Working Papers R & D PREVALENCE OF PATRIMONIAL FIRMS ON PARIS STOCK EXCHANGE: ANALYSIS OF THE TOP 250 COMPANIES IN 1993 AND 1998 by C. BLONDEL* N. ROWELL** and L. VAN DER HEYDEN† 2002/83/TM * Senior Research Programme Manager, INSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France. ** Research Associate, INSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France. † The Wendel/CGIP Chaired Professor for the Large Family Firm, and The Solvay Chaired Professor of Technological Innovation, INSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France. A working paper in the INSEAD Working Paper Series is intended as a means whereby a faculty researcher's thoughts and findings may be communicated to interested readers. The paper should be considered preliminary in nature and may require revision. Printed at INSEAD, Fontainebleau, France. Kindly do not reproduce or circulate without permission. Prevalence of Patrimonial firms on Paris Stock Exchange: Analysis of the top 250 companies in 1993 and 1998 Christine Blondel Senior Research Programme Manager, Family Firms [email protected] Nicholas Rowell Research Associate [email protected] Ludo Van der Heyden Wendel/CGIP Professor for the Large Family Firm & Solvay Professor of Technological Innovation [email protected] INSEAD Boulevard de Constance F – 77305 Fontainebleau Cedex France Tel: +33 (0)1 60 72 40 00 Fax:+33 (0)1 60 74 55 00 ABSTRACT This report analyses the 250 largest publicly traded companies in France, the so-called SBF 250, with a focus on the prevalence, evolution, and degree of control of patrimonial firms in this sample of firms. Patrimonial firms are here defined as companies where individuals or families are identified as major ultimate shareholders with at least 10% of equity at each level of the ownership chain. The study establishes that, even in this group of quoted companies, where spread ownership would be expected to be the norm, patrimonial firms are the majority. They are present in most sectors of the economy, and their presence increased from 1993 to 1998. Their share of capitalisation is lower than their importance in number, reflecting their concentration within the “smaller range”. Stakes owned by families and individuals are quite high, the use of holdings and voting rights further increase control. © INSEAD, July 2002. Earlier versions of this report were presented at GEEF conference (June 2000) and FBN conference (October 2001). This study benefited from the financial support of BNP Paribas Banque Privée, which is hereby gratefully acknowledged. 1 INTRODUCTION This report analyses the 250 largest publicly traded companies in France, the so-called SBF 250, with a focus on the prevalence, evolution, and degree of control of patrimonial firms in this sample of firms. Patrimonial firms are here defined as companies where individuals or families are identified as major ultimate shareholders. Ultimate ownership was looked for, i.e. when the first shareholder was a company, this company’s ownership was determined, etc… A major ultimate shareholder was considered when this shareholder had the largest stake and at least 10% of equity at each level of the ownership chain. The aim of our study is to document the prevalence of patrimonial firms in France amongst the publicly traded firms. In this first study, we remain intently factual and descriptive, and will not attempt explanations or formulate hypotheses to help us understand our findings. This will be left to further papers, as we believed there was merit in publishing a purely factual paper, devoid of argumentation or debatable explanation. The SBF250 seems to us an interesting one for the study of French patrimonial firms. First, this sample is well documented (in contrast to private firms) so that data on ownership can indeed be obtained. The study thereby also provides a “lower bound” on patrimonial firm prevalence, since the terrain of large publicly traded companies does, a priori at least, represent the privileged domain for public firms with diffused ownership. The major point made by our study is to document precisely how false this common assumption is. Large public firms with diffused ownership do indeed form an exception in the ecology of French firms, as even in their most favourable environment, they represent a minority (according to our definition). The second contribution of our study is to document the evolution of the prevalence of patrimonial firms over time. Most studies on family firm prevalence represent an observation of the population of firms at a given point in time. In this study, we apply the same definition over two distinct time instants: 1993 and 1998 (end December). This period is generally accepted to be a turbulent period in the French economy, coinciding with turbulence and growing “liberalisation” in the world’s economy. Many observers have frequently commented that the “victory of capitalism” also sounded the end of family and individual firms. We show, that at least in France and over this period, the opposite is in fact true. EXISTING STUDIES ON OWNERSHIP AND FAMILY BUSINESS Literature on Ownership and Governance Berle and Means’ model of widely dispersed corporate ownership (1932) has inspired management literature for several decades. About 25 years ago, this model started to be questioned (Einsenberg, 1976). Studies on corporate ownership started to be conducted in several countries, mostly during the last decade. These studies established that even amongst large publicly traded corporations a significant proportion had concentrated ownership. La Porta and al. (1999) looked at the 20 largest publicly traded firms in 27 countries. These authors found that families were the main shareholders ranged from 5% (for the UK) to 70% (for Hong Kong). The percentages for other countries fell between these numbers: 2 20% in the US, 30% in Canada, 10% in Germany, 20% in Italy, 55% in Sweden, and 20% in France (data referring to the end of 1995).1 The same study also analysed, for each of the 27 countries, the ownership of 10 medium-sized listed companies (10 smaller companies with capitalisation of at least $500 million, in order to have comparable sizes). Families were present in 10% (Japan) to 100% (Greece) of the cases. In the UK 60% of those companies had family owners, 30% in the US, 40% in Germany, 80% in Italy, 60% in Sweden and 50% in France.2 Faccio and Lang (2000) conducted a comprehensive study of ultimate ownership and control in 5 Western European countries. They established that families were the most pronounced type of controlling shareholders in Western Europe. End 1996, in their sample of 3,740 publicly traded corporations, families were the main shareholders in 70% of the companies in France, 72% in Germany, 65% in Italy, 67% in Spain and 34% in the UK. Widely held corporations only represented between 4 and 11% of companies in France, Germany, Italy and Spain, 26% in the UK.3 Focusing their research on France, Bloch and Kremp (1999) studied the concentration of ownership in both listed and non-listed companies. They established that ownership was quite concentrated in France, with identified owners having large stakes of the companies in question. They found that individuals were first owners for 12% of the 680 listed firms studied. However, they only considered direct ownership, thus holdings were found to be the first category of owners. They found that the first owner was individual/family for 56% of the 282,000 non-listed firms studied (end 1995). Family Business Literature Family business researchers, eager to establish the importance of family businesses in various countries, also contributed to such studies. Most of these studies were conducted by taking samples of companies, with the objective to extrapolate the findings to the level of a country. A serious shortcoming of this work is that there is no consensus amongst researchers on the definition of a family business. Shanker and Astrachan (1996) offered three distinct definitions for family firms, corresponding to three degrees of family involvement. Their broadest definition identified companies where a family has effective control of strategic direction. Their middle definition narrowed the sample to companies where the founder or descendant of the founder runs the company and the family has legal control of voting stock. Their narrow definition requires multiple generations, a direct involvement of the family in owning and running the company, and more than one family member in significant management responsibility. Depending on the definition used, the percentage of family businesses in the U.S. varied from 19% to 92%. Separately, a study conducted by ASMEP and JPA Associates (2000) established that 22 of the largest 100 European companies were “OFBs”, i.e. Owner-Managed and Family Businesses. These 22 companies were found mostly in Germany (9 companies) and France (10), 12 companies being in retail, and 7 in industry, of which 4 in automobile. These 1 2 ownership cut-offs are used to determine if a firm has an identified owner, 20% and 10%. Results quoted here correspond to the 10% cut-off – in line with our study. 2 Using the 10% ownership cut-off. 3 Idem. 3 authors also established that 190 OFBs could be found amongst the 967 largest European companies (turnover in excess of one billion Euros). The study did not specify which definition was used and whether non-national families were taken into account in OFB ownership. OUR STUDY A desire to provide factual answers to two simple questions provided the essence of the motivation for our research. We felt we should indeed have clear answers to two basic questions concerning the prevalence of patrimonial firms in France. These questions are the following: - What is the importance of patrimonial businesses in the French economy? - How did these businesses evolve over time? In answering these questions, we largely followed the approach of La Porta & al.