Listen to this article
In a time of frenzied corporate takeovers, it would be easy to underestimate the role of the family business. Yet, according to some estimates, as many as 70 per cent of businesses – both listed and private – are effectively run by the founding family.
Even large quoted corporations such as Ford, established in 1903, and Rupert Murdoch’s News Corp bear the strong imprint of the founding family. Bill Ford, great-grandson of Henry, seized power at the world’s third largest vehicle manufacturer in autumn 2001 to restore the company’s fortunes and Mr Murdoch’s children have played a prominent role in the media group’s affairs.
Ford is evidence that even the upper reaches of the US quoted business world bear the marks of family ownership, with 40 per cent of the Fortune 500 companies still under family control. Cargill, founded in 1865, is still a private company but is responsible for a quarter of all US grain exports and employs nearly 150,000 people. Descendants of the founders, the Cargill and MacMillan families, still own about 85 per cent of the shares.
The Rothschild family developed Europe-wide banking interests from their Frankfurt base in the late 18th century, when founder Mayer Amschel Rothschild sent his five sons out across the continent. The group’s main business today is mergers and acquisitions advice though it has itself remained independent, surviving nationalisation in France by establishing a new company.
Families retain their powerful hold because of a strong personal commitment to their business – even in difficult times, when detached shareholders would consider selling up. They are also more willing to take a long-term view, creating something that they hope will provide a focus and an income for their children and grandchildren.
Even if the business reaches the stage where the founding family takes it public, family members will often display the same solidarity that built the business in its early days and resist approaches that would break that stranglehold.
But family ownership is not always an unalloyed blessing. Family disputes can be more intense than those between unrelated owners and managers and a single family is rarely able to provide the range of management expertise required to run a modern business. As family members proliferate, differences frequently arise between individuals and between generations.
Disagreements between the members of the Bancroft family are widely seen as having created an opening for Rupert Murdoch to make his $5bn bid for Dow Jones, owners of the Wall Street Journal.
Given the range of challenges facing new businesses, it is remarkable how many survive as long as they do. One-third of business start-ups fail within three years and by year seven, two-thirds will have gone under. Only three out of 10 businesses survive into the second generation of the founding family.
Even a well-managed family business will, over time, have to deal with death, incapacity, recessions and the fading of the entrepreneurial spark. Despite these obstacles, some businesses have shown a remarkable ability to survive within family ownership. Japan’s Hoshi Hotel has been run by the same family, – now in its 46th or 49th generation accounts differ) since 718, while the Venetian glassmakers, Barovier & Toso, were established in 1295.
Research by the Bryant College’s Institute for Family Enterprise concluded that the oldest US company still operating in the state where it was founded was Tuttle Market Gardens of Dover Point, New Hampshire. Established by John Tuttle on or before 1640, the farm has continued in family operation for more than 360 years.
Leaving aside the requirement for the business still to be operating in the state where it was founded, percussion instrument maker Zildjian Cymbal can claim to be the oldest US family business. Founded in Constantinople in 1623, it relocated to Norwell, Massachusetts in 1929.
The largely European membership of the Old Henokiens – a club of family businesses named after the Biblical patriarch who reputedly lived for 365 years – is required to have completed at least two centuries under the same family ownership or majority control.
Members include: William Clark & Sons, a Northern Ireland linen processor established in 1736; Amarelli, an Italian liquorice manufacturer founded five years earlier; Van Eeghen International, a Dutch foodstuffs producer since 1662; and two Swiss banks Lombard Odier Darier Hentsch (1798) and Pictet & Cie (1805).
When founders have made their money their thoughts often turn to creating a durable legacy outside business. Sometimes autocratic personalities seek to temper history’s memory by donating to the arts, the sciences or other good causes.
Art galleries around the world – the New York’s Frick, Madrid’s Thyssen-Bornemisza, London’s Tate – bear witness to fortunes made in trade being devoted to creating a softer artistic legacy. The Rockefeller Foundation, established by John D. Rockefeller (senior) and his son in 1913 from wealth created by Standard Oil aims to “promote the well-being of mankind throughout the world”. The foundation has donated $14bn at present values to funding research into areas including health, agriculture and the social sciences.
On a somewhat smaller scale the Joseph Rowntree Foundation spends about £10m a year on research into social problems in the UK and the means of solving them. The foundation – and two other charitable trusts – were set up by the Quaker cocoa and chocolate manufacturer to “seek out the underlying causes of weakness or evil.”
By definition, creating a legacy like this takes time, although there is no shortage of wealthy individuals with potential. Lakshmi Mittal has built a global steel empire in recent years while the Chinese businessman, Li Ka Shing, has created one of south -east Asia’s largest conglomerates and personal wealth, according to Forbes magazine, of $23bn. Bill Gates, founder of Microsoft, has been rated the wealthiest person in the world since 1995 by Forbes.
Whether their names are remembered for more than making lots of money a hundred years from now remains to be seen. But Mr Mittal has established a trust to back promising Indian athletes while Mr Li has provided generous funding to universities in mainland China and Hong Kong. Mr Gates, meanwhile, has poured a large chunk of his fortune into a range of good causes, including fighting Aids, through the Bill & Melinda Gates Foundation.
“Will there be new dynasties? Indubitably,” says Nick Tucker, head of global private clients in the UK at Merrill Lynch. “But the focus is now on philanthropy, not on the children. The names that last will be the ones that pass their legacy on through a set of beliefs rather than blood ties.”