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News and Press Releases |
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HEADLINE ARCHIVED:
PFAMILY, INC. SURPRISE! ONE-THIRD OF THE S&P 500 COMPANIES HAVE FOUNDING FAMILIES INVOLVED IN MANAGEMENT. AND THOSE ARE USUALLY THE BEST PERFORMERS
By: Joseph Weber in Chicago and Louis Lavelle in New York, with Tom Lowry in New York, Wendy Zellner in Dallas, Amy Barrett in Philadelphia, and bureau reports
BusinessWeek, November 10, 2003
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EXCERPT: FOR WILLIAM WRIGLEY, JR., THE 40-YEAR-OLD SCION OF A century-old family business, the past lives on inside the castle-like Chicago landmark that bears his name. His father, his father's father, and his father's father's father before him are the unseen force powering Wm. Wrigley Jr. Co., a $2.7 billion-a- year chewing-gum business that has run rings around larger rivals. Steeped in company lore his whole life, Wrigley knows how his forebears nurtured the operation, handled challenges, and anticipated problems. That may be his biggest asset. With one eye on honoring the past, and the other on safeguarding the future, family informs every decision CEO Wrigley makes. Memories of expansion attempts temper his determination to expand beyond gum but to stick closely to confectionery. That determination to stay the family course, he says, is responsible for the company's outstanding long-term performance. Since 1992, Wrigley has reported an average annual return on assets of 20.3%, far outpacing Hershey Foods Corp.'s 9.8% and the Standard & Poor's 500-stock index average of 4.5%. On net income growth and sales growth, it has also trounced Hershey, which Wrigley tried to buy last year. "The family name is on the door," says Wrigley, who will add the title of chairman on Jan. 1. "It's more than just a job." Forget the celebrity CEO. Look beyond Six Sigma and the latest technology fad. One of the biggest strategic advantages a company can have, it turns out, is blood lines. BusinessWeek has found that a surprisingly large share of Corporate America -- 177 companies, or a third of the S&P 500 -- have founders or their families still on the scene, in most cases as directors or senior managers. And, in what may be Corporate America's biggest and best-kept secret, they're beating the pants off their nonfamily-run rivals. That comes as no surprise to American University's Ronald C. Anderson and Temple University's David M. Reeb, the professors whose research prompted our own. Their study, published in the June issue of The Journal of Finance, concluded that the performance of family companies in the S&P far outstripped that of non-family companies. To find out for ourselves how much family matters when it comes to corporate performance, BusinessWeek, with the help of Chicago executive-search firm Spencer Stuart, identified the family companies in the current S&P and tracked their performance over the past decade. By and large, we defined family companies as those in which the founders or their families maintain a presence in senior management, on the board, or as significant shareholders. (In a few of the companies included, the "founders" actually acquired the companies and substantially remade them.) For our group of family companies, the annual shareholder return averaged 15.6%, compared with 11.2% for nonfamily companies. Return on assets averaged 5.4% per year for the family group, vs. 4.1% for nonfamily companies. And the family outfits trumped the others on annual revenue growth, 23.4% to 10.8%, and income growth, 21.1% to 12.6%. So what is it that gives family companies their edge? In part, it's having managers with a passion for the enterprise that goes far beyond that of any hired executives, no matter how much they are paid. That's especially true for the more than 100 companies in our ranking that still have a founder on the scene, including such tech highfliers as Dell, eBay, and Oracle, which came in at Nos.2, 6, and 8, respectively, in our ranking. Among family companies, these 100 had the best performance of all, beating out nonfounder companies by healthy margins on shareholder return and growth in revenue and income. Youth, of course, also helps to turbocharge performance. By definition, if a founder is still involved, the company has to be fairly young. Many of the founder companies in our ranking have soared to the tops of their fields because they brought to market important products, technologies, or services -- and starting from a smaller base, they're able to rack up sizable percentage gains. But while a handful of outfits run by founders lofted our numbers sharply upward, they don't totally account for the family edge. Take out the 10 best-performing founder-run outfits, and the remaining family companies nevertheless handily beat the nonfamily group on all four performance measures.
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