Filial successors are a vanishing brood

One of the world’s most powerful business leaders last week heavily hinted who would take over from him, while a second saw his succession plans thrown into confusion.

The clear steer came from Rupert Murdoch, whose News Corp announced that son James would move from London to New York to become deputy chief operating officer. Analysts concluded this made him heir apparent – although Elisabeth, who recently sold her television production company to News Corp, is not out of the frame. Neither is brother Lachlan, a previous heir apparent, who is again more involved in the business. Whichever: a Murdoch will take over one day.

Observers thought they had identified the successor at Berkshire Hathaway too: David Sokol would become chief executive when Warren Buffett died. (Like Mr Murdoch, Mr Buffett has no retirement plans.) But Mr Sokol resigned, leaving analysts to speculate which other candidates were now frontrunners. Mr Buffett has indicated there are at least three other, unnamed, possibilities.

We know none of his children is a potential successor. Mr Buffett has spoken against privilege passing down the generations. Supporting inheritance tax, he once pointed out that you would not choose “the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”.

Yet Mr Buffett hasn’t left his children out. His son Howard is a member of the Berkshire board and Mr Buffett has suggested he should become non-executive chairman. He is not above giving his family a cheeky boost. In his 2009 letter to shareholders, he recommended they buy Howard’s Fragile, “a volume filled with photos and commentary about lives of struggle around the globe”, as well as son Peter’s book Life Is What You Make It.

All parents want the best for their offspring and, in ancient societies, it was the norm for leaders’ children to succeed them. But democracy generally puts paid to that. The uprisings in the Middle East – in Egypt, Libya and Syria – are, in large part, revolts against dictators handing power to their sons.

Modern societies rightly frown on favours for relatives. Europe still has its royal families; Britain’s will this month celebrate the wedding of the second in line to the throne. But pageantry is all they have left; their power has gone. The US, without a monarchy of its own, does have political dynasties: the Kennedys, the Bushes, the Cuomos. But, whatever advantages their backgrounds give them, they have to win elections. If the voters don’t want them, they have to do something else. If News Corp’s shareholders don’t want a Murdoch in charge, they can take their money somewhere else. A complex share structure gives the family control. In what other area of life would such an arrangement endure? Imagine a university dean or a judge announcing a son and daughter would succeed him. Only in business does nepotism continue.

Professor Joachim Schwass of IMD, the Swiss business school, argues multi-generational family companies have their strengths: intent on preserving wealth, they look further than the next quarter’s results. (An executive who reported to James Murdoch once said how frustrating it was working for someone who “was always looking strategically, 10 years down the line”.)

Prof Schwass points out, too, that children follow in their parents’ professional footsteps in other fields. There are families with several generations of doctors or lawyers. They grow up in the environment, absorbing its mores and skills.

Contrary to Mr Buffett’s gibe, there are even Olympic champions who produce top athletes. Natalie Redgrave – daughter of Sir Steve, a rowing gold medallist not just at the 2000 games but at four before that – was part of the Oxford University crew that beat Cambridge in last month’s women’s boat race.

But, as she said, she wouldn’t have been there if she hadn’t been good enough. Business leaders’ children sometimes are, but their grandchildren often aren’t, whether because they are too rich, too soft, or just not up to it. Prof Schwass says many languages have their equivalent of the English saying “clogs to clogs in three generations”.

Efficiency thrives on meritocracy, which is why family-dominated businesses, from Ford to Marks & Spencer to Anglo American, feel the need, eventually, to bring in outside executives. In other cases, the heirs, too numerous and divided, end up selling – as the Bancroft family did when they submitted to Mr Murdoch’s bid for Dow Jones.

The Murdoch children are third generation too, Mr Murdoch having inherited the business from his father. The clan has its critics, but producing three credible succession candidates is a rare and thankfully vanishing achievement. Only the three know how much of the credit belongs to Mr Murdoch and how much to their mother.

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