Inditex/family business: they flourish if they do not go Gaga
Family-controlled companies tend to take a cautious approach to risk and plan for the long term
Blood ties and business ambitions can make a volatile combination. At the extreme end of the spectrum is the grimly entertaining family infighting depicted in the movie House of Gucci. This stars Lady Gaga as the arriviste cuckoo in the nest.
The bad and the ugly in family business is accompanied by much good, albeit that the latter does not produce compelling Hollywood plot lines. Companies that remain in family control tend to take a cautious approach to risk and to plan for the long term.
Thus investors may be worrying unnecessarily over Inditex’s plan for Marta Ortega to chair Spanish fast-fashion group Inditex. The 37-year-old daughter of founder Amancio Ortega will replace Pablo Isla, 57, a career manager who has overseen the Zara owner for 10 years.
Visionaries who pass on businesses they have founded are in a minority. For every company that the second generation takes over, at least two go into other hands.
The world’s 500 largest family-owned groups generate $7tn in annual revenues and employ 24m people, according to research by EY and the University of St Gallen. More than three-quarters of them are over 50 years old. They perform better on environmental and social metrics than governance issues, according to EY’s Helena Robertsson.
That helps to explain why there are few big listed family businesses in Britain where governance rules are strict. The Rubins, who run sports brand group Pentland, and the Coates, who own Bet365, prefer to keep tight control. The contrast with Asia, continental Europe and the US is stark. There, many big family-controlled businesses feature on national exchanges, including Ford, LVMH, BMW and Samsung.
Public market investors quite reasonably fear that bosses chosen for their DNA rather than their MBAs may lack the intelligence or drive to do a good job.
The countervailing upside is that family-controlled businesses — which need not be run by a family member — are often more stable than the other kind. Notable examples are Schroders and Associated British Foods in the UK and Walmart in the US. Ortega will hopefully show that under her leadership Inditex belongs to the same dependable group.