Why a family-owned business needs pyramid control
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.