Germany's business tradition of Mittlestand celebrates family ownership

Germany is famous for its family-owned businesses. Chancellor Angela Merkel said in 2015 that family companies are noted for their high quality products and this has become “a trademark for the whole of Germany.”

The tradition of family ownership is also strong in Italy, Spain, France and other European countries, but in Germany (and the other German-speaking countries Austria and Switzerland) the tradition is distinguished by its connection with the concept of the “Mittelstand.”

Small and medium-sized enterprises (SMEs) are the most common form of Mittelstand company, accounting for about 95 percent of all German businesses, and are usually owned and managed by families. But Mittelstand companies, no matter what size, can also be defined by the importance they place on common values, notably their focus on long-term strategies.

It's not just SMEs which follow this pattern, as some of Germany's largest corporations are family-owned — many in industrial sectors, such as Robert Bosch, the Tier One automotive group, but also some household names such as the Dr. Oetker food brand, Miele appliances group and Playmobil toy manufacturer Brandstätter.

The German plastics sector has many large family firms, as was shown by business magazine Wirtschaftsblatt when it produced a report in 2014 on Germany's 500 largest family businesses. The multi-million-euro turnover companies range from injection molders in the automotive market and film extruders in the packaging sector, to suppliers of polymer materials and manufacturers of plastics processing machinery.

One German company that featured on Wirtschaftsblatt's list is Reifenhäuser Group, the extrusion technology company that is managed by the brothers Ulrich, Klaus and Bernd, the third generation of the Reifenhäuser family in charge.

For Ulrich Reifenhäuser, the benefits of family ownership are clear: “It creates a very strong family feeling in the company,” he said.

This engenders stability as employees know they are working for a family, not a CEO who may implement a strategy, then leave after five years and be replaced by a new CEO with a different strategy.

Families want strong and sustained growth over a long period, he said. This is a contrast with other types of ownership, such as stock exchange-listed shareholding and private equity, which have a shorter-term outlook.

The fact that most family firms do not have a stock exchange listing means they cannot access finance through new share issues. But, according to Reifenhäuser, this is not a disadvantage as the group does not need share finance, and opening the company to outside investors would weaken its autonomy.

“If you want money from outside, there will be influence from outside,” he said.

German business organization BDI conducted a survey of major German family businesses in 2012, and found that financing mainly came from retained earnings and write-offs. Alternative types of finance played only a minor part for family firms, which were pursuing their plans using their own capital, it said.

BDI's survey happened at an interesting time, reflecting the effects of the recession of 2008-2009. It seems family businesses were thinking of the future, even then. “Despite dropping turnover figures during the economic and financial crisis major family businesses increased their staff,” said BDI.

Long-term thinking and family ownership do not appear to harm growth prospects for a company. Wirtschaftsblatt's report on Austria's Top 200 family firms in 2015 included at No.8 Alpla, Europe's largest rigid plastics packaging producer, which the Lehner family has nurtured since 1955.

Other plastics-related companies high on the Austrian list were: EKB Kunststofftechnik, part of the Dräxlmaier family's automotive components group; Greiner Holding, the plastic packaging and technology firm; and Engel Holdings GmbH, the injection molding technology group. The rankings of medium to large Austrian family businesses included: Polytec (plastic automotive components); WittmannBattenfeld GmbH (machines and ancillary technology); Meusburger Georg GmbH & Co. KG (mold components manufacturing); and Senoplast Klepsch & Co. GmbH (plastic packaging).

Academic research into family firms is carried out by a number of universities in Europe, including specialists such as the Witten Institute for Family Business (WIFU) at the University of Witten-Herdecke in Germany. WIFU and five other institutes are participating in the first global study in the field called Step (Successful Transgenerational Entrepreneurship Practices).

One piece of research that has already emerged from Step is a quantitative survey of 686 family companies from 32 countries. The results show that families retain a high level of ownership (more than 90 percent of equity) in their firms, but also recognize the value of having a non-family perspective, with on average more than 50 percent of the top management team made up of non-family members.

Respondents were asked to rank key resources at their company and an overwhelming 60 percent said human capital was the most important resource, with only 26 percent choosing financial capital.

The value of workers to the business is widely recognized by family firms in the plastics sector. Alpla was named the leading Austrian company in the industrial sector in the 2015 Betrieblicher Sozialpreis award for best recruiters.

“As a technology leader, we need the very best employees,” said Günther Lehner, CEO at Alpla. “The selection of employees is just as important as providing advanced training to our employees in our Alpla Academy.”

News magazine Focus conducts a “best employers” survey of German companies. Family-owned Dieffenbacher, the composites processing technology firm, did well in the 2014 survey and the company noted “an outstanding 76.4 percent of employees [stated] that they would recommend Dieffenbacher as an employer.”

Renolit SE, the German family firm making films for technical applications, said in February 2016 it was ranked among the top 40 percent of the best German employers by Focus. Michael Kundel, chairman of Renolit, said personnel policies are an important element in securing the future of the company: “We can only compete for the best people if we are an interesting employer.”

Bastian Runkel, who shares the management of packaging group Polifilm Group with his father Lutz and brother Christian, commented on Polifim's inclusion in Wirtschaftsblatt's ranking of German family firms: “The main pillar of our continuously growing business success are our qualified staff. The best possible support and high quality training are given top priority by us as this is what makes us a strong community and enables us to work so superbly together within the Polifilm Group.”

Christian Runkel referred to other aspects of Polifilm's business philosophy: “Our business performance and continuity have proved themselves and we would also like to build on the success we have achieved in future with our philosophy that focuses on quality and our professional customer communication.”

RKW SE, another leading family-owned film extruder, puts its success in the Wirtschaftsblatt rankings down to a culture of reliability and respect. In February 2016, it said an independent survey found 78 percent of customers and 94 percent of business partners attached prime importance to the group's high product quality. It added that 82 percent of customers and 94 percent of business partners consider RKW a reliable company, while 76 percent believe RKW acts in a respectful manner.

Generational change is both a challenge and an opportunity for a family company. There is a risk when a new leader takes over any business, and in recent years some family firms have decided that outside talent is the best option for their new CEO.

Nonetheless the handover of the business to a talented young family member can potentially be transformational. A good example is tool and die supplier Meusburger: the timeline on its website shows that when Guntrum Meusburger took over the group's management in 2007, its sales were 73 million euros ($). By 2012, sales had doubled to 148 million euros ($), and by 2015, it had tripled to 215 million euros ($).

This year sees generational change at Dieffenbacher and Engel, where family members are being elevated after gaining managerial experience at divisional level. Christian Dieffenbacher has joined the group's management board alongside his father Wolf-Gerd and non-family board members. At Engel, Stefan Engleder will become chairman of the group's executive board in November as long-serving CEO Peter Neumann retires.

What about family conflict? Don't brothers fight each other like JR and Bobby Ewing in “Dallas?”

Not according to Eugen Hehl, who founded injection molding technology group Arburg GmbH & Co. KG with his brother. He told Plastics News last year: “What remains [in Arburg's ethos] is what united my brother Karl and me: we share a common goal and wish to preserve and develop it.”

The Step survey shows this to be a widespread approach in family firms: 92 percent of respondents said that members of their family are proud to be part of the business and feel great loyalty to it, and 88 percent said that family members are willing to put in extra effort to make the business successful.

“Clearly, the successful family businesses in this study are not encountering success at the expense of family relationships,” the report said.

Ulrich Reifenhäuser said: “We have a saying in Germany: the real strength of a family-owned business is the family — and the real weakness is the family.”

He expressed a truth found in all family relationships, business or domestic: “Families sometimes can be wonderful, and sometimes emotional.”

He said that good communication is very important and Reifenhäuser Group has benefited by opening up internal communications during its reorganization in recent years.

He said he cannot look too far into the future, but for the next 20 years at least Reifenhäuser Group will stay family-owned.