“An investment in knowledge pays the best interest.”
— Benjamin Franklin
Papers
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Single Family Offices: Private Wealth Management in the Family Context
Raphael Amit, Heinrich Liechtenstein, M. Julia Prats, Todd Millay & Laird P. Pendleton
May 2008
ABSTRACT
Single family offices (SFO) are professional organizations dedicated to managing the personal fortunes
and lives of very wealthy families. Since the beginning, affluent families have been attracted to SFOs because of their promise of exclusivity, privacy and customization. These characteristics may make SFOs increasingly attractive to the super rich, but they also make it particularly difficult for researchers to understand their operations, their abilities, and their achievements. The very confidentiality they afford impedes assessment of their competence, and there is little comparative information available on the range and key differentiators among SFOs operating today.
This report begins to fill this knowledge gap by presenting the results of an international pilot study of SFOs responsible for managing at least US$100 million in investable assets in the Americas, Europe, and Rest of the World (RoW). The research has been conducted during 2006–2007 and is intended to survey the landscape of single family offices.
How are U.S. Family Firms Controlled?
Belén Villalonga, Raphael Amit
December 2007
ABSTRACT
In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash flow rights. We analyze how they achieve this wedge, and at what cost. Indirect ownership through trusts, foundations, limited partnerships, and other corporations is prevalent but rarely creates any wedge (a pyramid). The primary sources of the wedge are dual-class stock, disproportional board representation, and voting agreements. Each control-enhancing mechanism has a different impact on value. Our findings suggest that the potential agency conflict between large shareholders and public shareholders in the United States is as relevant as elsewhere in the world.
Family Control of Firms and Industries
Belén Villalonga, Raphael Amit
October 2007
ABSTRACT
Using a large sample of U.S. corporations, we test theories that explain family control of firms and industries. We find that family control is more likely when the efficient scale is small, the need to monitor managers and other employees is high, the firm's amenity potential is high, profit horizons are long, and there is dual-class stock. We also find that family firms are less sensitive to both positive and negative profit shocks. The results suggest that families retain control only when doing so gives the firm a competitive advantage, but the also appropriate private benefits of control at the expense of non-family shareholders.
Benefits and Costs of Control-Enhancing Mechanisms in U.S. Family Firms
Belén Villalonga, Raphael Amit
Draft May 2006
ABSTRACT
We analyze how founding families maintain control of large U.S. corporations, and at what cost. We find that indirect ownership through trusts, foundations, limited partnerships, and other corporations is prevalent but rarely creates a wedge between the family's cash-flow and control rights. The primary sources of this wedge are dual-class shares and voting agreements among shareholders. Additional family control is frequently obtained through board representation in excess of voting control, and through the presence of a family member as CEO or Chairman of the Board. We also find that the impact of control-enhancing mechanisms on firm value depends on the specific mechanism used: the effect is negative for dual-class stock and disproportional board representation, but positive for pyramids and voting agreements.
Social Wealth Creation via Experimental Entrepreneurial Philanthropy
Ian C. MacMillan
July 25, 2005
ABSTRACT
Governments and philanthropists in the United States and other rich nations spend billions of dollars each year supporting philanthropic causes that attend to the manifold social problems of the world. Some of their effects - perhaps on the order of hundreds of millions of dollars each year - go towards supporting start-up firms and small entrepreneurial businesses, a strategy linked to the belief that the creation and growth of new enterprises fuels the growth of the economy, particularly through employment. To date, however, few people have considered the role that entrepreneurial activity can play beyond improving employment. Based on our research, we contend that such activity can directly confront social problems and create new societal wealth.
How Do Family Ownership, Control, and Management Affect Firm Value?
Belén Villalonga, Raphael Amit
Journal of Financial Economics 80, pp 385-417. May 2006
ABSTRACT
Using proxy data on all Fortune 500 firms during 1994-2000, we find that family ownership creates value only when the founder serves as the CEO of the family firm or as its Chairman with a hired CEO. Dual share classes, pyramids, and voting agreements reduce the founder’s premium. When descendants serve as CEOs, firm value is destroyed. Our findings suggest that the classic owner-manager conflict in non-family firms is more costly than the conflict between family and non-family shareholders in founder-CEO firms. However, the conflict between family and non-family shareholders in descendant-CEO firms is more costly than the owner-manager conflict in non-family firms.