The greater the ‘family factor’ within a family-owned company, the better the financial results. This is revealed in research carried out my Master’s Degree students at University of Amsterdam and VU Amsterdam with the support of EY.
More than 250 academic studies on the phenomenon of family-owned companies have been published in recent years. It is striking that almost all these studies – regardless of whether the focus is on financial performance indicators (for example Return on Assets) or non-financial performance indicators (for example Corporate Social Responsibility) – use their own definition of a family-owned company.
This is because there is virtually no consensus on what exactly constitutes a family-owned company, let alone any agreement on what influence the family has on the company’s results. American professor Matthew W. Rutherford even refers to a ‘family business theory jungle’.
A number of common themes can nevertheless be gleaned from the published studies. For example, it appears that family-owned companies are better positioned in the long term than other companies because they benefit from strongly shared values and mutual altruism within the company, which leads to better collaboration and greater loyalty. They are often financed in a risk-averse manner, which means they can also remain on course when facing economic headwinds. There are, however, also a number of well-known risks relating to family-owned companies, including a potential lack of HR professionalism, diffuse decision-making, a leaning towards conservatism and conflicts regarding succession and governance.
This is why the research study conducted by University of Amsterdam and VU Amsterdam with the support of EY in 2017 examined the key question of the ‘family factor’. The ‘family factor’ is defined in the study as the experience and culture a family brings to the family-owned company. The objective of the study was to ascertain the degree to which it influences the company’s operations. It consequently looked at whether the ‘family factor’ has primarily a positive or negative effect on company performance, or whether the sum total is more or less neutral.
Within the context of the study, four Master’s Degree students studied the influence of the ‘family factor’ at 38 Dutch family-owned companies from EY’s extensive network. They conducted this research using the F-PEC (Family Power, Experience & Culture) model, which is the only scientifically validated model that does not focus as much on determining whether a company is or is not a family-owned company, but instead on whether a company has more or fewer ‘family traits’.
The research results show there actually is a positive connection, albeit unclear. It was, for example, revealed that family-owned companies with a greater family factor have better-than-average solvency and net profit margin and less debt on average. They also invest on average more in research and development. The family factor does, however, appear to have much less influence on other financial performance indicators such as the Return on Assets.
Marieke Kopinsky, Senior Family-Owned Companies Adviser at EY Nederland, recognises the results of this research: ‘We instinctively know that families make a real mark on companies. It’s interesting to see that there is also a scientific connection with financial results. This underscores the focus on the longer term that we’ve always identified at family-owned companies.’