Family Businesses on the Verge of Generational Change

Family businesses on the verge of generational change

Katalin Darabos

Budapest, Hungary, 2016 September

Abstract 

My research aims to uncover the difficulties and problems related to family businesses generational change and offers proposals for solving these challenges in the leadership change process, that would make the process in this highly important segment of our country’s economy smoother. The relevance of this topic in multiple professional forums offers the possibility of in-depth research to be carried out. The Hungarian legal system does not currently formalize the definition of family businesses, despite the fact that, according to CSO (Central Statistical Office) data, 70% of the entire SME sector is currently a family business. Knowledge of the subject and the identification of risks proposes interesting and exciting challenges.

Keywords: family business, generational change

Background of the topic

My research is based on the planned topic of family businesses on the verge of generational change, proposed by Konczonsné Szombathely Martha supervisor.

The subject choice is justified by several factors. On the one hand the actuality of several professional forum offers the possibility of in-depth research to be carried out. The Hungarian legal system does not currently formalize the definition of family businesses, despite the fact that, according to CSO (Central Statistical Office) data, 70% of the entire SME sector is currently a family business. Given that statistical research has been carried out to date on the topic of generation change, most of these businesses will face the generational change over the next five years, knowledge of the subject and the identification of risks proposes interesting and exciting challenges. On the other hand, I am affected by my family personally with this subject, since my parents' company's management will be divided between my sisters over the coming years. This direct relationship also motivates and inspires me to research new findings on the subject.

Planned research

The aim of the research is defined as follows:

1. Determine to what extent family businesses can be distinguished from the rest of the SME sector.
2. Establish the challenges that the identified family-run businesses will face, and identify the horizon of these challenges.
3. Assess the extent to which social and cultural traits define the likelihood of success of a leadership generation change process.
4. Explore the generational change in family businesses, what are the financial and legal implications, and what circumstances preceded the management transfer.
5. Determine whether there is a clearly identified "successful" strategy to be followed during the generation change.
6. Explore whether there is any difference in neighboring countries in terms of the challenges of generational change in family businesses.
7. From all of the above make a general statement of how family businesses are affected by the change of generations in these three aspect: Social Affairs and cultural issues, Financial and legal implications, Strategy.

All this because I consider it important that we can determine whether there is a solution that can contribute to a smooth transfer of control, in terms of both strategic, human resource management, financial and tax aspects of these businesses.

I assume that:

• The family business face challenges and difficulties during the transfer of intergeneration, given that nearly two-thirds of family businesses go bankrupt after the first generation of leaders changes.
• The vast majority of the SME sector consist of family businesses and the loss of this magnitude would lead to a similar trend of defaulting wave in the domestic production and services like in Europe.
• Proper legal and financial conditions could provide a seamless transfer of business management.
• The right political decisions and comprehensive data collection and research, preparation of regulations are needed in this area to avoid the failures of generational change in management of family businesses.

I try to substantiate these assumptions with a variety of research and comparisons

Research questions:

• Based on the currently available statistics and data collections what are the problems identified in connection with the change of generations of family businesses in Hungary? How are these areas threatening the success of the handover and how they can be eliminated or neutralized?
• Are there any efforts made to eliminate or to neutralize these problems at a central level?
• What efforts are under way to identify the problems of generational change in other Member States of the European Union?

My research aims to uncover the difficulties and problems related to family businesses generational change and offers proposals in response to solving these challenges in the leadership change process, that would make the process in this highly important segment of our country’s economy smoother.