Do cricket-loving CEOs really damage the economy?

A shot from India and Pakistan's game in the cricket world cup this week. 
A shot from India and Pakistan’s game in the cricket world cup this week. 

A few years ago a study of 1,114 CEOs of family-owned businesses was carried out by the World Management Survey, and discovered that founder and next-generation CEOs respectively worked 8 percent and 6.6 percent fewer hours than professional CEOs in family firms.

Indian family CEOs were most relaxed about their duties on the days of monsoons – or big cricket matches. Brazil recorded the biggest difference – a whopping 11% more hours were worked by non-family CEOs.

This data has been picked up by researchers at the Centre for Economic Policy Research who used it to create this nice graphic which shows the difference:

Graphic by CEPR
Graphic by CEPR

The CEPR – a left-leaning think tank – has been crunching these numbers and also believe that they something else interesting: that firms run by family CEOs run less productive than ones run by outsiders, to the tune of 2.6%. This, they argue, is bad not only for those firms, but for society itself, especially in countries where family firms are prevalent. 

“Given the ubiquity of family-run firms, when family firms are less productive the impact is felt beyond the family’s own profit margins and wealth – it affects the entire economy,” write the economists, “The dampened productivity can add up to a lot – in reduced profits, in slower growth, and in lagging wages, all of which flow into the larger economy.” 

They go on to suggest that higher taxation, for instance inheritance tax, or a reduction of the exemptions enjoyed by family firms, might lead to an increase in productive efficiency.

It is interesting that this attack on family firms – although different in substance – has a similar conclusion to the one that Thomas Piketty made in his book Capital in the 21st Century. He argued that inequality is a bad thing, but that societies in the West are becoming more unequal. His solution was to tax wealth (rather than income). 

These are powerful arguments. The question an advocate of family business would ask in both cases whether the bad things increased taxation might bring – a small reduction in efficiency, or an increase in inequality – is a price worth paying for the other benefits that family firms area associated with – stability, deep expertise, strong regional commitment, long-termism, a focus on jobs rather than share-price maximisation, caring about the local community and so on. 

One might also add to that list a work culture where it is acceptable to watch cricket from time to time, rather than slaving at your desk until all hours.