Family businesses perform betterAugust 31, 2005
A new book by researchers at the University of Alberta has found that family-controlled businesses regularly and dramatically outperform public non-family-controlled businesses.
In their latest book, Managing in the Long Run: Lessons in Competitive Advantage from Great Family Businesses, Dr. Danny Miller and Isabelle LeBreton-Miller argue that unlike the popular impression of rampant nepotism and poor money management by hedonistic free-spenders, family-controlled businesses often perform better than non-family-controlled business. For every T. Eaton Co. Ltd., there are Michelin, IKEA, Estee Lauder, Wal-mart, Coors, L.L. Bean, Levi Strauss, S. C. Johnson and more.
According to Miller, a research chair at the U of A School of Business, our impression of family-controlled businesses are often based on the very public collapse of a few unsuccessful companies. We're mostly unaware of the successful family businesses because of their private nature.
"These people don't like to brag about their success. Even when they're ahead, they try to stay under the radar," he said.
Their research have found that family-controlled businesses often enjoy success in more than one area, including revenue growth, market valuations, return on assets, return on equity and total shareholder returns. They also place bigger emphasis on human resources, training and social benefits for their workers.
Many of these companies are well managed through many generations and the have become leaders of their field.
"We have specifically chosen companies that have performed well for more than 20 years, and in some case, more than 50 years. In fact, we have taken care to not include one-generation enterprises in the book," said Miller.
Multi-generation interests and continuity of success is one of the main motivators for these family owned business as their family reputation and their future generation are at stake. In addition to continuity, the authors have found that successful family businesses all achieved a balance between the other three C's: community, connection, and command.
Unlike most publicly held companies, family business measure their success with a different scale. They are uninterested in quick profits and short-term goals. Their majority ownership frees them from the restraint of shareholders and affords them the freedom to act fast, boldly and take on risks that allow them to become trendsetters of their field.
"Most of the executives of publicly held companies are on the job for five years and these companies are more concerned with quarterly earnings. However, family-owned businesses are in there for the long run. It might even take decades for some of their ventures to pay off," said Miller, who listed Corning's investment in fibre optics as an example.
"There're not there for one-step bargain deals with their suppliers. They're there to establish long-term relationship and connections that could be five, ten, or twenty years," added LeBreton-Miller.
And unlike most multi-national companies, family businesses usually retain a close connection with their employees and often create a sense of belonging from their workers.
"They often inspire great loyalty as well. If the employee is strapped, the company as a family is there for them; and alternately, if the company is in trouble, the workers are willing to go the extra mile to help the company and the family," said Miller.
Though one of the book's few Canadian examples, Bombardier, is in financial troubles right now, the authors still insisted on including the company in the book. They said that Bombardier is perfect example of what would go wrong if there's too much focus on one of the C's and how that can upset the balance of the company.
"The four C's are powerful tools that can give them a significant advantage. But there are down sides," said LeBreton-Miller.
"A big part of the book is showing how these C's have to be balanced. You can't have any one of them at an extreme. The balance will have to adjust according to their business strategy."
-end-Dr. Danny Miller and Isabelle LeBreton-Miller can be reached at 514-484-7768 or firstname.lastname@example.org.
University of Alberta
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