While Britain's cohort of family firms may not be as prominent as Germany's Mittelstand - the family-run firms that many believe are the powerhouse of its industry - they are nevertheless an important part of the UK's economy. According to the UK's Institute of Family Business, two-thirds of all UK businesses are family-owned, employing nearly 10m people, with annual sales of over a trillion pounds and generating a quarter of the nation's GDP. Some of these are quite large, too - one in 10 large UK businesses employing more than 250 people are family-owned.
While most of these businesses are unlisted and won't have shareholders in the stock market sense, they are still answerable to many stakeholders, among them lenders, customers and employees who all expect high standards of corporate governance. Meanwhile the intergenerational nature of family firms - and lack of quarterly scrutiny of earnings reports - mean bosses are much more likely to take a long-term investment view rather than, as quoted company management is so often accused of, engineering short-term gains to manipulate their pay higher. In that respect, family firms are naturally inclined towards the kind of 'stewardship' often bemoaned as absent from UK plc.
Many fund managers like listed companies with a strong family element for precisely these reasons. But these 'soft' advantages also often translate into hard performance. The portfolio of 10 family-run shares that I selected for my feature in 2010 have returned more than 150 per cent, around double the return from the FTSE 250, a comparable market, and more than five times the return from the FTSE 100. While that's admittedly a small sample, the outperformance is corroborated by the Credit Suisse Family Index, an index of 40 US and European family-controlled businesses which has beaten the S&P 500 more than twofold since its inception in 2002. And, as Leonora Walters writes on page 42, a similar trend is at work across the investment trust landscape. So, while the case of VW shows there are exceptions, as a rule it pays to follow the family money.
