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Companies founded, managed and part-owned by successful
entrepreneurial families have garnered a reputation for
delivering stronger returns than other listed firms in recent
years, thanks in part to the perception of a closer alignment of
interests with external shareholders.
But a report by Spain's IE Business School and Banca March
analyzing governance benchmarks at 265 family firms (FFs) and
861 non-family firms (NFFs) in Europe and the United States
between 2008 and 2013 showed the former were on aggregate more
poorly governed than the latter.
As a result of low corporate governance scores, the family-run
firms were delivering a smaller so-called "family premium" than
their better-managed peers.
The compound annual return achieved by FFs over the six-year
period was 12.8 percent compared with 10.4 percent for NFFs,
although the best-governed FFs generated 20 percent compared
with 12 percent for all other companies in the sample.
The family firms who scored highly on the report's corporate
governance metrics include Spain's Inditex <ITX.MC>, Britain's
Stagecoach Group <SGC.L> and Switzerland's Holcim, now part of
Holcim-Lafarge <LHN.S>.
"Investors are looking for profitable companies that meet
universal good governance criteria, regardless of their origin
or capital structure," Professor Cristina Cruz, one of the
co-authors of the report, said, pointing to particular flaws in
board composition, board supervision and shareholder rights.
"The U.S. and UK family firms continue to lag behind non-family
firms in terms of governance, but their situation is much better
than their peers in the rest of Europe," Cruz added.
Specifically, the report put the percentage of independent board
members of listed companies at 82 percent for NFFs compared with
56 percent for FFs. It said 16 percent of European FFs have a
corporate governance committee to supervise standards, compared
with 22 percent of NFFs.
A similar situation exists for appointment committees
responsible for vetting senior hires, which are present in 72
percent of European FFs, compared with 95 percent of NFFs.
Policies that guarantee the application of the "one share - one
vote" principle, a mechanism designed to avert excessive control
by one segment of shareholders, are in place at 95 percent of
NFFs but in just 75 percent of FFs, the report showed.
(Editing by David Holmes)
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