H ollywood has lately developed an obsession with business dynasties—particularly those on the cusp of implosion. It is not just “Succession”, a hit series about a media baron and his squabbling heirs seemingly inspired by the Murdochs. “La Maison” transposes the same drama onto the glossier world of French fashion; a reboot of the 1980s series “Dynasty” brings it to the energy business. Television executives have put their finger on something the corporate world often forgets: family firms are not a sideshow, but arguably capitalism’s main act. They account for around two-thirds of all businesses worldwide and, according to McKinsey, a consultancy, generate a similar share of GDP. Most are small—but not all. Some of the world’s biggest companies are still to varying degrees controlled by their founding families. By our analysis, family firms—which we define as those in which the clan holds at least 20% of shares or voting rights, and which have seen at least one generational handover—make up nearly a quarter of large listed businesses worldwide.In America they account for one in 16 big public companies; in Europe, one in seven.And in Asia, one in three.
Family firms
Non-family firms
These dynasties now face a moment of truth, as many prepare to hand over to the next generation. In the West, baby boomers are reaching—or past—retirement age. Succession is also due in China, where private firms began to flourish in the 1980s, and elsewhere in Asia, where national-independence movements brought a wave of entrepreneurship a generation earlier. If handled poorly, the disruption to global business could be severe. Despite decades of research, academics are yet to reach a consensus on whether family firms do better or worse than the rest. Industry, size and geography seem to matter. Different gauges of success also yield different results. To study the question, we narrowed our focus to listed businesses, for which data are more readily available, compiling a sample of around 1,600 non-financial companies across the main stock indices of America, Europe and Asia. We found that those controlled by families produced broadly similar returns for shareholders, including dividends, relative to others over the past two decades—but with significant variation across sectors, countries and time periods. Family firms have obvious drawbacks. Many, though not all, still appoint an heir as chief executive or chairman—a practice Warren Buffett, an investment wizard, once likened to picking the eldest sons of Olympic gold medallists to compete in the next games. Yet they also have two big advantages, which help explain why they tend to thrive in certain contexts. The first is their ability to nurture relationships. Rolodexes are passed down like heirlooms. Family names breed trust. Thomas Zellweger of the University of St Gallen in Switzerland reckons this helps explain why clans play a particularly prominent role in industries such as retail and consumer goods, where winning the trust of consumers and suppliers is paramount. In our sample, family firms accounted for more than a third of the companies across these industries. A focus on relationships can, of course, be a problem if it descends into nepotism. In developing markets, however, networks of trust are vital to how business is done. “It’s a question of evolution,” explains Sanjiv Bajaj, an heir to the Bajaj Group, one of India’s largest businesses. Where institutions are weak, a clan’s ability to shake hands on a deal with a prospective supplier (or influential politician) is essential. Where capital markets are fledgling, it is useful to have a name banks know. Family businesses loom large over the stockmarkets of India and South-East Asia (though not China, where state-owned enterprises play an especially big role). They also continue to dominate business in South Korea, despite its rise to riches. This also explains why the biggest family firms in emerging markets tend to be sprawling conglomerates. Their edge is not expertise in a single industry but access to capital—financial, social and human. Atop the rich list in Indonesia are the Hartono clan, whose empire extends from cigarettes to banks. In the Philippines it is the Sy brothers, who dabble in everything from retail to real estate. In India, it’s Mukesh Ambani, whose Reliance Industries spans telecoms, textiles and more. The second advantage of family businesses comes from their long-term perspective. Heirs tend not to think in quarters but generations. That can make them conservative. For example, research suggests that family firms prefer investing in tangible assets over research and development. “There is a fine balance between innovation and preservation,” says Pasquale Marinelli, the 26th-generation boss of Marinelli Foundry, an Italian bellmaker thought to be Europe’s oldest family business. In fast-changing industries, adherence to tradition might become a liability. In other cases, though, it can serve as an advantage—as attested to by the enduring success of family-run luxury brands such as Hermès. Moreover, conservatism often pays off during volatile periods. Various studies have found that family firms on the whole outperformed their peers during the 2007-09 financial crisis and the covid-19 pandemic. In our sample, they lost about as much shareholder value as other companies during each initial shock, but rebounded more strongly. Partly that is a product of financing choices, with family firms carrying less debt relative to equity. JC Decaux, a French outdoor-advertising company, was able to snap up competitors in Britain and Germany during the 2007-09 crisis thanks to its low borrowings and healthy cash pile. “Never waste a crisis,” says Jean-François Decaux, its second-generation boss.
Legacy problems
The great challenge for family firms is managing the transition to each new generation. There are countless examples of poorly chosen heirs running a healthy business into the ground. Maurizio Gucci, grandson of the luxury brand’s founder, took his firm to the brink of bankruptcy then sold it to outside investors—before being killed by a hitman hired by his ex-wife (a saga dramatic enough to be made into a Hollywood film in 2021). Given the surfeit of cautionary tales, family businesses look worryingly unprepared for the wave of handovers ahead. According to Deloitte, an accounting firm, only 57% of unlisted family firms in America have a succession plan in place. The absence of one risks costly internecine conflict. In February a South Korean court brought to a close a long-running inheritance battle at LG, one of the country’s largest conglomerates, that followed the death of its former chairman in 2018 without a will.
Image: Ricardo Tomás
For many family firms today, the issue is not a surplus of heirs, but a dearth. When Giorgio Armani died last year, unmarried and childless, he left a convoluted will that created chaos at his designer brand. Others confront a subtler problem: unwilling offspring. Dalian Wanda Group, a Hong Kong conglomerate, was thrown into flux when the sole heir to the business declared in 2023 that he had no desire to take the reins. To avoid such situations, many dynasts have informal ways of building bonds between business and brood from a young age. Josh Baron at Harvard Business School works with one family that has produced toy blocks emblazoned with the company logo and a storybook that covers the firm’s history to give to newborns in the clan. Lizzy Rudd of Berry Bros and Rudd, a 328-year-old wine merchant, organises events for family members at its quaint headquarters in London, featuring magicians for the children, “so they remember that this is a place where magic happens”, she explains. Once heirs reach adulthood, dynasts also have their own methods of testing them. Mayer Amschel Rothschild, founder of the Rothschild dynasty, sent his five sons to set up banks in different countries. Mochtar Riady, who started the Lippo Group, an Indonesian telecoms-to-hospitals giant, funded his grandchildren’s entrepreneurial ideas and kept an eye on their performance. John Riady, the grandson who now runs the empire, proved himself by investing in a number of successful South-East Asian startups. But there is a growing realisation that succession planning must be formalised. Courses for families are money spinners at business schools. Bankers, lawyers and consultants who specialise in serving families have proliferated. They complain that clans call on them too late, when a patriarch is on the brink of retirement, and shy away from awkward conversations. “A family that says they have no conflicts is actually a red flag,” says Jeremy Cheng of Lansberg Gersick Advisors, one such counsellor in Hong Kong. Mr Cheng urges patriarchs to think not just about their empire’s next leader, but also all the other family members and their futures. Li Ka-shing, a Hong Kong tycoon, offers an example: he passed his conglomerate, CK Hutchison, on to his sensible eldest son, gave his entrepreneurial younger son funding to start his own venture and set up a philanthropic foundation to keep himself busy and out of the way. Many family businesses, however, will have to look beyond the bloodline for their next leader. In Japan it is common for those without a suitable heir to adopt an adult into the family. In the West, not so much. According to Deloitte, fewer than a third of unlisted American family businesses with revenue above $1bn expect their next chief executive to come from the family. Outsiders might serve as a bridge until the younger generation is ready. But once family firms hire professional managers, Deloitte reckons that three-quarters keep it that way.
Selling the silver
It is not only management that may pass from family hands, but ownership, too. In a 2023 survey of German family firms published by the Ifo Institute for Economic Research, 23% of heirs said that they do not rule out a sale, up from 14% in 2020. Some may yearn to unshackle themselves from their familial obligations. Others may be compelled to sell shares to cover inheritance taxes. One option, already pursued by those in our sample, is a public listing, which offers families the option to maintain some degree of sway over the business. That, however, can cause consternation among other shareholders. The tension was on display last year when JBS, a Brazilian meat giant, listed in New York. JBS issued two types of shares to ensure the Batista family maintained control, which made investors jittery, given that the clan has been caught up in various scandals involving bribery and deforestation. Wesley Batista, who runs the business with his brother, rejects all such accusations. “When you have a family business, you have someone to blame and a face to punch,” he adds. Families willing to relinquish control may instead look to private equity. Others may sell to a competitor. Earlier this year Schroders, a British investment firm, was taken over by Nuveen, an American rival, drawing the curtain on two centuries of family control. The next few decades may see many more such sales, leaving heirs flush with cash. tv executives may be left searching for new inspiration. ■