First published in the Sunday Times on 16th April 2017.
A family business can be the best of all ownership structures — both for society as a whole and financially. Public companies have transient institutional owners that tend to be too short term and private equity owners need to make for the exit after five years or so and can be too keen on financial engineering. But families can hold on to assets for decades — or even centuries. That can permit truly long-term decision making about investment, which is the hallmark of enduring enterprises. Family companies can also consider the broader stakeholder community, which is hard for the other types of owner.
However, industries are dynamic and founders can be awkward individuals who sometimes hang on past their sell-by dates. I recently heard of a case in which an industrialist in his eighties has fallen out with his only child and has no one else to whom he can hand over his company. He has failed to plan the succession properly but can no longer cope with the demands of running his mini-empire. This is an example of a family business veering out of control — one that might even end up on the rocks if new leadership is not appointed.
Very long-serving chief executives are probably not a good idea in general, even if they are founders. Research shows that over the years bosses become increasingly entrenched; they rely more on insiders for information and pay less attention to customers, competitors and the market. Moreover they can become risk averse, choosing to avoid losses rather than pursuing gains. Those tendencies can lead to stagnation.
Unfortunately, those who forge dynasties often hate to surrender power. I think many successful entrepreneurs dislike the very idea of retirement. They cannot conceive of giving up their life’s work; building a business has given them status, identity, structure and a sense of achievement. Remaining in charge keeps them going in old age. I suspect many are in a form of denial about their mortality. And their ego cannot cope with the idea that a son or daughter — or anyone else — could run the business better than them. Or that the business needs to modernise and reinvent itself to stay successful.
As the journalist and broadcaster Malcolm Muggeridge wrote: “Few men of action have been able to make a graceful exit at the appropriate time.” The most recent high-profile example of this is Sumner Redstone, the 93-year-old media billionaire who has controlling stakes in Viacom and CBS. He said in a 2014 interview: “I will not discuss succession. You know why? I’m not going to die.” The future of both companies has been riven by legal disputes about who should run them. It now seems his daughter, Shari, has defeated her rivals, including Philippe Dauman, the ex-boss of Viacom, and Redstone’s two former companions, Manuela Herzer and Sydney Holland, who lived with him until they were evicted in 2015.
In an ideal world a valuable estate should be divided equally between all the offspring on death. Any other distribution is likely to lead to trouble. I am told by charity fundraisers that a majority of wills dealing with large sums are now disputed by disgruntled heirs — a state of affairs that would have been inconceivable in a previous era.
Of course, a business cannot have lots of chief executives, so one child usually has to take over. But if a tycoon marries more than once and has different sets of children, the scene may be set for quarrels.
The design guru Sir Terence Conran is 85 and has five children from two marriages. In 2014 he handed control of his business Conran Holdings to his son, Jasper. In September 2015 Sir Terence gave a newspaper interview in which he addressed Jasper: “OK, let me resign, but do remember that as I own 67% of the business, if I don’t think you’re doing a good job, I’ll come back.” The day after, Jasper Conran resigned as chairman.
Even entrepreneurs have to let go at some point. I have always felt it is better to leave the party a little early than to outstay my welcome. Of course it is difficult to give up status and influence voluntarily; but better that than the alternative. The next generation, be they family or outsiders, deserve their shot at glory. Because ultimately we are all replaceable. As Charles de Gaulle is believed to have said: “The graveyards are full of indispensable men.” There will be other custodians of our assets in the future — even better than us, perhaps.
And the worst legacy of all is a bitter fight among your descendants.