Three million businesses in the UK are family owned. They account for two thirds of all private sector firms. Think JCB, Clarks, Warburtons, Dyson, Swire, Virgin, Yorkshire Tea, McAlpine, Reed, Ginsters and Speedo. Many of us will recognise these big names, but there are hundreds of thousands of others.

According to the Institute of Family Business, these types of firm provide an impressive 9.2 million jobs, amounting to 40% of total private sector employment. In 2010 they generated revenues of £1.1 trillion which is 35% of private sector turnover. In terms of taxes they are estimated to have contributed £81.7 billion in tax receipts to the UK Exchequer, or 14% of total government revenues in 2010. Clearly, family businesses are an important part of our economy.

A new report published today highlights strengths which underpin family firms. It reveals that family businesses are less likely to fail than big business. Why? Because they are usually made up of a well functioning and diverse board of directors who are able to advise effectively. These findings are the result of a collaboration between researchers from Imperial College Business School, Leeds University Business School and Durham University Business School.

So what is new about this research? Well, Professor Nick Wilson of the Credit Management Research Centre, Leeds University explains, “This is one of the first studies to identify the board and ownership structure of private family firms in the UK and to track their survival rates relative to other firms”.

The evidence they looked at showed that family businesses were less likely to go bankrupt because they can recruit and maintain an experienced, diverse and knowledgeable board of directors.

“Running a successful business of any size is no easy task and this year we have already seen some high-profile businesses such as Comet being forced to close.  Family businesses could provide lessons to larger firms, as our findings show that a more diverse and experienced board of directors, which are prevalent in family firms, could be related to reducing failures in businesses”, says Professor Mike Wright, Director of the Centre for Management Buyout Research (CMBOR) at Imperial College Business School.

In a company, the board of directors provides advice and direction to management, and  to executives if they see the company drifting away from its goals and objectives. It is responsible for ensuring that companies fulfill their mission statement.

Interestingly, 80 percent of family owned businesses are also more gender balanced and have at least one female director. The researchers found that the boards of family businesses are more diverse which makes them more stable and also limits conflict between its members. This is in comparison to other private firms where board turnover is higher.  Family boards also tend to have a wider skill set making them more able to address potential threats to the businesses’ survival.

On the financial side, the team found that these boards are more frugal in their spending, partly because they often have to rely on internal sources for financing of projects. They scrutinise business opportunities with greater intensity and take fewer business risks than private firms.

This project involved analysing data of over 700,000 medium and large private family and non-family firms with an annual sales turnover of at least £6.5 million, a balance sheet total of at least £3.26 million and at least 50 employees. The data was collected from Companies’ House, the national database on limited companies and the Insolvency Service from 2007-2010.

The research was carried out by Professor Nick Wilson, Director of Credit Management Research Centre at Leeds University, Professor Mike Wright, Director of the Centre for Management Buyout Research at Imperial College Business School and Dr Louise Scholes, Senior Lecturer in Entrepreneurial Management at Durham University Business School.

You can download and read the report here.

The findings of the research will be discussed at a CMBOR conference taking place at the Business School on 23 May 2013.