Why Premjis, Ambanis and Nadars beat non-family run companies

Representative image. Photo: Shutterstock
The return generated by family-owned businesses have been higher than the non-family owned ones since 2006, finds a study from Credit Suisse. Using its proprietary ‘Family 1000’ database of over 1,000 publicly listed family or founder-owned companies, the Credit Suisse analysis suggests that since 2006, the overall ‘Family 1000’ universe has outperformed non-family-owned companies by an annual average of 370 basis points (bps).

The research house classifies a family-owned company where either the founder / family owns at least 20 per cent of the company’s share capital or where the founder / family controls at least 20 per cent of the company’s voting rights.

“Reasons for this include superior revenue growth and cash flow returns. Family-owned companies offer safety in periods of market stress – during the first six months of this year, they outperformed non-family-owned companies by 300 bps,” the Credit Suisse report said.

Family-owned companies, the Credit Suisse findings suggest, tend to be more profitable. Since 2006, revenue growth generated by such companies has been over 200 bps higher than that of non-family-owned companies for both smaller and larger companies. That apart, they, on average, tend to have slightly better ESG scores than non-family-owned companies. CLICK HERE TO VIEW THE TABLE

Even Covid-19 has not dented their spirit even though 80 per cent of family-owned businesses saying that they have been negatively impacted by the pandemic. Despite the impact on revenue growth this year, family-owned companies surveyed viewed Covid-19 as slightly less of a concern to their firm’s future prospects with 21 per cent of such companies saying the pandemic had either not had a significant impact on their business or had even been a net positive. “Family-owned companies have also resorted less to furloughing their staff than non-family-owned companies (46 per cent versus 55 per cent),” the Credit Suisse report said.

Indian firms score high

Among regions, performance has been strongest for family-owned companies in Europe (470bps) and Asia (over 500bps) per annum since 2006. North America, on the other hand, family-owned companies showed a more moderate outperformance of around 260 bps per annum. The report covered 12 markets in APAC, including Japan, which continue to dominate and represent a 51 per cent share of the universe, with a total of 540 companies and a market capitalisation of over $5.56 trillion. CLICK HERE TO VIEW THE TABLE

The universe includes 111 Indian family-owned companies, with a total market capitalisation of $922.7 billion. Wipro, Reliance Industries (RIL), Dr Reddys Laboratories, HCL Technologies, Cipla, and Divis Laboratories are the six Indian firms that feature prominently in the top-ranked companies in the Asia ex-Japan region.

“Family-owned companies, including those from India in our proprietary database, continue to show signs of outperformance in growth and profitability as well as resilience to the ongoing Covid-19 pandemic,” said Mihir J. (Mickey) Doshi, Managing Director and Country CEO of Credit Suisse, India. 

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel