4 questions to Rania Labaki about succession in European SMEs

Why was this 2-day event at the European Parliament important?

The Business Days event gathered participants, from a variety of backgrounds, to listen to and participate in high-level panels, thematic roundtables, interactive interviews, and masterclass. I’m grateful to MEP Martina Dlabajova and MEP Morten Løkkegaard who invited me this year to share my views on the entrepreneurial spirit and the challenges of SMEs transfer.

Though the European Commission has been co-funding projects I’m gladly contributing to – ARTISAN, SPRING and SIFB - these direct exchanges can have a really interesting impact, in both ways : I can hear first-hand what key questions the members of the European Parliament are raising, while trying to answer them based on insights from research; and I can learn from the testimonies and analyses of various stakeholders in the SMEs and entrepreneurship fields.

It is clear to me that if we want things to change for the better at the EU level, we need to nurture the dialogue between experts, including scholars, and policymakers. Contributing to this event goes in this direction. It is an indicator of the relevance of our research on family business and of the need to enrich it by including fresh perspectives from SMEs and the European Commission on the current challenges and possible solutions. Taking a step back, I now feel reassured about the potential for continuous collaborations in this regard.

What are the biggest barriers currently in SMEs transfer of ownership?

In Europe, an important share of small and medium-size businesses is owned and run by families. Their most critical challenge is successfully transferring the business to the next generation. In case of failures, one could imagine the dramatic consequences that can arise, such as significant job losses and decline in contributions to GDP.

Considering SMEs transfer should, however, not only be focused on ownership. It is multi-dimensional, extending to management, governance, and entrepreneurship transfer. SMEs should consider all these dimensions with a particular attention to two main difficulties along the way: the psychological aspects and the fiscal/legal aspects. Examples span from the difficulty of the current generation to let go, given the emotional attachment to the business to the younger generation to gain legitimacy in the eyes of the older generation while taking over. Added to that, there is the weight of the inheritance and other transfer-related taxes that differ across countries.

Would you agree that there is a lack of entrepreneurial spirit? In any case, do you have ideas to foster it?

I tend to look at long term evolutions, and 20-25 years ago, I may have agreed to this statement while being cautious about cross-cultural differences. Nowadays, this spirit seems very much alive to me in Europe, while being increasingly tainted with a “responsibility” imperative. Still, we need to keep on pushing its conditions and frontiers of expressions.

We know that students and young professionals who grew in an entrepreneurially favorable environment, tend to have more entrepreneurial intentions and to create startups more easily. So altogether, starting with education actors, we need to create this environment for all the young people.

Supporting them, mentoring them and advising them are essential actions that could be formalized through incubators, dedicated events and peer-groups, masterclasses and other courses.

As far as family business is concerned, it is deeply rooted in entrepreneurial spirit, and the challenge is to transfer it to the next generation. More precisely, my research shows that intergenerational cohesion is central : the founder is more able to let go and to support the new generation. For the latter, it can also take the form of creating a new business outside the family business to then come back with more legitimacy and with new ideas. Circling back to the question of multiple barriers, addressing all of them, i.e financial support, knowledge transfer, social networks, emotional support is then the ideal path.

What can the EU parliament do on this subject?

I see three factors that can translate into concrete measures to recognize and motivate SMEs towards successful succession.

First, Education on entrepreneurship and family business, including responsibility (CSR, environment, gender equity…) and psychological aspects, should be enhanced. Business School and universities must be encouraged to develop more programs, hand in hand with dedicated organizations.

Second, Research on SMEs transfer should be promoted, in partnership with EU SMEs and family business associations as well as European institutions supporting the funding and the access to data at the intersection of psychological and financial/economic dimensions.

Third, challenging the Regulation is key, to make sure that timely intrafamily transmissions are encouraged and facilitated, in terms of administrative burden, tax weight, and family involvement in the business.