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There has been a sudden outbreak of Christmas spirit in French family capitalism this week.

Liliane Bettencourt, the 88-year-old L’Oréal heiress, finally made up with her daughter Françoise, and the two pledged their support for the family cosmetics business.

The Hermès heirs also went out of their way to put on a public show of unity to underline their attachment to their family controlled company now under siege from their bigger French luxury rival, LVMH.

The surprise Bettencourt mother and daughter reconciliation, bringing to an end months of ferocious fighting, and the decision of the Hermès family to erect even stronger barricades against its predator underline a basic principle of family capitalism. In short, it is a simple question of united we stand, divided we fall. That also goes for the business empires the family controls.

The Bettencourt affair was first and foremost a family matter. But the bitterness of the feud, its media exposure and its dramatic political repercussions were starting to have a serious knock-on effect on the reputation and future of L’Oréal, the world cosmetics leader considered a national champion in France.

The company appeared vulnerable with Nestlé, the Swiss food multinational and the other main L’Oréal shareholder, breathing down the French company’s neck. Certainly, the French government was worried that the family feud could precipitate the sale of the Bettencourt stake to Nestlé. As for the company itself, the family laundry aired in public or in the courts on a daily basis was making the board uncomfortable, for all chief executive Jean-Paul Agon’s declarations that it was business as usual at L’Oréal.

It certainly was not. So much so that Lindsay Owen-Jones, the company’s chairman, recently publicly urged mother and daughter to patch up their differences and show a united front to the world. After all, this is the second lesson of family capitalism. Without the strong support of a united controlling family shareholder, management, however good, is bound to face an uphill struggle to deliver value.

The Agnelli-Fiat family saga is a good example. Back in 2002, the Fiat automotive conglomerate was close to collapse. The extended Agnelli family now involving some 200 members were asked to help recapitalise the group. At the time, nobody would have been surprised if they decided to call it a day rather than throw money into what seemed to be an industrial and financial bonfire. Instead, with the notable exception of the mother of John Elkann, the young family scion now chairman of the company, they all rallied round and backed the new chief executive, Sergio Marchionne.

Mr Marchionne has since pulled off one of the most remarkable industrial turnrounds of the last decades. Fiat shares rose sharply from their low €4 levels and the company, given up for dead eight years ago, is now considered as one of the few automotive companies with a fighting chance to become part of a handful of successful global players. But Mr Marchionne is also the first to acknowledge that without the family and its 30 per cent stake standing firmly behind him and his strategy, his task would have been impossible.

Here is where we come to Hermès and lesson three of family capitalism. This is the old problem of generational change. As family controlled companies grow older, the number of family shareholders inevitably becomes bigger. When you have a large number of family members, tensions and conflicts are bound to erupt putting under increasing stress the unity of the family. This not only undermines management but it also opens up the company to potential predators as dissident members decide to cash out of the family business.

In the case of Hermès there are now about 70 members from three family branches. If Bernard Arnault, the LVMH chairman and controlling shareholder, has managed to accumulate a 17 per cent stake in Hermès it can only imply that he has picked up some shares sold by some Hermès members. Mr Arnault is well known for his strategy of moving into companies where families are disunited. It was the case with Louis Vuitton and Moët Hennessy, then Château d’Yquem, and more recently with Carrefour.

So for all the protection their special commandité structure gives them, the Hermès family still felt threatened. Unlike Fiat and the Agnellis back in 2002, Hermès and its share price are flourishing. That is the problem. For many family members must be tempted to sell their shares and take the money and run. That is probably why they have all been called to close ranks with the hope that this display of Christmas unity will eventually persuade Mr Arnault to walk away.

Paul Betts is a senior FT correspondent based in Paris

Copyright The Financial Times Limited 2017. All rights reserved.

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