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America’s corporate dynasties get no respect these days. The Busch family, co-founder of brewer Anheuser-Busch, is staging a rearguard action against a takeover by Belgium’s InBev. Over at Ford, the company’s stock has slumped from over $9 a year ago to below $5 and Kirk Kerkorian is sniffing around. Last year, the Bancrofts succumbed at Dow Jones.
For governance purists, these are welcome developments. With their personal loyalties and limited management gene pool, families can hold back their companies, depressing returns for other investors. Similar concerns surround dual-class share structures, giving select insiders disproportionate voting rights. Some 7 per cent of companies in the S&P 1500 have such arrangements, according to RiskMetrics, down from 12 per cent in 2001.
Misalignment of economic and voting power does create a gap that can be exploited by the unscrupulous – or simply filled by the incompetent. Shareholders should be extra vigilant of how nominally independent boards conduct themselves in such situations. But there is no single governance model that fits all. Does anyone begrudge Google’s founders’ retention of strategic control via their B shares? Does Rupert Murdoch’s gradual transfer of power to his son, James, give investors in News Corporation sleepless nights? Without founders retaining some influence, many companies might simply never float. And families are the bedrock of new businesses – a study conducted in the 1990s estimated almost four-fifths of all US companies were family controlled.
The challenges currently faced by the likes of Anheuser, Ford, and numerous family-influenced media companies can be attributed to relatively prosaic reasons. All are in mature industries suffering from low growth or transformational change. Their primary market, the US, is slipping into recession. Their shares are quoted in a currency which is flat on its back, making some tempting targets for foreign predators. The apparent decline in family-influenced or dual-class structures, therefore, looks like a temporary phenomenon rather than an inexorable shift.
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