correlation is significant at the 0.01 level (2-tailed).

Appendix 15. Correlation of Involvement in Management and in Board

Management Supervisory Board
Management Pearson Correlation 1.000 -.249**
Sig. (2-tailed) - .000
N 592 592
Supervisory board Pearson Correlation -.249** 1.000
Sig. (2-tailed) .000 -
N 592 592

**Correlation is significant at the 0.01 level (2-tailed).

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