Can Family-Owned Firms Compete?

MAKING SEN$E -- March 2, 2012 at 11:30 AM EDT

Can Family-Owned Firms Compete?

Hundreds of Marshmallow Peeps move down the conveyor belt to be boxed up at Just Born, Inc., a family-owned and operated confections business. Photo by Don Emmert/AFP/Getty Images.

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

Name: Steven Hall

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

Paul Solman: The argument for family-owned firms has long been that they are insulated from the whims of the public markets with their what-have-you-done-for-me-yesterday? mentality. Thus they can invest long term without always having to produce greater profits in this three-month period than the three months prior.

There are two problems. One, if such firms need huge infusions of capital and can't borrow it, they have no choice but to sell stock to the public to raise capital. But more important, in my reportorial experience, is that the firms' founders have kids, and the kids have kids, and eventually the stock is spread among a whole bunch of people. If enough of them want to cash out, the only way to do it is sell -- either to other private investors like those in the "private equity" world or to the public via a stock offering.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.

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