Why a fam­ily-owned busi­ness needs pyra­mid con­trol

Finweek English Edition - - COVER STORY -

PICK N PAY was founded in the be­lief that fam­ily con­trol was the only way we could en­sure the main­te­nance of the prin­ci­ples that have in­formed our com­mer­cial con­duct since 1967. For four decades, fam­ily con­trol has pro­tected those val­ues in a busi­ness en­vi­ron­ment where eth­i­cal be­hav­iour hasn’t al­ways been the dom­i­nant prac­tice.

Through­out the world, fam­ily-owned busi­nesses con­tinue to play an im­por­tant role in the devel­op­ment of economies. In the United States they form the back­bone of the Amer­i­can econ­omy. Some 35% of For­tune 500 com­pa­nies are fam­ily-con­trolled, while fam­ily busi­nesses ac­count for 50% of the US’s gross do­mes­tic prod­uct. They gen­er­ate 60% of the coun­try’s em­ploy­ment and 78% of all new job cre­ation.

Against that back­ground it’s im­por­tant to re­mem­ber why Pick n Pay Hold­ings was cre­ated as a pyra­mid hold­ing struc­ture in the first place. In 1981, amid ru­mours that cer­tain busi­ness in­ter­ests were ex­plor­ing a takeover of a ma­jor­ity of Pick n Pay shares, it was a nec­es­sary step in or­der to pre­vent a hos­tile takeover. Con­sis­tently high re­turns to share­hold­ers since then have am­ply shown the wis­dom of that strat­egy and de­ci­sion.

Now – 22 years later – Pick n Pay con­trol re­mains in the hands of the Ack­er­man fam­ily, de­spite the world­wide de­cline in large fam­ily busi­nesses and de­spite the nu­mer­ous dis­in­cen­tives that con­front such en­ter­prises. In SA, cor­po­rate gov­er­nance re­quire­ments in­tro­duced over the past four years have un­in­ten­tion­ally erected bar­ri­ers to the for­ma­tion and sus­tain­abil­ity of big fam­ily-owned busi­nesses such as Pick n Pay, with the re­sult there’s a de­creas­ing num­ber of such en­ter­prises listed on the JSE.

Above all, per­haps, fam­ily con­trol has en­abled us to take the long view when de­vis­ing strat­egy, con­sid­er­ing plans for ex­pan­sion and as­sess­ing the risks of fu­ture in­vest­ment. That we would have been un­able to do had we been re­strained by the de­mands of ma­jor­ity in­sti­tu­tional in­vestors or pri­vate eq­uity share­hold­ers for im­me­di­ate re­turns and short-term ben­e­fit.

As far as our Aus­tralian op­er­a­tion is concerned, an­a­lysts wel­comed our ini­tial in­vest­ment as a good rand hedge. With the ex­act­ness of hind­sight we could have in­vested else­where. The de­ci­sion to stay in Aus­tralia was taken by the board at the time, and I re­spect that de­ci­sion. How­ever, a strate­gic re­view un­der­taken dur­ing my first few months as chair­man made it clear to the board that an exit strat­egy was the best op­tion.

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