The founder of the Family Business Association – Bulgaria shares his thoughts about the continuity of the generations, the risks, benefits and difficult decisions in the management of the family company.
Petar Mandjoukov is the CEO and chairman of the Management Board of “Mandjoukov” AD. For many years, he has been working in the area of machine engineering and foreign trade, as a director and representative of leading companies in Bulgaria and abroad.
In 1999 he founded the company “PM Group” AD as the successor of companies, had established in 1993. In October 2007 “PM Group” AD was renamed to “Mandjoukov” EAD. The new name of the company emphasizes company’s family principle.
Petar Mandjoukov is the founder and honorary chairman of the Family Business Association – Bulgaria, member of the Management Board of the Union of Bulgarian Community Centres and the Bulgarian Diplomatic Association.
Mr. Mandjoukov, what is the definition of a family business?
According to the definition of the Global Family Business Organization at least two generations must work at such a company – a father and son, i.e. more than one Family member must be in such a company. Apart from that, the family must have a majority interest in the company. In most family companies, the there is a sole owner, but the company can also be a joint-stock or a limited liability company, provided that the majority of the shares are owned by the family.
How many family companies are there in Bulgaria?
Together with the National Statistical Institute, we developed forms, which the companies fill-in, based on this definition at the end of each year. The outcome was really surprising, even for me, because we found out that 42% of all private Bulgarian companies are in fact family companies. The aggregate annual turnover of these companies in 2010 reached BGN 40 billion and they provide employment to over 600 000 people, or 1/3 of the active employed population in Bulgaria. The total number of companies, considered family businesses, according to this definition, is 150 000. Which means that these are mainly sole traders, operated by a father and a son, a father and a daughter or a mother and a daughter.
This shows a very interesting trend: the Balkan tradition is gradually returning. It is very well preserved in Turkey and Greece, where the names of the major companies are those of families. This used to be the situation in Bulgaria as well.
If we compare Bulgaria to the other countries, are these 42% below or above the EU and global average?
The European Family Business Organization, which we are also a member of, provides statistics about all European countries. The weight of the family companies by various indicators, such as total economic turnover and GDP in Europe, varies from 40 to 70%. For example “Peugeot Group” – the largest European vehicle manufacturer, is a family company. At present the company is represented by Thierry Peugeot. If we look at the history of Modern Europe, you will see that almost every business you can think of has either originated from or is still owned by a family.
What are the sectors in Bulgaria with the largest number of family companies?
Our members are business, operating in various areas. We have representatives of the financial and banking sector, the construction sector. For example, “Kirov” AD is the largest distribution company for road construction machinery. Dinevi Bros are among the top entrepreneurs in development and construction. Bobokovi Brothers rank among the top oil manufacturers. Mr. Indzhov manages one of the largest road construction companies.. There are family businesses in all economic sectors. Also in advertising and the media. You may find interesting that Darik Radio’s owner – Rasovet Radev is also a member of our Association.
What are the advantages of the family business?
There are many advantages. There are certain advantages both from the perspective of the employees at a family business and from the perspective of the owners. A specific feature of family companies is that those, employed there for a long time, absorb the philosophy and become something like family members. I know that all my colleagues, as well as myself at my own company, know all the employees by name. We know if their kids are sick, how are their parents. When there is a problem, the company always supports them firmly.
This is one of the key features of family companies. In a big conglomerate this is, of course, difficult, and nevertheless this spirit is strong there as well. Look at the Japanese companies. All the famous car brands are manufactured by family companies. And this is also the case in South Korea – Samsung, Daewoo. Another advantage is that there is a much higher level of security, since when a person commits himself and his family to a business, it is much more difficult to abandon it. While at a joint-stock company with several shareholders, where there is no clarity of their relations now or tomorrow, it is much easier for the company to just vanish or split. And there are numerous examples like that. Both in Bulgaria and on a global scale. It is much more difficult for such a situation to occur at a family business and that has been proven.
What are the advantages for the business owners?
The main advantage for the owners is firstly that they trust their family, which is just natural and normal, and secondly – they have the chance to prepare the next generations for joining the business, if they want to do so, of course. This ensures continuity, guaranteeing the stability of the company itself, as well as of its employees. If you know who the founding owner is, and see that his daughters or sons are also getting ready to take over the business, your sense of security is much higher. This is what I think.
But the rest of the employees may not feel it useless to try hard to prove themselves, if they know that one way or the other, it is clear who will manage the company after some time, no matter how skilful or experienced they may be?
This is true. Anyway, an employee at a family business is much less likely to be seen merely as a nameless employee. In most cases their work is properly and specifically evaluated. And if such person’s work is adequate, he may rely on a completely different attitude as a person, as an individual, and int terms of career development. The environment at a family company is much different, especially at the small and medium-sized enterprises. As for the children at the family companies – they do work a lot. Their parents’ requirements are much more specific, more pressing and usually, unfortunately, it is a matter of exactingness.
Isn’t it difficult to work with those you live with. Where is the balance between business relations and personal emotions?
This is a very difficult psychological matter. Of course, transferring daily issues to the family environment, is an integral part of the operation of a family business. It just can’t be avoided. I work together with my elder son and my wife. Yes, it is common for somebody to raise a business issue, during dinner for example, and this issue becomes the main topic of conversation. Sometimes this may cause a few laughs, but sometimes the conversation can take an altogether unpleasant direction. It is all there.
Parents’ demands of their children are very high. A pat on the back and a good encouraging word are less common – more often the comments concern some misdoings or insufficiencies of the next generation, and this often causes certain discomfort. One thing, however, unites the family – when a specific result is achieved, when it is evident that something good is created, which is of benefit not only for the family, but to the society as a whole. And suddenly this becomes something, resonating well with the public.
Can you separate work from your personal life. For example, if you’ve had a dispute at work, does this result in a quarrel at home?
Family is based on different emotions. And this is what unites it – love, respect and many other feelings, which are the very reason for the existence of the family. As for the parents-children relations, you can understand yourself that there is no family where there isn’t some kind of a generation clash. And this is more than natural, it does not get in love’s way. It is the same with a family business.
Continuity is probably one of the main risks for family businesses. Are there statistics, showing how many heirs of family companies do remain in the business and whether they are as successful?
It has been proven that over 90% of the family businesses have the actual opportunity to remain so up to the third generation. After the third generation statistics are rather negative, showing a sharp drop in the number of the family members in company’s management. If the father has established a brewery, the son sees that this is how the family earns their living – he can’t choose but step in his father’s shoes and starting brewing. In the third family, it is expected that there are more grandchildren and at least some of them with stay with the company. However, things change with the fourth generation. First of all, there is no moral, allowing parents to impose on their descendants the obligation to join the family business.
Therefore, big corporations are usually placed on the market for public participation. Families hold their control share and here is where the role of the manager appears. In family business there is a whole theory about the place of the owners in modern world, which is seen rather as holding the majority share or acting as board members or chairmen. And there is a separate manager, taking care of the day-to-day business of the respective company or companies, based on rules, established by the board. This is the structure, applied to the management of a modern company, especially if it is a large company. However, this does not prevent the family spirit from remaining with the company. There are many examples of that. The major Japanese companies that we all know about, are owned by second or third generations of their respective families. It is the same with the Turkish companies.
Is it difficult to make the decision to transfer the business from the family to a third-party manager and why?
Yes, this is a very difficult decision. Not only it is difficult to make the right choice and avoid the major risk of appoint management, which is not adequate to the philosophy of the founder. In Bulgaria we are still in the first generation – the actual founders of the businesses who manage them, and this is not actually an issue. However, according to my personal experience, it is very difficult for the founder of a business to find a manager, who resembles himself. The problem here is that the owner cannot get rid of his own perceptions and understanding of how the business is to be managed. However, in the second or third generations, who already see themselves as rich people, it is much easier to recruit a management team.
Is there an issue, from the managers’ perspective? From their point of view, everything is connected to a single person -–the owner, who makes all the decisions and managers have limited capabilities to act?
On the contrary. There is no better evaluation of the true performance of an employee than that at a family company, or at least this is how I see it. At the family business there no reason to not give proper credit to someone who has worked hard and well, who has contributed significantly to the company. It is not a matter only of a career growth. I know many examples of people, who started as drivers and reached executive positions at the companies, then became shareholders and started receiving dividends. There are many such examples in our family companies. And apart from that, at many family businesses, as well as all the companies – part of “Mandjoukov” EAD, managers are also shareholders. They are already partners, not just employees. This is only possible if you are in close contacts with the decision-making person. At a company, where the actual number of owners is not known, and no one really knows who manages it, the bureaucracy is immense. Preserving the personal contact with the decision-makers is always a good thing, especially in Bulgaria and at the level we have reached.
What is the formula for building a successful family business?
It is very difficult to come up with a successful formula for any business. However, generally speaking, what is most important and just mandatory for a successful business, is that one clearly defines their strengths. Secondly, the business environment, where these strengths – skills and expertise – can be realized, must also be well defined. And the third thing is the ability, based on these strengths and environment, to persist, to show will and consistency so that all these efforts are successful in that environment and a positive outcome is achieved. This is what I can say as clearly and simply, as possible.
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