Somwhat incoherent analysis here

Let me highlight some of the features unique to the Mittelstand model that I believe everyone should learn from – and imitate if they can.


Taking on debt is treated with suspicion.


Mittelstand companies are overwhelmingly privately owned, and thus largely free of pressure to provide shareholder returns.

So they don\’t use outside equity. Indeed, Will Hutton has been telling us for decades how lovely it is that they rely upon bank loans instead. And they do finance themselves with debt.

18 thoughts on “Somwhat incoherent analysis here”

  1. Not sure why private shareholders should not want shareholder returns either.

    They can of course take them in other ways than dividends or increase in the share price though, such as mgmt salary, benefits, company car, nice large office, etc. This is however generally seen as a bad and not a good thing (less efficient mgmt of the company, succession problems, less meritocratic decision making etc) and also makes it easier for them plan taxes. They will choose whether to be paid a high salary, high benefits or dividends based (also) on what costs them less…

  2. I may just be echoing Emil here, but I cannot think of a single reason that A might lead to B in the passage quoted below;

    “Mittelstand companies are overwhelmingly privately owned, and thus largely free of pressure to provide shareholder returns. This makes them readier to innovate, and invest a larger proportion of their revenues in R&D”

    Ever heard of an agent-principle problem which manifests in lower R&D spending, anyone?

  3. “profit has no intrinsic value”

    Splutter, cough. First order evidence of surplus gains from markets have no intrinsic value? Bloody eijit.

  4. “and thus largely free of pressure to provide shareholder returns.”

    Providing jobs for life for any member of the family who wants one (however unqualified) might be regarded as a “shareholder return”.

  5. One distinct advantage of private shareholders is that they are much more likely to be directly involved in the running of the company. This minimises the principal-agent problem. Also if these top brass are more likely to employ their kids in the company, like any family company would. By having relatives on the shop floor they’ll theoretically be more in touch with the running of the company. They’ll talk shop at dinner, on holiday, everywhere. No wonder they’re more productive than British companies.

    These traits aren’t unique to Germany. In Italy we also find some excellent family companies which struggle to break beyond family size.

    *(“private shareholders” is taken to mean a small number of people, each with a relatively large holding)

  6. “Mittelstand companies are overwhelmingly privately owned, and thus largely free of pressure to provide shareholder returns.”

    A statement so blinding stupid you’d have to assume it came from either Ritchie, Arnald or, of course, someone in The Guardian.

  7. Andrew M

    “No wonder they’re more productive than British companies.”

    But then family companies have been shown that they are less keen on innovation or modernisation.

    “My father never saw the need to supply these cars in any other colour than black so why should I ?”

  8. Are German families really so nice and cosy with each other? Back in my auditing days, i used to audit a family-owned company where 2 brothers had a massive bust-up. The company had 5 directors, but the 2 most actively engaged with the business would not even talk to each other. Eventually, one of them had to buy out the other’s shareholding – a messy business altogether. I believe that this kind of situation happens quite frequently in UK family companies. Why would it not happen in Germany?

  9. “Are German families really so nice and cosy with each other?”

    Well the rivalry between the brothers Adolf and Rudi Dassler who split up their family shoe-making firm to form Adidas and Puma is worthy of the nasty rivalry between JR and Bobby Ewing.

  10. @shinsei67 – the same happened with the Aldi/Lidl split when the brothers fell out after the father died

  11. Not just German families falling out with each other. Any family owned business with multiple family members in charge will always go down the pan. Only when one member is properly in charge and all other family members acknowledge this do they work. As highlighted by Alex Polizzi in her series.

  12. Britain had plenty of Mittelstand companies after the war,run by families ,but too often unfortunately as limited companies.So they got taken over: in two waves,first the Charles Clore wave and then a nakedly asset stripping wave around the activities of Slater Walker.Walker was a Cabinet minister I think ,no need to ask which party; Clore’s first inroads ( into the Northampton Shoe trade) were approved by the Board of Trade.
    The nails were put in the coffin by the 1964 abolition of Resale Price Maintenance which had given manufacturers and retailers the benefits of a tied arrangement.Helen Mercer in her LSE paper on the abolition calls it effect” cataclysmic” on manufacturing ,and doing for manufacturing what the abolition of the corn laws did for British agriculture in 1846. The destroyers of British industry have been on the right; the unions and Labour have fought to maintain wage levels and jobs in an essentially conservative way.

  13. nice re-writing of history DBC! A company owned by a nice cosy family is under no compulsion whatsoever to sell up to the Clores and Slater Walkers of this world, now, is it? And didn’t Slater Walker mainly take over and strip public companies, rather than those nice cosy family firms? And your defence of RPM is positively hilarious. Did you write the scripts for “Terry and June”?

  14. RPM was relegalised in the US by the Leegin case of 2007.They don’t seem to be doing too badly apropos economic recovery.RPM abolition is now behind the times (a Chinese District Court recently ruled in its favour)
    I was specifically talking about family run companies that had publicly issued shares.I was brought up in St Albans where Ryders (Seeds) an archetypal mittelstand company, was taken over and pretty much closed down. Later on I ended up in Northampton where Clore got hold of the Sears Brothers firm and did for that in order to sell and lease back all the shops they owned(though he kept the name).And Clore was not an asset stripper like the later Slater Walker. Perhaps you agree with the BoE (not BoT as I said earlier) official who wrote of the Northampton shoe firms in the 50’s (Clore)” and other bidders had not operated for short-term capital gain,as their critics said they would and all have built up prosperous businesses and helped develop assets more efficiently ..In present circumstances Directors have only themselves to blame if they are dispossessed by more enterprising rivals”.All judgements effortlessly ,suavely,completely wrong.(The mark of a good public-school education.)
    This is not to mention the macroeconomic shift that has meant housing now absorbs more disposable income than immediately post-war leaving less to spend in the shops e.g.Mark Wadworth’s figures : 1959Mini £496 house £2,2124 =X4 ;2011 Mini £11,810; £166,597 =X14.
    QED right wing footlers have done more damage to British industry than the left,who, by comparison, were staunch traditionalists.

  15. DBC Reed has taken a leaf out of the Ministry of Truth’s book and rewritten history.
    The first wave of takeovers of the Brittelstand was by Attlee when he nationalised many of them (Lord Hanson, who was NOT an asset-stripper, became fiercely anti-state control because his father’s road haulage business was nationalised); the major reason for families selling out after the war was not family squabbles but Death Duties (which also split up most large estates) since most families did not have two-thirds of the value of the business in realisable assets outside the business (to be able to pay 40% of total assets means the value of the business is less than 60% of the total).
    He then in #17 rewrites the German language to make Mittelstand describe quoted companies; following which he claims a Civil Servant is a right-wing politician.
    Incidentally, Peter Walker was viewed as left-wing by most Conservatives and, in any case, left Slater Walker to the tender care of Jim Slater when he went into politics. Walker built up an Insurance Broker, Slater subsequently used it to become a “corporate raider”. Of course he was to the right of Attila the Hun: so were Attlee, Keir Hardy, Gorbachev and Kruschchev.

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