Family businesses are less likely to fail than big business because they are usually made up of a well-functioning and diverse board of directors who are able to advise effectively.
A report published today by researchers from the University of Leeds, Imperial College Business School, Cardiff Business School, Liverpool School of Management and Durham University Business School shows that family businesses were less likely to go bankrupt because they are able to recruit and maintain an experienced, diverse and knowledgeable board of directors.
Professor Nick Wilson of the Credit Management Research Centre at Leeds University Business School said: “This is one of the first studies to identify the board and ownership structure of private family firms in the UK and to track their survival rates relative to other firms”.
The researchers also found that 80 percent of family owned businesses are more gender balanced, having at least one female director.
Professor Mike Wright, Director of the Centre for Management Buyout Research at Imperial College the Business School, said: “Running a successful business of any size is no easy task and this year we have already seen some high-profile businesses such as Comet being forced to close. Family businesses could provide lessons to larger firms, as our findings show that a more diverse and experienced board of directors, which are prevalent in family firms, could be related to reducing failures in businesses.”
Professor Brian Morgan of Cardiff Business School Leadership Institute stated that the board of directors in a company provide advice and direction to management. It is responsible for ensuring that companies fulfil their mission statement. They also provide advice to executives if they see the company drifting away from its goals and objectives. In this respect the studies found that the diversity of the boards of family businesses means that they are more stable. Surprisingly, the team found that this limits conflict between board members. This diversity also means that board members have a wider skill set making them more able to address potential threats to the survival of family businesses. This is in comparison to other private firms where board turnover is higher.
The team found that these boards also ensure that family firms, which often have to rely on internal sources for financing of projects, are more frugal in their spending. They scrutinise business opportunities with greater intensity and take fewer business risks than private firms.
The study highlighted the fact that family-orientated goals such as preserving unity, wealth and providing employment for family members may also contribute to their survival.
To carry out their research, the team analysed data of over 700,000 medium and large private family and non-family firms with an annual sales turnover of at least £6.5 million, a balance sheet total of at least £3.26 million and at least 50 employees.
They analysed the filing accounts of private companies from 2007-2010, which contained information on a company’s directors, secretary (where one has been appointed), registered office address, shareholders and share capital. The data was collected from Companies’ House, the national database on limited companies and the Insolvency Service from 2007-2010.