6 days ago
Europe's best family firms have a secret weapon money can't buy
BERRY Bros & Rudd is a magnificent piece of Old England. Founded in 1698 to cater for the new craze for coffee, the shop still displays 'the sign of the coffee mill' above the door despite having moved into the wine business two centuries ago. The walls are panelled in the darkest oak. Leather-bound volumes record the weights of 'notable customers' including William Pitt, Lord Byron and Beau Brummell.
Yet the company has not allowed its reverence for tradition to divert it from innovation. Berry Bros led the charge into Asia (particularly China) in the 1980s. It now has outlets in Hong Kong, Tokyo and Singapore and stocks Chinese wine on its shelves. Everything from the company's wine cellars (including a huge one in Basingstoke) to its computer systems are state of the art.
It is fashionable in global business circles to pass over Europe with a sigh. US companies dominate the world's technological frontier (with Chinese competitors snapping at their heels). Asian companies have mastered the art of mass-producing middle-class prosperity. What are European companies good for? Part of the answer lies in longevity: The best European family companies have survived everything that history can throw at them – plagues, famines, world wars, recessions, revolutions – and continue to thrive. The Henokiens Association, an international club of 57 family businesses that have survived for at least 200 years, includes only 10 non-European members, all Japanese. The British have created their own club, the Tercentenarian Club, of companies that are more than 300 years old.
A familiar English proverb suggests that family companies seldom survive more than three generations ('from clogs to clogs in three generations'). A glance at corporate actuarial tables suggests that the three-generation rule is generous. The typical life expectancy of any company, family or non-family, is only a couple of decades, and is falling. What explains the longevity of the best European family businesses?
European business schools have done some excellent work answering this question. The IMD Business School in Switzerland has identified '25 principles necessary for long-term success' and has even come up with a model, the Family Business Secrets of Success Model. Bocconi University in Italy teamed up with the search firm Russell Reynolds Associates to identify 10 principles. For the sake of simplicity, I will focus on five culled from reading this research and my own cogitations.
Put the family business first. This may mean sidelining individual family members for the sake of the business. Long-lived family businesses are skilful at 'pruning the family tree' (encouraging less committed or talented family members to choose private life). Paradoxically, it may also mean exiting the founder's business for something more profitable. The Italian Falck family exited the steel industry, hitherto their core business, for renewables in the 1990s.
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Celebrate tradition. Tradition is a unique resource which newer firms cannot match regardless of how much money they have. Thousands of companies produce wine, for example, but only the Frescobaldis in Tuscany can boast that their ancestor, Dino, rescued the first seven cantos of Dante's Divine Comedy from destruction. Tradition provides impossible-to-quantify corporate benefits: pride in collective achievements; the self-confidence to make difficult decisions (including the self-confidence to exit the family's ancestral business); and, perhaps most important of all, a sense of perspective (family companies are much better than public companies at resisting the pressure of quarterly results for long-term results).
One of the biggest problems with families is that they multiply over the generations. Successful family businesses counter that by making a conscious effort to keep tradition alive. Some live close to each other (though fans of Dallas or Dynasty will recognise that this is not always a formula for harmony). Most use less-drastic methods: holding regular family meetings, informal as much as formal, going on holiday together, telling stories of family achievements, visiting family archives, founding corporate museums.
Secure a pipeline of talent. The greatest curse of the family business is the incompetent son and heir. Successful family businesses secure a reliable supply of family members by encouraging lots of members of the family to go into the business and then subjecting them to a succession of tests. Exor chief executive John Elkann, the chosen heir of his maternal grandfather Gianni Agnelli, had to prove himself by working incognito in several different family-related businesses.
Focus on justice. The other great curse of family businesses is hurt feelings – and there is no greater source of hurt feelings in a family (particularly when money is involved) than a sense of injustice. All 10 of the long-lived family companies in the Bocconi study have developed scrupulously fair internal markets for shares which allow family members who want to exit from the company to sell their shares at a fair price and allow those who want to increase their involvement to buy them.
Provide safety valves. The ideal complement to a sense of justice is a system of safety valves. The best way to cope with family members who will not make it to the top is to provide them with alternative employment in family foundations. The best way to cope with impatient high-flyers is to give them opportunities to create subsidiaries or set up their own companies. Younger members of the Mulliez family have used family money to found new companies such as Decathlon (sports), Pizza Pai and Flunch (catering), Leroy Merlin (do-it-yourself) and Boulanger (electrical appliances). Most successful families have a behind-the-scenes 'leadership orchestrator', or godfather, who plays the role of preventing quarrels, suggesting opportunities and guiding future leaders.
The world has much to learn from Europe's long-lasting companies. Entrepreneurs who prospered during the glory years of globalisation are beginning to hand over their businesses to their children, a tricky process at any time, but particularly difficult in countries such as China that have suffered under communism; or Saudi Arabia, that has modernised only recently. They could do no better than to consult Europe's godfathers.
For their part, big public companies often suffer from a 'crisis of banality': in a world that is hungry for meaning, all too many of them adopt identical virtue-signalling language or forgettable names or logos. They should study the art of storytelling practised by the likes of Berry Bros & Rudd. Even as some American tourists like to lament Europe's supposed decline into a collection of monuments without any economic prospects, some of those monuments contain clever and innovative companies that will continue to thrive even after the giants of Silicon Valley have gone the way of Shelley's Ozymandias. BLOOMBERG
