Dynasties, by David Landes

The perils of a family affair

Professor David Landes starts his book Dynasties: fortune and misfortune in the world's great family businesses with the thesis that family-owned businesses, which he says are written off by modern commentators "as obsolete and inconsequential", are actually far greater creators of wealth and success than the inferior, but more highly-rated, managerial type of company. It is an engaging theory, which, alas, does not stand up to the least rigorous of examinations - particularly his own.

Landes immediately goes on to prove himself wrong with a series of unrelated (but hugely interesting) case studies of some great family businesses of the past couple of hundred years. He tells us the history of the Barings, once known as the "Sixth Great Power", of the Rothschilds, particularly Nathan, who was arguably the most powerful businessman in the history of the world, of the dreaded Morgans (from Wales), the Fords (Protestants from County Cork), the Agnellis, Rockefellers, Guggenheims, and half a dozen more.

All are absorbing stories in themselves, and Landes tells them (or more accurately re-tells them, as there is copious literature on each) very well. Each tale, however, ends on the same note. With the exception of the Rothschilds (and I will come back to them), none of the family firms he describes exists in a recognisable form these days. They are either bust, or have been swallowed in the maw of far bigger beasts who might (or might not) keep the name but nothing else.

Hence there is no Barings Bank today. Everyone has heard of Nick Leeson, an overpaid and driven young man who single-handedly destroyed 200 years of banking history. Nor is there a Morgan about: all the offshoots - JP Morgan, Morgan Stanley and Morgan Grenfell - are part of faceless banking goliaths. There are no Fords at Ford, no Renaults at Renault (although Landes reveals there are lots of Citroëns at Citroën) and, with the death of Gianni Agnelli, the great Fiat empire is breaking up. There are plenty of Rockefellers - hordes of them in fact, making them more of a clan than a dynasty, but they are certainly not a force in world commerce.

Landes, a history and economics professor at Harvard, uses the dynasty theme - flawed or not - as a platform for some fascinating stories of fascinating men. They are all men - there are no major business dynasties established and run by women. He doesn't pretend to mine secret and newly discovered archives or official papers, but relies on the myriad histories written over the years on his various subjects.

In particular, like many of us, he is fascinated by the Rothschilds' story. The Rothschild bank still exists, but it does so behind the scenes, no longer the financier of wars and royal families, but influential nonetheless. The best-known Rothschild, Jacob, is one of the richest and most successful men in Britain today, but he keeps his business dealings well away from the public gaze. For him, it is the clever management of private money and of deals behind the scenes that he finds intellectually stimulating. Given the family rifts, tragedies and recent history, he would not believe in Landes' hypothesis but rather in the skill of the individual.

But then Landes doesn't believe his theme either. Dynasties should not be confused with entrepreneurs, such as Rupert Murdoch, who create empires and try (with mixed success) to pass them on the next generation. What I think we are talking about are large businesses which are still controlled and run by the same family which founded them at least three generations ago. And there are precious few of those.

Take a look across the top 100 companies in Britain. A couple of generations ago, the Sieffs still ran Marks & Spencer, the Frasers ran House of Fraser, the Cohen family ran Tesco, the Wolfsons ran GUS, the Moores ran Littlewoods, the Pilkingtons ran Pilkingtons, the Cowdrays ran Pearson, the Guinnesses ran Guinness. There were Philipses at the top of the (Dutch) Philips company, and so on.

In the City, most of the merchant banks and stockbrokers were family concerns: the Schroders owned and ran Schroders, the Flemings ran Flemings, and the founding families ran many of the stockbrokers, from Cazenove to Hoare Govett. Family-run businesses were prominent in every industry, from retailing to textiles, to shipbuilding, brewing and arms production.

But no more. In the period 1960 to 1980, "family" came to equal old-fashioned and inefficient, and one by one the great dynasties disappeared, taking their paternalism, eccentricities and cruelties with them. Entire industries disappeared as Britain lost its manufacturing base in a single generation. They have been replaced by faceless corporations, run by professional managers who are driven by the "teenage scribblers", or investment analysts in the City, interested in short-term performance only.

With their passing we all lost something in terms of colour, character and stability. But on the other hand we gained better labour practices, prosperity, global competitiveness (the City of London has again replaced Wall Street as the world's most important financial centre) stability - and full employment. Which do you prefer?

None of this detracts from an enjoyable and informative book, reminding us of some of the giants who created the modern business world, for good or ill, and whose stories lose nothing in the re-telling. There are giants today, such as Bill Gates and the Google twins, but they are one-dimensional and would not sustain a chapter in a Landes-style book in the future.

Like Landes, I confess to being fascinated by the histories of the big banking houses - of the Randlords in southern Africa, of the industrialists who changed the lives of millions. And I thoroughly enjoyed this excellent synopsis of an era which has passed.

There used to be an old adage in the City which ran "Rags to rags in three generations". It is as true today as it ever was.

Big family businesses simply cannot hack it in the modern, global world of hedge funds, private equity funds and short-termism. A good thing? I'm not sure.