A Société Générale report¹ shows that since 2015, family-owned companies² have largely outperformed the Stoxx 600 index, offering a return of +136% versus +47% with similar volatility.

A company with a family as principal shareholder often benefits from a clear vision, strong commitment by its shareholders and the time needed to implement its strategy and pursue its development.

These three factors can explain why these companies tend to show good growth rates over time.

A clear vision: a controlling shareholder coming from the founding family brings long-term goals with a well-defined roadmap.
A strong commitment: in order to implement and develop this vision, a family, in its role as controlling shareholder, will be involved in the principal strategic decisions concerning the company’s future growth. In the majority of cases, the family’s stake gives it substantial representation or a key position on the board of directors.
Time: time is the differentiating factor compared to other shareholders, who can switch from one company to another. Families tend to remain invested in a company over a long period (sometimes even over several generations). Having the time to develop a “vision” enables the company to take more long-term decisions and accept, if necessary, short-term pain in order to realise long-term gains. These elements can reassure the company’s stakeholders, solidifying relationships with the personnel, customers and suppliers.

Nevertheless, certain traditional governance standards should be monitored at family-controlled small caps. The challenges involving inheritances are effectively more important to the extent that succeeding generations may not share the same vision of the company or see inter-family conflicts over power sharing.

Additionally, the existence of a controlling family shareholder could blur the lines between minority shareholders, the board of directors and management. This could lead to resistance to change and slower international expansion, thereby slowing the development of family-owned companies. The family heritage can therefore unite its members but also be a source of division. The importance of establishing a clearly defined culture is the key factor here.

In the end, family-controlled governance is one of the indicators to which we pay particularly close attention in our analysis, notably in the framework of our Small & Microcap expertise.

When family-controlled governance is exercised in a healthy manner, financial outperformance is generally seen.

¹ “Family-owned companies outperform in Europe”, published 24 February 2021.
² 212 European companies with stock market capitalisations above €3bn and €1m in daily trading volume where the controlling shareholder is a family holding at least 10% of the shares.

The stock market performance of small caps: a question of family ownership?

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