While we who follow Family Capitalism have long believed the public markets punish long-term strategy, it’s now been proven by research at the Bank of England. An article in The Financial Times (May 23, 2011, p 11)by Richard Lambert, Chancellor of the University of Warwick, reports that, based on research, “investors place irrationally low values on the relations from long-term projects.”
The article cites as an exception Rolls Royce and its 30 year investment in jet engines. But the explanation is interesting: Rolls Royce has a “golden share” owned by the government to protect it from short-term shareholder takeover. As business families know, ownership control makes long-term strategy possible — and profitable.