A recent article in Forbes magazine made the following points: stocks listed on U.S. stock exchanges have declined from 7400 to 3600 in the past 15 years; public companies earn less than half of business profits in the U.S. economy today; and the part of the business sector that is not listed outperforms that which is listed. Obviously, family businesses make up a substantial portion of the non-listed universe (and the publicly traded universe as well). These data speak once again to the size and importance of family business in the economy and the comparatively better results of private companies over public companies.
Research pointing to the fact that family businesses outperform their non-family peers have also shown that performance in subsequent generations of family businesses does not tend to be as strong as it is in the founder generation. In a Forbes Magazine piece pointing out the challenge confronting Steve Jobs’ successor Tim Cook, Scott DeCarlo observes that successors to iconic company founders generally don’t fare that well. During Bill Gates tenure as CEO of MicroSoft, for example, the company’s annualized total return was 58%. In the five years after he left the CEO slot, the company’s annualized return was –11%. Bernie Marcus at Home Depot had an annualized return of 47% but his successor managed “only” 25%. Other examples are also given.
It is not just the next generation successors in family businesses that are challenged by the record of their business’s founders. All successors face that issue. Being compared to one’s parent, however, can make the comparison seem more dramatic and even painful. Being a successor is no easy job.