Canadian family-controlled public companies outperform their widely held peers, says a National Bank report.
That conclusion is based on the bank’s Canadian family index, calculated by S&P Dow Jones Indices, which tracks and measures the performance of 43 Canadian family-controlled public companies relative to the S&P/TSX Composite index.
Over the past 13 years, the family index registered an annualized return of 9.0% compared to 6.7% for the S&P/TSX Composite Total Return, says the report.
Factors accounting for the outperformance include a focus on sustainable, long-term profitability versus short-term results, and a strong corporate culture driven by family values.
Further, compared to widely held companies, family-controlled businesses tend to hold managers to account so that the business has a better chance of being passed on to the next generation. These companies also tend to be less leveraged and have less employee turnover.
The report also identifies succession planning is a critical component of ongoing success.
Says the report: “The most successful family businesses are those that instill the founder’s values into the business culture, have a clearly defined process for managing succession and have spent many years preparing the next generation of family members for leadership, which includes getting experience outside of the family business.”
For more details, including profiles of companies included in the family index, see the full National Bank report.