SB Voices: Distillers’ City Debate 2018

A panel of esteemed speakers went head-to-head to debate the benefits of family ownership in the spirits industry versus publicly-listed companies. Nicola Carruthers reflects on the key arguments raised.

At the annual Distillers’ City Debate, held yesterday evening (3 May) in London, the motion of the debate, organised by The Worshipful Company of Distillers, was: “This house believes that family companies think about the long-term, publicly-listed companies focus on the now.” It was a strong statement to put forward and one that raised multiple thought-provoking arguments from both sides.

Chaired by Trevor Stirling, liveryman and managing director of European beverages, Bernstein, the panel consisted of Lizzy Rudd, chairman of Berry Bros & Rudd; Colin Gordon, former strategy and business development director, IDV; Victor Jerez, global business development director, William Grant & Sons; and Tristan van Strien, equities analyst, beverages, Redburn Partners.

Arguing in favour of the motion was Rudd and Jerez, while Gordon and van Strein put forward their cases against it.

Taking to the stand, Rudd said: “We don’t just think about the next three-to-five years. We’re thinking about the next generation and we’re thinking in decades. Whereas publicly-owned companies are driven by short-term financial results, they have to be because their shareholders demand it. Luckily our shareholders are patient and not driven by financial returns.”

She summed up four key factors where “long-term thinking makes a huge difference in family business” – long-term leadership, long-term strategy, lasting culture and values, and lasting relationships.

Meanwhile, Gordon said that family-owned companies faced greater pressure when it comes to short-term performance, far greater than publicly-owned companies. He cited three “significant” advantages for publicly-owned companies, citing that they benefit from broader portfolios, “greater geographic spread” in the face of changing fashions and economic difficulties and “have better access to the capital markets”.

He concluded: “Culture is the most important feature to defining a business’s attitude to long-term investment, those with a market-led, innovation-based culture take the long-term view, irrespective of ownership. Ownership is not a factor that discriminates between long- and short-term thinking.”

Speaking in favour, Jerez said that family companies focus on the long-term because they are “rooted in the most basic of humans needs, providing security, and opportunity”. He continued: “It’s the most basic of instinct to protect what is yours that drives the long-term orientation which is the bedrock of family companies’ success.”

Family-owned companies “consistently frame day-to-day decisions and look at the consequences they will have on the next generation”, he said.

He also added that the family-owned firms benefit from the “perseverance stemming from the personal success of the founder or from the next generation’s appreciation of the founder’s legacy and success coupled with the expectation of leaving one’s own mark on the legacy.”

Arguing against the motion, van Strein said that the survival rate of family-owned companies is low, and that those who do survive have “one common factor” – access to public markets.

“The public capital markets allowed these companies to stop thinking about survival,” he said. “To think about the long-term, companies need to have the financial freedom and capacity to suffer.

“They need to have the ability to withstand the inevitable headwinds. The public markets have allowed the alcohol markets to do this very well, whether in beer, Cognac or Scotch. Not surprisingly, 85% of the Cognac sold today is by public companies such as LVMH.”

At the start of the evening, the audience voted in favour of the motion, but minds had been changed once the debaters left the podium. While I initially voted in favour, the strong views presented throughout the discussion were close to swaying me against the motion come the end of the evening.

Nevertheless, the consensus across the audience and panellists concluded that a number of factors including innovation, strategy and company values can lead to long-term growth for both publicly-owned and family-owned companies – it doesn’t have to be a case of ‘either…or’.