A question of family values

BROKERS' analysts like to pose complex questions about individual companies. Does the share price, relative to the FT All-Share, allow for the rise in post-exceptional trading profits (before tax and depreciation) given the gearing ratio, and the prospective return on capital employed, duly considering the free float and adjusted for inflation?

Since few outsiders can answer the question, let alone understand it, this adds to the mystery - and apparent expertise - of their craft.

But simple questions are often the best and few better than the simple query: is a particular company run in the interest of the shareholders or the management? The often large and sometimes vast earnings and perks of top executives leave the suspicion, to put it no higher, that the latter is the answer.

The trouble with finding a company truly run in the interest of shareholders is that one is liable to find out too late. Everyone pays lip service to shareholder value.

But perhaps we should look more carefully at family firms. They are often regarded as something of an anachronism these days.

There is another way of regarding them. The owners - or at any rate the substantial shareholders - usually take the long view. How will the business look for their children and grandchildren?

Short-term efforts to boost the share price, which may be allied to the top executives' share options, are not the key for them. What matters is the long-term health of the business. And if that means putting up with modest returns for a while, then so be it.

There is, of course, a very different way of looking at this. Nepotism can be a danger, with unsuitable offspring installed as chief executives, or a finance director chosen because he has married into the family. But the unsuitability of an individual is quite simple for the outsider to spot, certainly easier than deciding whether a long-term investment will pay off or not.

Moreover, it is often the case that successive generations of a family which dominate a business have been brought up amid constant talk about the company and its long-term ups and downs. They can get a feeling for this which some newly-recruited hotshot chief executive would take a long time to acquire. There is no golden rule about family firms. Investment is never that easy. But don't write off family businesses as anachronisms. At any rate, anyone who sold when Marks & Spencer ceased to have family members in top jobs did well.

Stat's business
ECONOMIC indicators these days can be tiresomely volatile and contradictory, suggesting boom one moment and bust the next. Nowhere is this more true than in the US. There is such a plethora of fluctuating indices, volume measures, estimates of business confidence and gauges of consumer sentiment that bewilderment may settle in.

But at least the unemployment figures send a clear message. The graph shows the six-month moving average change. The figure is now at its worst for 20 years.

It can be more cheerfully argued that the rapid rise underlines the ability of US businesses to adapt to new circumstances and fight their way out of the current recession.

In Continental European countries, recovery is bound to be delayed by the inability to lay off surplus labour and get companies back to proper profitability. However, rapid rises in unemployment must sooner or later take their toll on consumer confidence and consumption itself. All this strengthens the case for yet another cut in US interest rates tomorrow, even though the Federal Reserve's monetary arsenal is now running dangerously low.