Family member CEOs outperform their professional counterparts
Family member CEOs upstage professional peers. They oversaw higher returns to shareholders.
In a first of its kind study conducted by executive search firm EMA Partners India and published by The Hindu, it was found that family member CEOs, who make up only 34% of the top Indian companies, generate more growth in shareholder value than professional CEOs.
While only 82, or 34%, of the top 243 listed Indian companies are run by promoter or family member chief executives, these company leaders outperformed their professional CEO peers in terms of delivering total returns to shareholders over a five-year period ending in March 2020, the findings of a study by London-based executive search firm EMA Partners show.
“This is the first study of this kind carried out to understand the current proportion of family member CEOs versus professional CEOs in the country,” said Krishna Prakash, co-founder and managing partner, EMA Partners. “This is also to... identify who created more shareholder wealth, the family member CEOs or professional CEOs,” he added.
An analysis of the compounded annual growth rate of total returns to shareholders (TRS) found that during the study period, the 243 listed firms reported an average decline of 2% in TRS due to the pandemic-triggered market decline. Interestingly, family member CEOs outperformed the market, creating a positive 2% average TRS, while the professional chiefs oversaw an average negative TRS growth of 4%.
Family member CEOs were predominantly in the majority in the healthcare, lifesciences and pharma, and industrials and manufacturing sectors (67% and 53%, respectively). Professional CEOs were dominant across basic materials, energy & utilities, finance, TMT and consumer & retail.
The respondents comprised BSE-listed firms having a market capitalisation of more than ₹100 crore.