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Over the years, contrary to the views of sceptics who have been calling for more scrutiny of family businesses, a series of investigations has found family-controlled, quoted firms are outperforming their listed rivals, according to Panikkos Poutziouris, associate professor at CIIM Business School.
Family-controlled PLCs can outperform their peers because they are masterful in dominating their niches; their owner-managers exhibit stewardship, prudence and commitment to achieving long-term strategic results.
This article argues that quoted family controlled PLCs, although not insulated from the hurricane that has hit the equity market, have inherent defence systems that will ensure their sustainable growth and superior performance.
Family business and business families are the most prevalent organisation.
The role of family firms is more prolific at the early stages of the business life cycle where owner managers, as the main source of social and financial capital, provide stimulus for the entrepreneurial growth of their firms.
In the context of managerial capitalism, encouraged by the separation of ownership and control and coupled with the development public equity markets, a minority of smaller giants with controlling families at the helm, elect to go for flotation.
Today we have certain family firms that exhibit superiority in their sectors and given their trans-generational sustainable business success, their controlling families have made it to the pantheon of fame: Sainsbury’s in retailing, Murdochs in media, Peugeot in cars, to name a few.
The family-in-business ownership model, despite its critics, demonstrates that it has the capacity to adapt its business model, thrive and prosper, and thus offer returns to all stakeholders.
The latest LSE Family Business Index (covering 2001-2006), developed with the Institute for Family Business (IFB) and Manchester Business School, demonstrated an out-performance of the FTSE index by 40%. The results mirrored similar findings of other studies in the US and other European equity markets.
A number of commentators have been asking, how do family business PLCs fare in the current crisis? The table illustrates the historical share performance of FTSE 100 listed family firms benchmarked against their sector and FTSE index.
It is evident that the majority of family controlled PLCs are enjoying a superior performance, even during the recent turbulent times. With their proven performance on the stock market, there are precious few excuses for dismissing family firms as unprofessional lightweights.
Arguably, families in business can add value for all stakeholders (insiders and outsiders) as they reap the fruits of a synergistic tripartite partnership.
The pillars of this partnership are the marriage of responsible family owners committed to the long-term strategic horizon, who are marshalling the resources of a loyal team of talented managers; and are enjoying the trust of committed investors that have faith in the family’s stewardship of the business. The entrepreneurial family offers stability and solidarity and cultivates a culture that does not seek adventurous growth to impress opportunistic investors with short-term returns.
THE FUTURE
The superior performance of family controlled companies could offer comfort to investors who are worrying about the practice of despotic altruism, by business family dynasts administering schemes seeking to sustain family control. It is evident that their superior performance is shaped by strategic focus in serving their profitable market niches and synergetic partnership that involves responsible family owners, loyal investors with a long term perspective and talented long–serving managers that share the family vision.
In the current financial crisis, family businesses could make a sound investment, especially those that have optimised the role of the family in the governance and in crafting entrepreneurial business strategies.
(Source: Raconteur on Family Business)
