VIII-S2

SUMMARY

ARE LARGE FAMILY COMPANIES BRIDGING THE STAKEHOLDER/SHAREHOLDER DIVIDE? A FRENCH EMPIRICAL ANALYSIS

Sylvie Gueye, CERAM, Nice, France
Benoit Leleux, IMD, Lausanne, Switzerland
Joachim Schwass, IMD, Lausanne, Switzerland

Principal Topic

Corporations have developed over the years a good understanding and appreciation of the risk-reward profile of risk capital investments. In particular, the real options concept has helped them frame these new venture investments as “opportunity enhancement” activities that can significantly upgrade their bottom lines. While the corporate venture capital literature is relatively rich, little is know about the risk investment behavior of large family firms. In particular, it is not clear how the family element affects the risk profile of such investors, nor the mechanisms through which these investments are taking place. Anecdotal evidence suggests that, contrary to public wisdom, family firms are very active and aggressive new venture investors, either indirectly through professional venture capital funds or co-investments with those firms, or directly through captive investment vehicles or family investments. Direct evidence also indicates that family-controlled listed firms have actually significantly outperformed stock market indices in France and Germany over the last 10 years. This paper investigates the risk equity investment patterns of large privately-owned and publicly listed family firms in Europe.

Methods

Based primarily on agency and recent corporate governance theories, the research is based first on clinical research conducted with a dozen leading family businesses throughout Europe. The family companies were approached though the Family Business Network and the Lombard Odier Family Business Center at IMD. In a second step, the qualitative results of the interviews are translated into venture capital risk profiles, with conjoint and discriminant analyses used to analyze differences between family and non-family firms in venture cpaital decision making processes.

Results and Implications

Stockmarket evidence collected in France supports the view that family businesses significantly outperform non-family businesses over the period 1990–2001. The clinical studies provide insights into why this may be happening, pointing to attitudes to risk and organizational aspect of venture investments as possible determinants of this long-term superior performance. In particular, their “generational” investment horizons seem to facilitate risk taking. Gaining a better understanding of the venture investment process in large family businesses will benefit not only the family firm literature but may shed new light on organizational and psychological factors specific to the family firm that may help improve the venture investment process in all firms.

CONTACT: Benoit Leleux, IMD, 23 Chemin de Bellerive, P.O. Box 905, CH-1001 Lausanne, Switzerland; (T) +41 21 618 03 35; (F) +41 21 618 07 07; leleux@imd.ch