Corvinus advice to family businesses on becoming professional

Half of Hungarian enterprises are family businesses, and small and medium-size enterprises produce 40-70 per cent of the GDP. However, the operation system and the management methods of an average Hungarian family business are identical with those of one size smaller non-family businesses. This way family businesses are not able to fully exploit their business opportunities: it is more difficult for them to grow, enter international markets and decide about succession. At the 4th International Family Business Conference organised by the Corvinus Family Business Centre at the Corvinus University of Budapest, the invited corporate and university lecturers were looking for answers to these questions.  

Why are family businesses in disadvantage, and how can they develop? 

Describing the results of a Corvinus research, György Drótos, the head of the Corvinus Family Business Centre explained that the development of Hungarian family businesses may be hindered after a while by the personal characteristics and the decision-making procedures of the first-generation founders and their insufficient management skills required for the size of the given company. Another obstacle may be the too close relations between family and business. The lack of patterns to follow also makes any changes difficult.  

In order to overcome the disadvantages, it would be advantageous to make parallel efforts at multiple areas, he said. A family business may strengthen its company management with modern financial, controlling, marketing, HR solutions, written strategies, regulators. The business may develop by training the family members and the existing staff, but by employing external professionals, too. Another task is the transformation of the corporate culture, e.g. by applying the performance principle and using professional image and communication. Professionalisation may also require the re-thinking of the relation between the owner family and the business, with family constitution, family council and succession plan, as the speaker emphasised. However, it is not possible to carry out the transformation by developing individual segments only: without a comprehensive business strategy, the transformation of underlying processes and the introduction of new decision-making processes, this is only a waste of time and money. 

According to the recommendation of the Corvinus, family businesses should bear in mind the following points if they wish to become professional: 

Another advice of the Corvinus researchers on the success of the process is that the founder should be present personally all the way through, and the company should emphasize the family values during the transformation. The founder and old staff members may feel redundant, which may be solved by re-training or giving them roles at new areas, for example in customer relations, added György Drótos. Professionalisation might as well be the driving force behind succession: a transparent, well-organised and data-driven company is more attractive to potential successors than a company that sticks to mechanisms that are closely related to the founder. 

Placing the family-business relations – as well as their soul, the family constitution – on professional bases has so far been underestimated in the development of family businesses, said Attila Weiszt, leading researcher of the Corvinus at the conference. According to Spanish and German researchers, companies with family constitutions reached higher profit rates than companies without such agreements. According to the research conducted by the Corvinus in 2017, 3 per cent of the family businesses had family constitutions, they achieve higher performance in Hungary, too, but another condition is to have more regulated family-business relations, and the family should show commitment to the business. The constitution as an instrument does not solve everything: it is worth creating it when people from the second generation of the family have also joined the business, they are able to cooperate as partners, and there are already certain operating rules, and the common objective is long-term survival.