Keeping it in the family? Study by MI and Cambridge Judge Business School to uncover how ownership affects long-term value and sustainability

Why aren’t all businesses like Julian Richer’s? The owner of UK based Richer Sounds was recently widely lauded for passing a well-run family business into the hands of its employees. Proponents of both family and employee owned businesses used the opportunity to highlight the benefits of both types of ownership. It is argued that families and employees can run organisations better than publicly owned counterparts because purpose can be less financially oriented, ‘long term’ success matters more to such owners, and all company stakeholders can reap their fair share of success. But, is this true?

The debate about whether, and how, ownership matters to success is not new and continues to rage. It remains deeply politicised in opposing ideologies about the role of the state versus the private sector and the argument gains additional impetus with the catastrophic business and finance failures of the 21^st Century that have caused widespread economic and social damage. Alongside this the problem of ‘agency’ has been a significant driver in the growth of stock options and equity awards for senior executives. Justified on the basis of aligning owner and manager interests; executive pay, fuelled by company stock awards, has spiralled out of control. But are arguments for any particular form of ownership bound to be too simplistic? Is a focus on ‘ownership’ likely to offer any kind of solution to the complex and systemic, global challenges we now face?

Our latest collaboration with Cambridge Judge Business School (CJBS) aims to provide new and unique insight using MI’s open source, Organisational Maturity Ratings (OMR) technology. Our first phase of research is comparing 30 listed firms against 60 family comparators (half will also be partly listed, half privately held). Here, we aim to provide coherent answers to critical questions, such as:

1. Are family owned firms more mature (balancing societal and business needs) than listed firms?
2. Does ownership matter to the nature of value created in financial, human and societal terms?
3. How does ownership affect corporate actions, strategy and behaviour?
4. What are the advantages and disadvantages of different forms of ownership for all societal stakeholders?
5. How can we realise greater value and mitigate the risk of harm across various types of organisation?

Using our own organisational diagnostic, the OM30, our work looks at a range of value and risk factors, including: –

• ‘Value (i.e. Does the organization define ‘value’ and is it reconciled with MI’s definition that integrates Total Stakeholder Value?)
• Trust (i.e. To what extent are the leadership and management team trusted by customers, employees, and other key stakeholders?)
• Value potential (i.e. To what extent does the organization seek to maximise the value it generates from all of its human capital – both directly employed and within its supply chain and wider society?)
• Never-ending, continuous improvement (i.e. To what extent is the philosophy and practice of never-ending improvement embedded throughout the whole organization?)
• Authenticity (i.e. The size of the gap between the organization’s statements, external communications and claims of success, relative to the reality found in the evidence)
• People Risk (i.e. To what extent does the organization have a comprehensive system for measuring and assessing the current level of human capital management risk within the organization?)

We also try to capture how much an organisation values open and frequent communication; how enthusiastic and cooperative an organisation is; and the extent to which high-level decision-making in an organisation is ‘collegiate’ within the business.

By measuring these factors within a whole system, Organisational Maturity Rating, we are able to capture qualitative and quantitative insights that no other form of measurement can. It is clear, from our early work with CJBS, that these insights are already emerging in an important way. For example, we can see evidence as to whether family or listed firms are more purpose and values driven; and where and why this is important. Here, it is already evident that forms of ownership have clear, differentiated linkages with success; but perhaps in more nuanced ways that nevertheless carry important, practical implications.

If you would like more information about our research programme please contact Paul.Kearns@maturityinstitute.com