When the words 'family business' are mentioned, some people still think it refers to smaller companies – backward-looking firms with their roots in the past and doomed to disappear. Even though national surveys from many countries regularly suggest that four of every five business enterprises operate under family ownership and control, their predominance is perceived as exaggerated or in some way abstract. The prevalent model of 'business'– communicated by business schools and referred to in the media – is that of a large company, traded on the stock exchange, and with spread ownership. These dispersed groups of owners essentially express their appreciation of the company and its prospects by buying, holding onto or selling their shares.
INSEAD, having an activity in the family business field, felt the need to establish more reliable and transparent information on the importance of family firms, and especially the larger ones. We wanted to root our understanding of the prevalence of larger family enterprises in sound economic data. Given our location, the first step was to measure the proportion of large family enterprises operating alongside France's large non-family enterprises. The 250 largest traded companies on the Paris stock exchange ('SBF 250') appeared to be an excellent starting point. With all the liberalisation ongoing in France over the last decade, we thought that this would be a 'tough testing ground' from which to measure family firm prevalence. With several state-owned companies introduced on the stock exchange, the role of institutional investors and the increasing interest of the general public, the 'Bourse'is probably where one would expect not to find a large number of family-controlled businesses.
The results of the study proved quite surprising. We present them in the form of answers to the kinds of questions that any interested family business owner, onlooker or student of family business may ask.
Isn't it a fact that the largest traded firms are owned by a sea of anonymous owners and a few institutions?
No. This was the first surprise of our study. The majority of the firms (as many as 57% in 1998) of the SBF 250 proved to be patrimonial firms, according to our definition. These were more concentrated among companies with a smaller capitalisation. However, as many as 45% patrimonial firms were found amongst the largest 120 (SBF 120). In the largest 20 companies, 5 were patrimonial (l'Oreal, Carrefour, PinaultPrintemps-Redoute, LVMH, and Promodès).
Aren't patrimonial firms in decline?
No. Our data demonstrated a remarkable growth and vitality amongst patrimonial firms over the period studied. The number of patrimonial firms in the SBF250 actually increased over the 5 years between 1993–1998. Over this period, the percentage of patrimonial firms grew from 48% to 57% in the SBF250. In fact, there was a lot of movement in and out of the SBF250 over these 5 years. Many firms left and joined the index, and those that left were replaced by an increased number of patrimonial firms. New entrants included companies such as De Dietrich (founded 1684), Beneteau (founded 1884), Christian Dalloz (founded 1870) and Taittinger (founded 1734).
French patrimonial firms can certainly be found in retail and luxury. But what about the rest of the economy?
We found patrimonial companies to be present in most sectors of French economic activity. They have a particularly strong presence in luxury, retail, services and holdings, as expected, with well-known names such as LVMH, Hermès, Clarins, l'Oréal, Promodès, Carrefour, Pinault Printemps Redoute and CGIP. But many are to be found in the automobile industry (eg Peugeot, and the many suppliers in the industry), consumer goods (Bic), technology (Dassault Systèmes), media (Publicis) and pharmacy (Boiron), where patrimonial firms play a major role in each industry. The increase in family firm prevalence from 1993 to 1998, for instance, was mostly linked to the development of the technology and pharmacy sectors. Patrimonial firms are, on the other hand, notably absent from a few sectors in France, especially the energy, finance and property sectors. The very large companies of these sectors have spread ownership, or have the French state as the largest owner.
Do families or individuals keep control by holding the majority of shares?
Yes. Stakes owned by families and individuals in patrimonial firms tended to be quite high. In 1998, individuals/families had the majority of the capital in 80 patrimonial firms, ie 57% of patrimonial firms, in other words 32% of all the companies of the SBF250.
Voting rights were used to further increase control, as we found that at least 70% of patrimonial firms were controlled through majority voting rights. This means that a total of 40% of all companies on the SBF250 were majority-controlled, through voting rights, by individuals or families.
But shouldn't we expect patrimonial stakes to become increasingly diluted over time?
No. The overall level of control of patrimonial firms actually increased from 1993 to 1998: 51% of these companies were majority-owned in 1993, 57% in 1998.
The increase came from new entrants, which had higher control levels. However, of those companies which stayed on the stock exchange from 1993 to 1998, the average level of control did not change overall. It is only in the larger firms (SBF120) that one can note some dilution of control.
This study shows that families and identified individuals play a substantial role in the French economy. Not only are these the main shareholders in the majority of all enterprises (including the smaller and privately-owned firms), but they also predominate in the exclusive group of France's large, publicly traded companies, a domain where we did not expect them to show such strength. In addition, from 1993 to 1998, their prevalence actually increased. Despite the growing liberalisation and diffusion of shareholder capitalism, family capitalism is thus prevalent and growing, at least among France's largest quoted companies. In our view, the growing prevalence of large family businesses can be seen as an indicator of the performance of these firms.
Similar studies, conducted in other countries by INSEAD and by other universities should enrich our knowledge base on the issues of prevalence and provide us with comparable insights into its features and characteristics.