Family-run businesses perform better
Family-run cos post higher growth in net sales, net profit and m-cap, compared to professionally-run ones.
By Abhishek Bhattacharya & Javed Sayed, TNN |
NEW DELHI: At first glance, family-owned businesses appear to have emerged victorious in the age-old ‘family-owned Vs professionally-managed companies’ debate. They have outperformed professionally-managed companies on all key growth parameters over the last five years.
An ET analysis of the BSE-100 companies shows that family-owned companies have reported higher growth in net sales, net profit and market cap, compared to professionally-managed ones. However, the picture changes if MNC subsidiaries are excluded from the list of professional-managed companies. Professionally-managed Indian companies that are not owned by MNCs have fared slightly better than family-owned companies on the growth indicators between 2001 and 2006.
Family-owned companies in the BSE-100 sample have reported a five-year compounded annual growth rate (CAGR) of 22% in net sales, 36% in net profit and 44% in market cap. In contrast, professionally-managed companies, including MNC arms, have registered a sales growth of 19%, net profit growth of 28% and market cap growth of 41%. But exclude MNCs from the sample, and the results change.
Professionally-managed Indian companies without MNC parents in the BSE-100 sample have outperformed family-owned companies with net sales growth of 24%, PAT growth of 35% and market cap growth of 48%.
The relatively small gap in the growth rates between the two categories appears to show that the differences in the virtues of family-owned and professionally-managed companies are over-exaggerated. Family-owned companies are perceived to be entrepreneurial and quicker at decision-making.
Professionally-managed companies are supposed to be more systems and process driven. But when it comes to what matters most to shareholders — performance and returns — there is not much difference. So, is the distinction between family-owned companies and professionally-managed ones getting blurred?
BCG India chairman Arun Maira tends to agree: ”Family-owned companies such as Bharti operate professionally and use professional benchmarks. On the other end, professionally-owned companies such as ICICI are bullish and betting big on growth, which used to be a characteristic of family businesses.’’
Of course, there is a vast difference in the number of professionally-managed companies vis-à-vis family-owned ones. Of the 90 companies in the BSE-100 for whom data is available over a five-year period, 48 are family owned and only 11 are professionally managed. Another 10 are MNCs.
The analysis clearly shows that MNC arms have underperformed on the sales, PAT, and market cap growth front. As a matter of fact, their performance has been bettered by even government companies in the BSE-100 sample.
Over the last five years, net sales of MNCs have grown by 9%, net by 14% and market cap by 27%. In comparison, government companies have clocked a net sales CAGR of 12%, net profit CAGR of 21% and market cap CAGR of 30%.
An ET analysis of the BSE-100 companies shows that family-owned companies have reported higher growth in net sales, net profit and market cap, compared to professionally-managed ones. However, the picture changes if MNC subsidiaries are excluded from the list of professional-managed companies. Professionally-managed Indian companies that are not owned by MNCs have fared slightly better than family-owned companies on the growth indicators between 2001 and 2006.
Family-owned companies in the BSE-100 sample have reported a five-year compounded annual growth rate (CAGR) of 22% in net sales, 36% in net profit and 44% in market cap. In contrast, professionally-managed companies, including MNC arms, have registered a sales growth of 19%, net profit growth of 28% and market cap growth of 41%. But exclude MNCs from the sample, and the results change.
Professionally-managed Indian companies without MNC parents in the BSE-100 sample have outperformed family-owned companies with net sales growth of 24%, PAT growth of 35% and market cap growth of 48%.
The relatively small gap in the growth rates between the two categories appears to show that the differences in the virtues of family-owned and professionally-managed companies are over-exaggerated. Family-owned companies are perceived to be entrepreneurial and quicker at decision-making.
Professionally-managed companies are supposed to be more systems and process driven. But when it comes to what matters most to shareholders — performance and returns — there is not much difference. So, is the distinction between family-owned companies and professionally-managed ones getting blurred?
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BCG India chairman Arun Maira tends to agree: ”Family-owned companies such as Bharti operate professionally and use professional benchmarks. On the other end, professionally-owned companies such as ICICI are bullish and betting big on growth, which used to be a characteristic of family businesses.’’
Of course, there is a vast difference in the number of professionally-managed companies vis-à-vis family-owned ones. Of the 90 companies in the BSE-100 for whom data is available over a five-year period, 48 are family owned and only 11 are professionally managed. Another 10 are MNCs.
The analysis clearly shows that MNC arms have underperformed on the sales, PAT, and market cap growth front. As a matter of fact, their performance has been bettered by even government companies in the BSE-100 sample.
Over the last five years, net sales of MNCs have grown by 9%, net by 14% and market cap by 27%. In comparison, government companies have clocked a net sales CAGR of 12%, net profit CAGR of 21% and market cap CAGR of 30%.
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