Family-controlled businesses outperform says National Bank study

Investors might be better off buying shares in public companies that are controlled by families.

That’s the key takeaway from a new study by National Bank of Canada which found that family-controlled public companies perform better than their widely-held peers.

The NBC Canadian Family Index is a new measure calculated by S&P Dow Jones Indices and tracks the performance of Canadian family-controlled public companies relative to the S&P TSX Composite Index.

As part of NBC’s Family Advantage Report, the data shows that family-controlled businesses gave a clear advantage to shareholders.

Over the past 13 years, family-controlled companies provided an annualized return of 9% compared to 6.7% for the S&P/TSX Composite Return Index.

What’s the family secret?
Through in-depth interviews, the NBC research reveals that a focus on long-term sustainability rather than short-term goals; along with corporate culture that reflects the values of founders; all help to boost performance for family-controlled companies.

“Canadian family business leaders’ clear alignment of incentives and unwavering commitment to long-term success have led their businesses to develop competitive advantages over the long run in today’s fast-changing business environment,” said Vincent Joli-Coeur, Vice-Chairman of National Bank of Canada, Financial Markets.

The governance models of family-controlled businesses are also seen as vital among successful Canadian firms.

Serge Godin, Executive Chairman and Founder of the CGI Group, believes that family control shields management from undue short-term pressures.

“Without multiple voting shares, CGI would have been sold at least 10 times and our head office would no longer be Canadian-based,” he said. “The main advantage of family-controlled firms is their capacity to enable management to implement long term strategic objectives.”