When it comes to governance, US and UK family firms outperform


Listed family businesses in the US and the UK have much better governance than their counterparts in continental Europe, leading some to say asset managers need to pressure family businesses to do more to force changes.

That’s according to a new report by the Spanish IE Business School in association with March Asset Management. The the co-author of the report, entitled Corporate Governance in Publicly Traded Family Firms, IE professor Cristina Cruz said Anglo-Saxon listed family business were considerably better when it comes to good corporate governance practices.

“US and UK family firms continue to lag behind non-family firms in terms of governance, but their situation is much better than their peers in the rest of Europe,” she said. She added that while European family businesses were heading in the right direction they still had some way to go to reduce the corporate governance gap.

She said that it was in the interest of European family businesses to improve corporate governance because increasingly global market investors are looking for profitable companies that meet universal good governance criteria, regardless of their origin or their capital structure.

The report said that asset managers have a big role to play in improving corporate governance for all family businesses. “Diligent asset managers need to take corporate governance into account when valuing family businesses,” said March’s CEO Miguel Angel Munoz. “Strong governance, together with the greater long-term profitability demonstrated by family businesses, provides a compelling investment case. Managers have a central role to play in that process.”

Cruz reckons that company boards of family businesses need the most reform. She said there needs to be more balanced boards, with a mixture of independent directors, non-executive directors and members with proven professional experience.

The report said that an example of a family business with good corporate governance in Spain is Inditex, the clothing group owned by Amancio Ortega and his family. Still owned by the first generation, Inditex has nevertheless appointed a non-family CEO, Pablo Isla. The group’s share price went up 50% last year, making it one of the biggest companies in the world in terms of market capitalisation – and one of the most successful from an investor’s perspective.

So, no problem then with Inditex’s corporate governance, then…