The Institutionalization of Family Firms - Europe

Companies that are owned and controlled by families are the cornerstone of global economic activity, accounting for two thirds of all businesses, 70-90 percent of annual global GDP, and 50-80 percent of jobs in most countries. As incubators of an entrepreneurial culture, family businesses act as catalysts of widespread growth. Their commitment to sustainability and social responsibility results in stable and longterm relationships with principle stakeholders. The values and priorities of family business leaders are transmitted to subsequent generations, which strengthens their business and the stakeholder communities that they support. Given the profound impact of family firms at a local and regional level, it is crucial to understand the factors that impact their financial health and longevity. All businesses that survive the initial high-risk stage of an organization’s life cycle, must institutionalize operations to thrive in the next development stage. They typically introduce and embed formal policies and procedures that strengthen commitment to their mission and values, preserve their competitive advantage and facilitate long-term growth. Are family firms adequately institutionalized? In 2017, INSEAD initiated a research project to examine the institutionalization experience of family firms around the world across six key attributes: family ownership and succession, intangible family assets, corporate governance and leadership, growth capabilities, organizational design, and access to capital. In 2017, INSEAD published its first report: The Institutionalization of Family Firms – From Asia-Pacific to the Middle East which measured the level of institutionalization in 123 family firms in Asia-Pacific and the Middle East. A group of leading private equity (PE) firms, who are experienced investors in familyowned firms, shared their perspectives on the development paths of these businesses. Short case studies provided a glimpse of the specific challenges and opportunities faced by a cross-section of family firms in the region. Published in 2019, the Phase 2 report: The Institutionalization of Family Firms – Latin America draws on the inputs of 131 family firms and select PE experts from Latin America. In Phase 3 of this research series the geographical focus shifts to Europe where family firms represent 70- 80 percent of all business enterprises and account for 40-50 percent of employment. INSEAD surveyed 121 family businesses and interviewed select leading PE firms to understand how institutionalization can help a family firm achieve sustainable growth. As in the previous two reports, we include an analysis of our survey results and select case studies to enable family firms in the region to benchmark themselves against their peers and learn from their experiences. The report also examines the nature of the family firm-PE firm partnership and identifies best practices that support sustainable value-creation.