18/01/2016
Monday 18 January 2016
FAMILY FIRMS: TO HAVE AND TO HOLD FROM GENERATION TO GENERATION
Far from declining, family firms will remain an important feature of global capitalism for the foreseeable future. Family businesses make up more than 90% of the world’s companies and 80% of the global economy. Families have always been at the heart of business. Family companies are among the world’s oldest. The Hoshi Ryokan, an inn in Japan, has been in the same family since 718. Kongo Gumi, a Japanese family construction firm, was founded even earlier, in 578, but went bust in 2006. The Antinori family has been producing wine in Tuscany since 1385 and the Berettas have been making guns since 1526. Family companies played a starring role in the development of capitalism: think of the Barings or the Rothschilds in banking or the Fords and Benzes in car making.
Family companies are ideally suited to the early stages of capitalism. They provided two of the most important ingredients of growth, trust and loyalty, in a world where banking and legal institutions were often rudimentary and poor communications made far-flung activities hard to control. It was easier to raise money from kinsmen than from strangers. And it was safer to send a relative than a hired hand to expand the business abroad.
Serious thinkers have given surprisingly little thought to the family dynamics behind the early stages of capitalism. Novelists are a better guide to this subject than classical economists. In “Dombey and Son” Charles Dickens describes how Dombey wants to pass his business on to his son but is frustrated by a scheming manager. Thomas Mann’s “Buddenbrooks” is about the children of a great business founder turning their backs on the bourgeois virtues that built the family’s fortunes.
Business gurus have also given family firms short shrift. Alfred Chandler, the doyen of business historians, regarded family companies as relics of an earlier era that found it hard to muster the capital and talent needed to compete. The real engines of modern capitalism were public companies, owned by diverse shareholders and run by professional managers. Peter Drucker, the doyen of management theorists, reckoned that the drivers of these great engines were professional “knowledge workers”, not business patriarchs and their families.
Chandler was right that public companies made enormous advances in the late 19th and early 20th centuries as capital-intensive businesses turned to public markets for funds. But he was wrong in his prediction that they would push family companies to the margins of the modern economy. Even in the Anglo-Saxon world, where public companies gained the most ground, families held on to some of the most prominent businesses, such as Walmart, the world’s largest retailer, and Ford, one of the largest car companies. In continental Europe public companies remained the exception.
Thirty-eight years after Chandler published his paean of praise for the public company, “The Visible Hand”, family companies still provide many of the necessities of life. You can get your news from the New York Times and the Wall Street Journal; your car from Ford or Fiat; your smartphone from Samsung or LG; and your groceries from Walmart or Aldi. In a scholarly book, “Dynasties”, the late David Landes of Harvard University demonstrated that you could write a respectable history of capitalism through the lens of family histories. You could write an equally respectable survey of the state of modern capitalism by telling the story of a dozen family firms.
