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Why keeping the business in the family pays off

New research from Credit Suisse affirms that family-owned companies tend to outperform non-family owned businesses. Over the last decade, the annual return generated by family owned companies was on average 5% higher. The latest edition of the ongoing report, “The CS Family 1000,” also explored regional and generational differences between the two business models. 

Researchers used one of the two following criteria to define a family-owned business: direct shareholding by founders or descendants of at least 20% or voting rights held by the founders or descendants of at least 20%. Since 2006, these companies have generated a cumulative return of 126%, outperforming the MSCI AC World index by 55%.

The report analyzed the top performing family and founder owned businesses by region on a three-year, five-year and 10-year basis. From a geographical perspective, the US and Asia (excluding Japan) have the top-performing family business concentration. However, Europe has the strongest out-performance: 5.1%, compared to 4.3% among their peers in the US, and 3.1% in Asia.

Among the top North American family-owned businesses with the best performing growth and stability track record in their sectors: Constellation Brands, Rollins, and Nike Inc. lead the pack. Constellation Brands has a $36.1 billion market capitalization, Rollins is at $11.5 billion, and Nike Inc. is at $97.8 billion.

Researchers identified three key contributing factors supporting the strong performance of family owned businesses compared to their peers: stronger leadership loyalty to the business, more stability and focus on the long term while also prioritizing quality growth over short term profits.

“Establishing cause and effect is not straightforward, although higher spending on research and development and capital expenditure, and less cash taken out of the business through dividends and share buybacks is a common trait,” the report stated.

A follow up survey by Credit Suisse showed that family-owned companies plan to keep it in the family. Seventy-five percent don’t expect the family ownership to decline in the foreseeable future.