Family businesses are more stable due to diverse boards

Family businesses are less likely to fail than big business because they are more often made up of a well functioning and diverse board of directors, according to a report published today by researchers from Imperial College Business School, Leeds University Business School and Durham University Business School.

The study found that 80 per cent of family owned businesses are more gender balanced, having at least one female director. This makes them more stable; the team found that diversity limits conflict between board members. It also means a wider skill set, making the board more able to address potential threats to the survival of the business.

This is one of the first studies to identify the board and ownership structure of private family firms in the UK and to track their survival rates relative to other firms. Professor Mike Wright, director of the Centre for Management Buyout Research (CMBOR) at Imperial College Business School, and one of the report’s authors, commented: “Running a successful business of any size is no easy task and this year we have already seen some high-profile businesses such as Comet being forced to close.

“Family businesses could provide lessons to larger firms, as our findings show that a more diverse and experienced board of directors, which are prevalent in family firms, could be related to reducing failures in businesses.”

The board of directors in a company provide advice and direction to management. It is responsible for ensuring that companies fulfil their mission statement. They also provide advice to executives if they see the company drifting away from its goals and objectives.

Diverse boards also ensure that family firms, which often have to rely on internal sources for financing of projects, are more frugal in their spending, the study found. They scrutinise business opportunities with greater intensity and take fewer business risks than private firms.

The study highlighted the fact that family-orientated goals such as preserving unity, wealth and providing employment for family members may also contribute to their survival.

To carry out their research, the team analysed data of over 700,000 medium and large private family and non-family firms with an annual sales turnover of at least ?6.5m, a balance sheet total of at least £3.26m and at least 50 employees.

The research was carried out by Professor Nick Wilson, director of Credit Management Research Centre at Leeds University, Professor Mike Wright, director of the Centre for Management Buyout Research at Imperial College Business School and Dr Louise Scholes, senior lecturer in Entrepreneurial Management at Durham University Business School.

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