The more involved family owners are in the daily running of their business, the greater the interest from investors, according to a debut Swiss study of financial performance of family-owned firms.
However, the ownership stake held by the founder or his/her family did not appear to correlate with stronger outperformance, and succession risk may be “overstated”.
Global family businesses of all sizes were found to have outperformed rivals in every sector in the The Swiss Family Business Model, published by the Credit Suisse Research Institute. Swiss family-owned businesses outperformed their domestic non-family-owned peers by 9% per year since 2006. They also outperformed family-owned peers in Europe and globally.
Revenue growth of Swiss family firms tended to be stronger, cash flow returns were greater and balance sheets are typically much less geared than in the case of non-family-owned companies, the report found. When comparing Swiss family-owned companies to peers elsewhere, the report said shareholder value creation was superior as cash flow returns were structurally higher and gearing structurally lower.
The Swiss family sector had lower pay-out ratios than their non-family-owned competitors, had a greater reliance on shorter-term remuneration policies, and had more conservatively geared balance sheets which enabled them to withstand cycles of tough market conditions. Swiss families also shared a conservative view toward funding new investments—70% of the companies indicated future funding requirements were largely carried out through the use of internally generated funds compared to 47% for the overall survey.
Future revenue aspirations for the Swiss family-owned companies were relatively more modest: 30% for Swiss family-owned companies expect growth of more than 10% compared to 75% for the overall survey.
When reviewing the share price returns for Swiss family-owned companies, the report showed a premium performance by younger (first and second generation) owned firms.
“The report does not see this to be due to succession-related challenges but a reflection of business maturity,” it said.
“The stake held by the founder or his family does not appear to correlate with stronger outperformance,” Credit Suisse said in a statement.
“Therefore the ‘family alpha’ as observed in Swiss family-owned companies is, in our view, more related to the alignment of interest with the founder and his family than dependent on how much of a company's equity is owned by them.”
The institute studied almost 1,000 family-owned, publicly-listed companies by region, sector and size. A total of 18 companies from Switzerland were included in the analysis. In addition, a proprietary survey of more than 100 family-owned companies was conducted globally to test the conclusions from the analysis in which 10 companies from Switzerland were surveyed.
“Family-owned businesses are outperforming their peers in every region, every sector, whatever their size—and Swiss family-owned companies outperform their family-owned peers in Europe and globally,” Eugène Klerk, head analyst thematic investments at Credit Suisse and the report’s lead author, said.
“Our research suggests that investors are not too concerned about the level of ownership of Swiss or global family-owned businesses but rather how involved the family owners are in the daily running of the business. This seems to be at the core of the success of family-owned companies in our view.”