Canadian family-controlled public companies outperformed the S&P TSX composite index with comparable volatility, according to a study published Monday from Montreal-based National Bank of Canada (NBC).
The 2018 edition of the Family Advantage Report features a new index calculated by S&P Dow Jones Indices. The NBC Canadian family total return index is designed to track the performance of 43 family-controlled Canadian public companies (defined as a company where the founding family controls at least 10%, or various related parties control at least 33.3%, of the company’s voting rights) versus the broader S&P/TSX composite index.
The new index generated an annualized return of 9% over the past 13 years, compared to 6.7% for the S&P/TSX composite total return index over the same period, according to the report.
Additionally, the family index experienced similar volatility to the broader index in the long run;, and exhibited lower volatility “during extreme market conditions, such as the 2008 financial crisis,” the report states.
“The report clearly demonstrates family-controlled companies’ sustainable capacity to create value over the long run for their shareholders,” it adds.
The report spells out the competitive advantages for family-controlled firms, including “a focus on sustainable long-term profitability versus short-term results and a strong corporate culture driven by family values.”
It also notes that family-controlled firms face a unique set of challenges, including succession planning and leadership transition issues, the need to safeguard minority shareholder rights, and protecting the firm against conflicts of interest and other governance breaches.