Work for a family-run company? Lucky you. According to a survey quoted in the Financial Times this week, you are so satisfied with your working environment that you work almost one day a week longer then everyone else. You show more loyalty to your company and you believe you have more job security than the rest of the workforce. You feel involved, included and valued.
You aren’t, of course (job tenure in family firms is on average shorter than in non-family companies). But that’s not the point. The fact that you feel you are makes you work harder (38 hours a week versus 32 in the rest of the private sector) and makes you feel better about your work. Take Nelsons, a homeopathic product firm mentioned in the FT piece, whose employees seem more than happy with their lot. Peter Warren met his wife Shirley at the company. In a smaller, “family-type company it just seems as if you are more important”, he says.
However, there is a problem with family-run companies: when they are good they can be great, but when they’re bad they can be horrid. Turn to The Guardian and you’ll find Fundsmith’s Terry Smith as vocal as usual on the subject. Imagine, he says, that he was in charge of a firm that had paid $580m for one asset and then sold it for $35m; that had paid $5.7bn for another, then written it down by $2.8bn; that had regularly indulged in “blatant nepotism”; that had underperformed the index for 15 years; and that had been in charge when criminal offences were taking place within the company. Would he have been fired? Of course.
But no one has fired Rupert Murdoch and no one is likely to. That’s because News Corp has two different kinds of shares. A shares have no votes; B shares do. The Murdochs own 12% of the total shares in issue but 40% of the voting shares. That’s why Murdoch is still in charge and that’s why he has been able to promote his children above real executives.
That shouldn’t be OK: as Jonathan Guthrie points out in the FT, it makes “problems of ethics and oversight” all but inevitable. But it also makes underperformance likely. A study published in 2006 by the London School of Economics and McKinsey showed that Britain’s poor productivity is in large part due to “the prevalence in Britain of second or later-generation family-run companies”. Exclude them, and British productivity looks as good as everyone else’s. Bad management, it seems, “runs in families”.
So we should be pleased that in Britain very few listed firms – 7.7% – are family-controlled. That compares to 66.3% in Italy. However, we have more of a problem with our smaller firms: 21% of British workers are employed by family firms, 20% of which work in manufacturing – our great hope for economic survival. We give their owners huge inheritance tax reliefs so they can keep their firms in the family. Perhaps we shouldn’t.