Publicly-traded but very much in the family: patrimonal firms on the Paris Stock Exchange
Family companies are often contrasted with publicly traded companies. Our study of the 250 largest companies traded on the Paris Stock Exchange establishes that the majority of French traded companies are also family-controlled, with as many as 57% of the so-called SBF250 having individuals or families as first shareholders in 1998. Of these 250 companies, at least 99 (40%), were family-controlled through the majority of voting rights. Here we share further insights from our study, which focused on the prevalence, evolution and degree of control of patrimonial firms among the 250 largest firms on the Paris Stock Exchange in 1993 and 1998.
Patrimonial firms are companies with identified individuals or families as the first ultimate shareholders, holding a 'significant'equity stake (defined as at least 10% of the shares in each step of the ownership chain). The case of a 'significant' shareholder can be subdivided further: the principal shareholder may have either an absolute majority interest (2/3 of equity), a simple majority interest (between 1/2 and 2/3 of equity), a 'blocking'minority interest (between 1/3 and 1/2 of equity) or a minority interest (less than 1/3 of the equity but still being the highest single shareholder).
The SBF250 is an interesting locus for the study of French patrimonial firms. This sample is well-documented (in contrast to private firms) and data on ownership can indeed be obtained. It also provides good 'controls' for comparison of patrimonial firms with their 'public'counterparts.
Prevalence, if not outright dominance
As already reported, patrimonial firms represented 57% of all companies in the SBF 250 in 1998. Five of the 20 largest capitalisations were patrimonial (L'Oreal, Carrefour, Pinault-Printemps-Redoute, LVMH and Promodès). Furthermore, 45% of these firms were represented on the SBF120, so that as many as 68% of the next companies in the SBF250 were patrimonial.
It should be noted that these numbers present a 'lower bound'on patrimonial firm prevalence in France, since the terrain of large publicly-traded companies is the privileged domain for public firms with diffused ownership. In contrast, one would not a prioriexpect this terrain to be favourable to a large number of patrimonial firms. Our study demonstrated how false this common assumption may be (at least for France). Large public firms with diffused ownership do indeed form an exception in the ecology of French firms, even in their 'natural habitat'.
Increased prevalence – in a hostile environment
The second contribution of our study was to document the evolution of prevalence on the stock exchange of patrimonial firms over time. Most studies on family firm prevalence represent an observation at a given point in time. In our study, we applied the same definition of what constituted a patrimonial firm over two distinct time periods: 1993 and 1998.
This period is generally accepted to be a turbulent period in the French economy, coinciding with turbulence and growing 'liberalisation'in the world's economy. Many observers have frequently commented that the 'victory of capitalism' also sounded the end of family and individual firms. At least in France during this time, the opposite seems to have occurred.
More specifically, our second result established that the number of patrimonial firms in the SBF250 has actually increased over the five-year period of 1993-98: the percentage of patrimonial firms grew from 48% to 57%. Hence, over this period family firms came to dominate the SBF250, something most finance professionals would find a surprise. It can be interpreted as a demonstration of the vitality of family firms and their capacity for risk-taking and business leadership, even in a turbulent environment.
It should be acknowledged that patrimonial firms' share of capitalisation amongst the SBF250 is lower than their importance in number. While 57% of the firms are patrimonial, they represent only 35% of the capitalisation of the SB250. This reflects the higher concentration of family firms in the smaller capitalisation range. Indeed, the largest French company, France Telecom, a non-patrimonial firm, represented by itself almost 9% of capitalisation of the SBF250. Also, the very large companies in the French energy/utilities and finance/insurance sectors have spread or 'state'ownership.
Differential sector presence of family firms and evolution
Patrimonial firms on the 1998 Paris Stock Exchange were particularly present in luxury, retail, holdings and services, but also in automobile, consumer goods, technology, media and pharmacy. They were almost non-existent amongst the largest traded firms in the energy/utilities and finance/insurance sectors. A surprise may be their presence in such a capital-intensive sector as the automobile sector (eg Peugeot, Michelin).
The evolution between 1993 and 1998 shows that the number of companies in the technology, pharmacy, media and services sectors grew thanks to a substantial contribution from patrimonial firms. In other words, patrimonial firms substantially drove the dynamics of these sectors on the exchange. It will be noted that this came with a substantial reduction in the number of holding companies in the SBF250. It appears that families chose to focus their holdings on particularly dynamic or appealing sectors, though this hypothesis deserves deeper investigation.
High levels of control
The ownership stakes held by owners of patrimonial firms were considerable: 57% of patrimonial firms were controlled through ownership stakes exceeding 50%. In other words, 32% of all companies of the SBF 250 were majority-owned by individuals or families. These 80 companies represented 15% of the SBF250 capitalisation.
As suggested by the above numbers, the smaller the company valuations, the higher the ownership stakes: in the SBF120, the percentage of patrimonial companies controlled via a majority stake was lower, at 35%.
The level of control did not appear to decrease during the period. In 1993, 51% of the patrimonial companies in the SBF250 were controlled via majority stakes and a larger number were controlled through minority stakes. Indeed, new entrants had high levels of control (64% of 66 new patrimonial companies in the SBF250 were majority-controlled), but also the 74 patrimonial firms remaining in the SBF250 stayed at the same level of control on average. Families, eager to maintain their independence and the ability to fully govern their business, continue to hold onto control of their family companies.
Among the larger companies composing the SBF120, it should be noted that while six patrimonial companies had increased levels of control by the main shareholder, 12 had decreased levels of control. This may largely be an effect of size and profitability, for it does not seem to be present when examining the SBF250. To maintain and grow their competitive position, to afford the massive investments required in the global business arena, families, probably with some reluctance, are ready to give up part of their control. Again, this deserves further exploration.
Holding companies and voting rights as control tools
The analysis of voting rights confirmed that voting rights were used to increase the level of control of French families. Often we saw that voting rights allowed the achievement of a critical threshold in control. In 1998, the main shareholders had the majority of voting rights in 74% of the 133 patrimonial companies for which we found the information (ie majority of voting rights in at least 70% of all 141 patrimonial companies).
Moreover, families and individuals typically used holding companies as a means to keep control while leveraging the use of external financing. The simplest situation is when a fully private family holding owns the major stake in a publicly-traded company. The shares of the private family holdings are only tradable between family members. In this case, it is interesting to note that this legal structure not only allows to structure the ownership, but also the decision-making process in the family: the board of the private family holding is a formalisation of the family council.
Our study demonstrates that family control and presence on the stock market can coexist. Indeed, in France they very much do. Families have shown that from 1993 to 1998 they played an increasing role at the top of the stock market and that they were present in almost all economic sectors. Importantly, families have kept ownership and control levels high, further confirming that their role is far from disappearing. This strength of families over time receives further confirmation from another result: the average age of patrimonial firms joining the SBF120 and the SBF250 over the studied period was considerably higher than that of the non-patrimonial firms. This is evidence for the greater longevity of family firms and a testimony to their resilience and business acumen.