Family companies are repositories of family traditions and family loyalties. Companies of all sorts have taken to telling stories about themselves and their products in order to differentiate themselves from their rivals. Most family companies can tell stories that are far more compelling than the ersatz products of corporate public relations departments. Companies work hard to create loyalty among their employees. Family companies often extend their sense of family to their employees and even their communities: When Michele Ferrero, the founder of the company that gave us Nutella, died, people lined the streets of his hometown, Alba, in their thousands, many of them weeping.
Family companies frequently have better political connections than other types of companies, most notably in the emerging world. Tata was an engine of nation-building during the British Raj. Samsung and the other chaebol were responsible for the “miracle on the Han River” that transformed a war-torn backwater into an industrial powerhouse.
They also have two important things on their side. The first is that they are particularly common in the most fast-growing areas of the global economy such as India, Indonesia and the Philippines. Families with names like Rothschild and Baring played a leading role in creating modern capitalism during the era of Western dominance. Families with names like Godrej and Lee will play an equally prominent role in recreating it in the age of Easternization.
The second is that they are developing ways of minimizing their weaknesses (particularly the “clogs to clogs in three generations” curse) and capitalizing on their strengths. Arguably, family companies are undergoing a revolution in their management capacities similar in size and scope to the revolution that regular public companies went through a hundred years ago.
Here are some of the emerging rules of successful business families and family companies:
• Decide what they want out of their businesses rather than dithering about between various contradictory models. The Boston Consulting Group argues that families can adopt three approaches toward their businesses. They can be owner-managers who occupy executive roles. They can be activist investors who provide broad strategic guidance and selective intervention. Or they can be passive owners—living off dividends and nominating professional managers who are left to run the company free from interference. The 680 members of the Haniel clan (who once owned Metro supermarkets) have even adopted a self-denying ordinance which stipulates that no member of the family can work for the company, not even as an intern.
The correct approach may change over the years: First-and second-generation family members may demand to be owner-managers whereas third- and fourth-generation members may prefer a more distant relationship.
• Establish specialized institutions to manage functions that were once bundled together within the family company: for example, family offices to manage the family fortune and family foundations to manage charitable activities. Family philanthropic activities can be crucial to preserving family values and keeping family members involved in the family project.
• Adopt formal measures that can deal with potential conflicts of interest and clashes of personality. They have family constitutions that lay down the rules of engagement, shareholder agreements that regulate what shares they can sell, family assemblies that provide forums for the family at large and family councils that oversee the running of the business, and even family codes of conduct which prescribe how family members should behave (the Trumpf family has specific rules governing religious tolerance, modesty and respect for others). Getting these constitutional arrangements right is particularly important for big, sprawling families that have lots of branches and lots of different generations, all of which might have diverse interests and differing perspectives.
• Reinforce “hard” measures with plenty of soft ones. Some families put aside a house for family reunions, often the home of the family founder, or organize regular holiday camps where their children mingle. Some families employ chief emotional officers, or ombudsmen, or external councilors to address soft issues. Others bring in psychologists or even psychiatrists to untangle some of the most difficult emotional tangles. In Boston, a group called SOBs (sons of bosses) has come together to discuss their “daddy issues.” Even the hard-bitten Rupert Murdoch has organized a group therapy session for his children and their spouses, presided over by a counselor who specializes in dynastic families.
• Embrace meritocracy to the extent that you can in a dynastic world, insisting that family members meet demanding standards if they are to ensure their position in the firm and, if you’re cursed with sub-optimal heirs, bringing in professional managers. Some companies restrict family members from working under the direct supervision of other family members. Others provide their children with seed funding to start a new venture in order to gain entrepreneurial experience. The ROI group, an Australian investment business that embraces four generations of the Owens family, demands that all family members work in non-family companies at the start of their career, and that they can only be given jobs in the company if they are approved by the owners’ board, which represents the family, and the advisory board, which represents outside advisers.
Elizabeth II liked to refer to her family as “The Firm” because it went about the business of majesty in such a business-like way. There are millions of other firms out there that try to combine rational demands of business with the emotional ties of family life. The Windsors are undoubtedly unique—born to immense privilege but also condemned to live their lives in a gilded cage—but they also sit on the top of a pyramid of dynastic families that have inherited their positions because of the luck of their genes—the “lucky sperm club” as Warren Buffett once dubbed it—but who nevertheless play a vital role in keeping the modern economy rolling ahead.
Adrian Wooldridge is the global business columnist for Bloomberg Opinion. A former writer at the Economist, he is author, most recently, of The Aristocracy of Talent: How Meritocracy Made the Modern World.