What companies can learn from the dynasties of old

Apr 29, 2014
<p>Finding corporate comfort in familial ties</p>

When we look at the national squabbles across the world today, from Scotland to Crimea, it makes one nostalgic for the good old days of the Hapsburgs or the Ottomans, when petty national squabbles were subsumed in dynastic fealty.

As always, geopolitics and international business are connected, but the parallels between them are even more so. In the old days, dynasties ruled over large political conglomerates and, unless afflicted with the sort of genetic bottlenecks that gave rise to the Hapsburg lip, provided stable if lisping figureheads for multinational entities.

There are lessons for large international corporations in this, not least in the issue of succession that so preoccupies corporate boards now. In the good old days of Ottoman glory, once a sultan took office he promptly did away with all his sibling rivals from the safety of his harem, where he would busily ensure a wide choice of heirs down the line.

The nice thing about a dynasty is that its members (Ottoman siblings aside) enjoy a sense of security. Lay rulers, whether elected or putsched into power, tend to make hay while the sun shines: Clinton, Blair, Papa Doc, all felt the need to make their fortunes, although the former two at least waited until leaving office to cash in their chips. Similarly, modern CEOs’ idea of the long term rarely extends beyond where their own golden paragliders might ultimately take them.

This leads naturally to speculation about successful companies in the modern era – and corporate success should not be measured by column inches. Equity investors are the intended readers of the output from analysts and financial reporters, who are notoriously Panglossian in the reading of corporate runes. The banks and brokers who pay them want to sell stock, which means they neglect family-based firms whose very stability means their shares are either thinly traded or not traded at all.

If, for example, one looks at the continuing mergers and demergers situation that characterizes the Time Warner debacle, it’s clear it’s personal financial success, not corporate succession, that incentivized managerial strategy. Of course, such equity acrobatics attract attention. By contrast, family companies are less likely to be the subject of short-term gimmickry and prestidigitation of performance numbers that benefit boards and bedazzle analysts.

The one Detroit company that breezed aid-free through the recession was Ford, still in the hands of Henry’s descendants. Think of companies like Bacardi, one of the world’s most innovative companies, which almost invented branding. Warren Buffet behaves like Berkshire Hathaway is a family company, so he also fits the bill. In a family business there is a vision beyond the CEO’s pension plan, a collective cohesion that ensures continuing success and innovation.

Much derided by would-be modernizing financiers, the companies of Taiwan, Korea and Japan, all world-beaters, are usually family businesses behind a veneer of western-style listings. The drawback is, of course, that families can have feuds. For decades the Bacardis have warred with Fidel Castro over Havana Club, with all the bitterness of betrayal: they supported him in his revolution and then he turned round and nationalized their Cuban assets. Similarly the Koch brothers, Cargill, the Waltons and others can pursue political agendas, unhindered by shareholder concerns. The downside is that World War I suggests dynastic fallouts can be cataclysmic for all concerned, while the disastrous case of Edgar Bronfman shows the caprice of genetics when a family abdicates sole control to an heir.

But think of investor relations at Bacardi: it probably has more shareholders than many listed companies, but the relations are the investors! The family, however, seems to take an active interest in the company, which is perhaps why it is rich and growing richer, while the Bronfmans are financially downwardly mobile. Should we non-managerial stockholders start serenading boards at annual meetings with the Pointer Sisters’ We are family?

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