Investing fashions come and go. Public ownership has been often criticised for not serving the interests of all shareholders. Now, investors are being encouraged to think about the benefits of family-owned companies.
Examples of successful family-owned businesses abound. Wal-Mart is still chaired by the eldest son of founder Sam Walton. According to the Maine-based Institute for Family-Owned Business, more than a third of the listed companies in the Fortune 500 are family-controlled, as are nearly half of Italy’s 100 biggest companies and a quarter of France’s.
But whether the success stories should encourage investors to buy into family-owned businesses is another matter. Credit Suisse has just launched an index of companies in which the founding family has a stake of 10 per cent or more. In Europe, these stocks have outperformed their respective sectors by 8 per cent annually over the past decade. Over both 20-year and five-year time horizons, however, the picture is less convincing. Performance varies significantly between sectors.
What rights are associated with the stakes, whatever their size, is also significant. A family may not necessarily have dominant voting rights, but may still have a strong influence. Where the family stake is controlling, its influence may not necessarily be benign. Succession is often unclear – think of Lachlan Murdoch’s position at News Corp or Abigail Johnson’s at Fidelity. Handling underperforming family members can be challenging. The struggle to get Sir Ken Morrison, now chairman of UK retailer Wm Morrison, to step back from his executive role damaged the supermarket chain’s share price. And the dispute between Michael Eisner, Disney’s chief executive, and Roy Disney, Walt’s nephew and one of its biggest shareholders, paralysed the company for years. For investors, like everyone, families are clearly not an unmixed blessing.