Always put the family first, son

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Indy Lifestyle Online
The great family business dynasties are declining in the West, unable to compete in the global economy. But some won't let go so easily.

The Rothschilds' empire has just passed to a heroin-addict son and Murdoch appears to be planning a handover to his eldest boy. More sentiment than sense?

IN THE matter of the succession as head of his world-wide media empire, Rupert Murdoch has narrowed the choice down to three. There is Lachlan Murdoch, 26, who's in Australia, Elisabeth Murdoch, 28, who's in London and James Murdoch, 25, who's working in New York. They all work for their father.

Among Rothschilds, the principle of family first is supreme, gloriously and eccentrically. When the French Rothschilds required a successor to Baron Edmond who died last week, the choice was his 34-year-old son Benjamin, who is a registered drug addict and was fined pounds 400 last year after he was found carrying heroin at Southampton airport. In France, friends rallied round to reassure everybody that all would be well. An unnamed friend was quoted as saying of the new head of a family banking business that extends beyond Europe to Israel and the Antilles, "He is simple, pragmatic and unpretentious and has already proved himself."

These appointments are not about experience, but about control. "The succession at News Corporation depends on how long I stay compos mentis." Murdoch told the author of a new book on BSkyB, his British satellite operation. "Basically, we have, or will have, more than 35 per cent of the votes. That's enough to control it, unless you screw it up. So the kids have those shares now. It will be up to them."

This is the authentic voice of the patriarch who, at 69, perhaps feels for the first time, an intimation of his own mortality, and who is laying plans to consolidate his dynasty. Just as Murdoch was impelled to overtake the achievements of his own father, Sir Keith, whose Australian newspaper chain was the launching pad for Rupert's global expansion, so, plainly, he has the same hopes for his children - though, characteristically, he is leaving them to fight it out between themselves.

Murdoch may be "the ringmaster of the information circus", as his biographer, William Shawcross described him, but, in wanting to keep everything in the family, he is being thoroughly old-fashioned. From the taipans of Hong Kong, through America's robber barons in the 19th century, to the families that run the tiger economies of Asia Pacific, the urge to found a business dynasty seems to be irresistible. But the range and scope of the once all-powerful family business are being increasingly constricted by the practical problems of running them as global concerns. Only in the Far East are new family dynasties emerging from their local bases in Indonesia, Korea and Taiwan to become economic superpowers.

"IT'S THE the family-run businesses that are the real driving force of the tiger economies," says John Stopford, who is professor of international business at the London Business School. "They are like the zaibatsu companies of Japan in that they are essentially trading companies which are also involved in insurance and banking but, unlike the Japanese, the employees owe their loyalties to the family, not to the company."

These Asian families, which have their roots in mainland China, are often extremely large, embracing whole armies of cousins and other distant relatives. At the end of the 1980s, says Professor Stopford, one such company in Indonesia run by the Salim family had 350 members. "These groups are very close and very effective," says Stopford. "Their main characteristic is that they trust one another, more than the markets." And though the recent collapse of these markets in South-east Asia must be sorely testing the cohesion of these families, most agree that they are a business phenomenon.

In Europe and the United States, by contrast, the family as a force in big, multinational business is on the retreat, however much people like Arnold Weinstock might regret it. If Lord Weinstock, who retired last year as the head of GEC, could have had his way, he would have made his much less talented and less dynamic son, Simon, his successor. Simon died last year at the age of 44. But even if he had lived, the Weinstock's family stake in the company was not large enough for Weinstock pere to have forced the issue.

These days the number of family-run and family-controlled European and American businesses that genuinely compete in the global economy can be counted on the fingers of one hand. In Italy, despite the age of the ruling Agnelli brothers, Gianni and Umberto, and the lack of an obvious successor, the power and influence of Fiat inside Italy and the success of its cars on world markets is undiminished. Likewise, in Canada, the Thomson Organisation, founded by Lord Thomson of Fleet and now managed by his son, Kenneth, is a genuine multinational.

THERE ARE STILL plenty of corporate heavy-hitters in England, such as Marks & Spencer, Guinness, Whitbread, Hanson, Vestey, Littlewoods, Pilkington and C & J Clark, whose empires were created by the founding families but, with the exception of Sainsbury, Cadbury and Great Universal Stores where the Sainsburys, the Cadburys, and the Wolfsons are still in charge, the family has been in retreat. The individual members of the family may still, as the Sieffs and the Sachets are at M&S, multi-millionaires, but they play only a very small part in the management of the company these days.

Sometimes, this lack of involvement is by choice. The story is told of young Lionel Montagu, the youngest son of Lord Swaythling, head of the family's merchant bank, who on leaving school was summoned by his father. "Lionel," said the patriarch, "I think the time has come for you to go into the bank." "Yes, father," Lionel replied, "But might I know what that involves?" "Precisely the same as the rest of the family," his father replied. "Five per cent of the profits." "In that case," said the intrepid Lionel, "might I have two and half per cent and leave at lunchtime?"

But more often than not families have struggled to retain control longer and harder than was wise. In what promises to be a fascinating book on who owns Britain, Dominic Hobson tells the story of how Sir John Moores, who created the football pools and retailing empire than was to become Britain's second largest private business, spent 60 years at the top of the company before handing over the job of chief executive to the first outsider. It was not just outsiders that were a problem. Sir John was well into his eighties when he fired his own son as chairman and took on the job himself.

Even when the family decides that it should reach outside, it often has difficulty in making the incomer feel really welcome and at home. Hobson recounts the story of Ernest Saunders's early impressions of his life at Guinness at a time when the family owned only a quarter of the company but still provided the chairman, the deputy chairman, six main board directors and two non-executives. At a Guinness family wedding, Saunders found himself consigned to a distant table, along with other family retainers. "I suddenly realised how the family saw me," Saunders recalls.

It is easy to make fun of the travails of the family company, but the best have an ethos that is admired and even copied by the impersonal multi- nationals. Professor Stopford says that it is fashionable these days for big corporations to talk about the need to create a family-like atmosphere and a sense of belonging. "Family companies are the backbone of European business," he says. "In Germany, it is these very strong, dynamic enterprises that make up the Mittelstand and much the same goes for the little family textile companies in northern Italy." And big ones too, such as Benetton. The problems begin, he thinks, when the family company grows in size beyond the capacity of the family itself. And the more global the company becomes, the greater the problem.

Families like the Rockefellers, the Mellons or the Du Ponts who built the great edifices of American capitalism, relied heavily on talented outsiders to administer, guide and sometimes rescue their empires. It was the same story in Britain. According to David Kynaston, the author of a definitive history of the City of London, Barings was just one of a number of family-run merchant banks that renewed themselves during the 19th century by twice hiring non-family talent. But the lesson of the Baring story is, he says, that twice is not enough. "Barings' involvement in the Far East meant that the family, headed by Peter Baring, was badly over-stretched, and did not have the management to cope," he says. "Their ambitions were global, but they lacked the ability to achieve them. Like most other British merchant banks, they were sadly under-capitalised."

As Professor Stopford points out, any family's gene pool is limited. "In time, it's bound to run out of talent. Or, to put it another way, the family's greed exceeds its talent - as in the case of Gucci, the Italian fashion accessory company," he says. "As time goes on the extended family becomes less and less of a powerhouse and it seeks outside help. But the trouble here is that these days top talent is not content to work for the family: it wants its piece of the action." This point was crisply made by Terry Robinson of Lonrho who was hired by the Vesteys to rescue their ailing Union International subsidiary. "The bankers think I'm working for them. The Vesteys think I'm working for them. But I think I'm working for myself."

It may be that Rupert Murdoch is the exception and that he has discovered the secret of prolonging the life of his dynasty beyond its natural span. But at the London Business School they doubt it. "I think Murdoch-type firms are in deep trouble because if the family continues to insist on control, the key people will leave," says Stopford. "Just look what's happening at BSkyB now that Sam Chisholm has gone."

Stephen Aris is the author of a forthcoming biography of Arnold Weinstock.