UK family capital vs. US family capital

Recently, we wrote about Pearson, one of the UK great family businesses, or at least it was. These days it’s struggling and no longer family-led as the article laments. 

More disturbingly, the Pearson saga along with a growing body of other evidence points to a more divisive force in the UK economy – and that is family capital, whether it is tied up in a family business, or a family office, constitutes an ever-smaller part of the UK economy. And as it shrinks, the UK economy also shrinks.

It wouldn’t be too difficult to compile a list of 50 big businesses – all family-controlled – that have merged or sold out to non-family business interests in the last 10 years in the UK

Contrast that trend with the US, where family capital still plays an enormous role in the health of the world’s biggest economy. Where even newly minted tech billionaires are often determined to build lasting legacies centred on the concept of long-term values passed on to future generations. And where there is also a thriving family capital ecosystem around family businesses and family offices. 

Sadly, the creation of lasting legacies doesn’t appear to be that much of a priority in the UK. Look at a list of family offices in the UK we published recently. It’s dominated by foreign money backed offices, aristocratic capital, and those that made their money in the financial and property sectors. Of course, that in itself isn’t bad, but there must be concerns about the productivity of a lot of this money. 

Pearson could easily be a morality tale about how family owners, backed by non-family executives, succumb to short term decision making and greed. Rather depressingly, in the case of the UK, it’s been told many times before. Most recently with the sale of the UK defence company Cobham and the Fuller, Smith & Turner brewery – which all started as family businesses. Then there is the glassmaker Pilkington and the confectionary company Cadbury.  – all big and influential family businesses and sold to overseas companies. 

It wouldn’t be too difficult to compile a list of 50 big businesses – all family-controlled – that have merged or sold out to non-family business interests in the last 10 years in the UK. 

Of course, there are exceptions. JCB, Warburtons, Clarks and William Grant & Sons are all well run British family businesses. But they aren’t the norm, but rather the exception. 

What makes the decline of family capital in the UK even more acute is that new fortunes made in the UK aren’t necessarily staying at home. James Dyson and Jim Radcliffe, arguably two of the UK’s most successful entrepreneurs of the last 30 years, have relocated abroad. Dyson to Singapore and Radcliffe to Monaco. 

Both still have considerable business interests in the UK, and Dyson, in particular, is an exponent of the vital role of long-term capital. But, whether real or otherwise, the perception is they are lessening their connections to the UK.  

In the US, family businesses, regardless of size, aren’t as likely to sell out. That’s why the US has more top family businesses in Family Capital’s annual ranking of the biggest 750 of them in the world, with a total of 171.

OK, the US is the largest economy in the world, so you’d expect it would have more big family businesses than anywhere else. But look at the names on this list – Cargill, Mars, Bechtel, S.C. Johnson, Campbell Soup Company, Walmart, Marriott… 

All these companies are 80-plus years old, and all of them still play a huge part in the US economy. In fact, 74 out of the 171 US companies on the 750 list are 80 years or older. Family capital thrives in the US over multiple generations…and government tax breaks. 

But look at the UK companies on the 750 rankings, to which there are just 25 and only five older than 80 years. So much for the UK being the home of the modern-day corporation with the passing of the Joint Stock Companies Act 1844 and the Industrial Revolution. 

Family capital isn’t always about preserving a business the family made their money in. It is equally about what is done with that money when the family/individual sells the company. And here the US is also far ahead of the UK. 

In the US, family offices are better at making investments in productive sectors of the economy, which are making a real difference to the success of the US economy – and people’s lives. 

Take, for example, the many investment groups created by the Pritzker family after most of them distanced themselves from the source of their fortune, the Hyatt Hotels Corporation. These investment groups are arguably more productive in creating wealth in the US than the original family business. 

Look at the venture investing done by Tao Capital Partners, the private equity investments done by Pritzker Private Capital, the impact-led investments done by Blue Haven Initiative – all Pritzker family money. Where is the equivalent in the UK? 

And even much of US tech money is developing a long-term/family capital approach to investing, like Dave Dolby at Dolby Family Ventures and Laurene Powell Jobs, Steve Jobs wife, at Emmerson Collective. Where is the equivalent in the UK?

Family office consultant Cambridge Associates has just suggested that 20% of family capital should be invested in venture businesses. Easily done, by US families, but less so in the UK, where families tend to cling to the past, rather than looking to the future.

 Of course, not all tech billionaires follow in the footsteps of Dave Dolby and Laurance Powell Jobs. Greed can take over in American corporate culture just as it does in the UK and legacies are thrown out easily. But the US is just better at preserving long-term family capital trends and rewarding enterprise than the UK.

The demise of family capital in the UK is blamed on many of things – a business world too close to the City of London, which funded the sale of all too many family businesses, and institutional investors concentrating on short-term goals, government tax policies, even the UK class system. 

But it ought to be a big concern for policymakers and business people, especially at a time when the UK is hoping to forge new trading relations now that it has effectively left the European Union. 

Perhaps in its place, the UK can learn from the American approach.