III Banca March-IE Report shows governance benefits for family firms

Listed family firms that adopt good corporate governance proceedures are more likely than not to boost returns for investors, according to the findings of the latest research published jointly by Banca March and the IE Business School.

The report – III Banca March-IE Report – follows on from previous research projects on the scope for accessing returns on investment in companies that are defined as family run or controlled. This current research report looked to apply quantitative analysis of corporate governance on ther period 2008-2013, sampling 1,127 publicly traded companies in the US and Europe.

The resarch analysed different aspects of corporate governance, including the board of directors and the functioning and composition of the board; ethical leadership; transparency; remuneration; and shareholder rights.

Co-authors were Cristina Cruz, academic director of the Area of Entrepreneurship and professor of Entrepreneurial Management and Family Business at IE Business School and Lucía Garcés Galdeano, researcher in Family Business and Entrepreneurship at the Public University of Navarra (UPNA). In introduction to the research was penned by José Jiménez, general manager, March Asset Management.

According to the general findings of the research, family run company tend to lag non-family run companies when it comes to adhering to good governance recommendations outlined in governance codes of publicly listed companies; but that for those that do adopt best practices there is an additional “premium” that can be attributed to the potential returns to investors.

Other key findings include:

  • The surveys show the superiority of the corporate Anglo Saxon governance model compared to its continental counterpart when it comes to meeting good corporate governance practices. The US 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 that were surveyed.
  • Despite the results suggesting that European family companies are headed in the right direction, they still have some way to go to reduce the corporate governance gap. It is true that part of this gap can be explained by differences in the ownership structure of traded companies in both models, but it is also true that in an increasingly global market, investors are looking for profitable companies that meet universal good governance criteria, regardless of their origin or their capital structure.
  • The results of the report also show that improving corporate governance is a profitable investment for family firms, given that those companies whose corporate governance is above the average are more profitable than the others surveyed. If in earlier reports we showed that the “family firm + listed company” combined the best of both worlds, this III report shows that adding “company with good governance” to the equation substantially improves the “family premium”.
  • The analysis we have carried out provides family firms with indications as to which aspects of corporate governance improvement efforts should be directed. The data shows that family firms, above all in Europe, lag behind non-family firms in terms of the working and composition of the board of directors. At the same time, our report shows that scoring well in these areas has a positive impact on the profitability of family firms. The conclusion, therefore, is that an efficient board, with the required committees and a balanced composition in terms of independent directors, non-executive directors, and members with proven professional experience, helps family firms to mitigate the negative aspects of family control, maximizing their capacity to create value for shareholders.

According to the research, the founder-run companies with best corporate governance on both sides of the Atlantic include Microsoft, Starbucks, Computacentre and Inditex. The family firms with the best corporate governance include Hormel Foods, Gap, Campbell’s, Holcim, Stagecoach Group, Associated British Foods and Acciona.

According to the findings “The profile of a listed family firm with the best corporate governance would be a large and relatively young
company in which the founder is still present, where the family holds moderate control over the shareholdings (less than 40%) and the CEO is not a member of the family.”038

March CEO Miguel Angel Munoz (pictured) said of the findings that: “Diligent asset managers need to take corporate governance into account when valuing family businesses. Strong governance, together with the greater long term profitability demonstrated by family businesses, provides a compelling investment case. Managers have a central role to play in that process.”

To download a copy of the report click here: FULL IE BIZSCHOOL THIRD REPORT onGovernance_EN


Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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