Successful on and off the stock exchange: Governance practices in family firms

By Bianca Braun and Sonja Kissling

Die Autorinnen gehen anhand von Gesprächen mit 10 börsennotiert und zehn nicht-börsennotiert Familienunternehmen der Frage nach, wie sich diese Unternehmen unterscheiden und welche Veränderungen ein Börsengang mit sich bringt.
Die Autorinnen analysieren und vergleichen im Buch verschiedene Führungsinstrumente (die Governance) dieser Unternehmen (Eigentumsstruktur, Verwaltungsrat, Strategie, Beziehung Familie-Unternehmen, Informationspolitik, Transparenz). Sie
kommen zum Schluss, dass es nicht unbedingt eine klare Trennung zwischen börsennotiert und nicht-börsennotiert Familienunternehmen gibt. Vielmehr finden sie erstaunliche Ähnlichkeiten zwischen ihren Gesprächspartnern und können sie
in vier Kategorien einteilen (die Puma-, Hippo-, Oktopus- und Mammut-Familienunternehmen). Das Buch versteht sich als Beratungsbuch für Familien, ihre Unternehmen und ihre Experten/Berater.

• Language: English
• Publisher: Orell Füssli Verlag
• Release date: Sep 7, 2020
• ISBN: 9783280091111

Book preview

restructuring.

2.Go public or stay private?

What is a family firm?

When writing a book about family firms, the first thing to note is that there is no generally applicable definition of family firms. In practice, family firms encapsulate everything from small regionally active family firms to very large family firms that operate on an international level. Therefore, the size of the company is not a criterion, just as little as whether the firm is listed or not. As a rule, a common parameter used to define a family firm is the ownership structure, i.e. how much of the firm remains in the hands of the owner family. However, this requirement threshold is subject to much variation, ranging from 20 percent for listed firms to at least 50 percent for private firms. Certain definitions also require that family members are not simply the owners, but also maintain a presence in the firm, be it in a supervisory role at board level or even in an operational role at management level. Other definitions also require that the firm has existed for at least one family generation or has the intention of future generations of the family continuing to operate the firm, thus making it a family firm. According to such a definition firms founded by entrepreneurs, such as Facebook, are not considered family firms. Finally, some definitions also incorporate soft factors, taking certain cultural elements into account.

Due to the lack of a uniform definition, it is simply not possible to state how many firms can be defined as family firms with any level of certainty. However, the available information suggests that an estimated 70 to 90 percent of businesses worldwide are family firms, which contribute to approximately 40 to 70 percent of gross domestic product (GDP) and employment worldwide.

Life cycles of family firms

What better helps research and practice to make the essence of family businesses tangible is the classification of family businesses according to their life cycle. A distinction is generally made between first-generation founder-managed companies (controlling owner), second-generation sibling-managed companies (sibling partnership) and family firms that are in their third or subsequent generations and already have several family lines (cousin consortium). Families may then further develop on this phase to evolve into a family enterprise. In this phase, the family generally invests its assets in a highly diversified manner and, in addition to the original company, also owns other significant assets and company shares.

This distinction provides a clear and helpful illustration of the challenges the majority of family firms typically encounter during each phase of the firm. Each phase is marked by the different situations both the firm and family find themselves in, with the implementation of measures required to ensure the smooth operation of both systems.

−Founder-managed family firms, for example, typically feature a management style that revolves around the founder, with succession planning often posing a major emotional and strategic challenge.

−On the other hand, sibling-managed firms need to develop an aligned management style and a common strategy for the company.

−As a rule, once a firm reaches the cousin-consortium phase, both the family and firm are more complex, and rules need to be established to guide family decision-making and participation.

−Once a firm enters the family enterprise phase, the priority lies with ensuring the family retains a strong identity with the firm or, to counter a loss of identity, the family creates a new identity through philanthropic or investment activities.

Evolutionary Transitions Between Types of Family Business

Gersick, Lansberg, Desjardins, Dunn (1999)

Listed firms

Distribution

According to figures from the World Bank, the number of listed firms continued to increase between 1975 and 2014. In 2014, there were a total of 45 347 listed firms. Since then this figure has been relatively constant but in steady decline. Recent surveys from 2018 state that there are 43 342 listed firms worldwide. Switzerland currently has 236 listed firms, with a peak of 289 listed firms reached in 2003.

A 2018 ranking by "TheGlobalEconomy.com" featuring 70 countries showed that the highest number of listed firms can be found in the following countries:

1.India (5 065)

2.USA (4 397)

3.Japan (3 562)

4.China (3 584)

5.Canada (3 330)

Germany is currently in 17 th place with 465 listed firms and Switzerland is in 27th place with 236 listed firms. Costa Rica, Lebanon and Namibia rank lowest with only 10 listed firms.

According to an OECD report from 2019, these listed firms have achieved impressive market capitalisation, which currently stands at over 80 trillion USD. Although the majority of listed firms (57 percent) are located in Asia, they currently jointly hold less than half of market capitalisation (37 percent). Individually, the USA takes the top spot – it is the location of 10 percent of all listed firms with market capitalisation amounting to 36 percent of global market capitalisation.

How many of these businesses are family firms? Following our previous explanation on the lack of a clear definition for a family firm, determining precisely how many of these listed firms can be considered family firms is not a simple task. Be that as it may, various studies do shed light on this topic and permit a deeper insight.

According to the aforementioned OECD report individuals and families currently hold 7 percent of the market capitalisation of listed firms around the globe, with private firms and holding firms holding 11 percent. 14 percent of the market capitalisation of these firms is held by the public sector and 41 percent by institutional investors.²

As a percentage, in terms of number, we are able to surmise that approximately 30 percent of listed firms in Switzerland are family firms. This number can be backed up by numerous studies.

The CS Family 1 000 in 2018 report by Credit Suisse profiled a list of 1 000 listed family firms. The criterion it used to define a family firm was whether founders or descendants directly held 20 percent of ownership or voting rights. Facebook was qualified here as a family firm, for example. Credit Suisse included 32 listed family firms located in Switzerland in its report, corresponding to 13.56 percent of the firms listed in the country. As the percentage is based on a limited selection of firms by Credit Suisse, the actual number is most likely higher. Indeed, in 2004 the University of St.Gallen and EY reported the percentage of listed family firms in Switzerland as 37 percent.

This is similar to the global average, whereby it is estimated that 30 percent of listed firms are family-owned. In 2018, the World Federation of Exchange concluded that, according to studies conducted at the turn of the millennium in the USA, between 18 and 37 percent of listed firms in the USA are family-owned. According to Stiftung Familienunternehmen, a study conducted in Germany over a ten-year observation period measured that between one third and half of all German companies listed on the DAX are family-owned. In India, approximately 50 percent of the largest listed firms are