Q & A: ‘How Do Family-Owned Corporations Compete With Joint Stock Companies?’

BY Paul Solman  October 15, 2012 at 3:32 PM EDT


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Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Tuesday’s query:

Steven Hall: How do family-owned corporations like SC Johnson and Boehringer Ingelheim compete with joint stock companies?

Paul Solman: I don’t know enough about either company to give a specific answer, but I can make a few general observations.

First of all, family-owned firms are also almost always “joint stock companies” — private organizations whose stock is owned by more than one investor. The key factor in “family ownership” is control. If my family owns more than 50 percent of the company’s stock, it can clearly dictate almost any major decision.

Family-owned corporations are often said to have real advantages over publicly traded ones. The main one: they can plan and invest long-term, not being subject to the vagaries of the how-much-did-we-earn-yesterday? stock market. Family-owned corporations whose stock is not “publicly traded” on an exchange also have a lot less paperwork to file — with the SEC, Sarbanes-Oxley, etc. Generally, “privately held” firms have fewer than 500 shareholders.

As any family knows, though, over time, maintaining viable “family ownership” is no simple matter. The greater the number of generations one gets from the original owner(s), the greater the number of decision-makers, the greater the number of different points of view and objectives. Consider how hard it can be to divvy up mom and dad’s furniture. Or read The Patriarch: The Rise and Fall of the Bingham Dynasty, by Susan Tifft and Alex Jones to see what happened to the “family-owned” newspaper, the Louisville Courier-Journal.

As usual, look for a second post this afternoon. But please don’t blame us if events or technology make that impossible. Meanwhile, let it be known that this entry is cross-posted on the Rundown- NewsHour’s blog of news and insight.