Family Dynasties

The Evolution of Global Business in Scandinavia

Hans Sjögren

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138489141
• eBook ISBN: 9781351021531
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

A remarkable fifteen Nordic family businesses are among the 500 biggest companies in the world and the Nordic countries have more dynasties than most others per capita and in GDP terms. The willingness, often reluctant, of both the political system and labour movement to accept asset accumulation has helped these Nordic businesses survive. The top 1% of Swedes own close to 25% of the country's wealth, as opposed to 16.5% of Spaniards, where dynasties are also abundant. The pattern has held a firm grip on the Nordic countries since the Industrial Revolution and emergence of free enterprise. The trend is particularly pronounced in comparison with the Anglo-Saxon countries – somewhat less so relative to places like Italy, Japan, Germany and South-Asian countries.

This book describes the factors and dynamics behind the ability of Nordic businesses to grow and thrive from one generation to the next in the process of becoming dynasties. Far from being commercial enterprises, they are a venue for power, philanthropy, passion, conflict, freedom and captivity. Like many other dynasties, the Nordic ones are a witch's brew of Machiavelli's Prince, Marx's belief in the potential of the meritocracy and Smith's baker who works to sustain his family. Topped by a spoonful of Weber's Protestant Ethic.

This book will be key readings for students and scholars of entrepreneurship, corporate governance, business history, Scandinavian history, family business and enterprises and the related disciplines.

1
Dynasties in the Age of Capitalism

The world abounds with dynasties, many of them in the economic sphere. Familiar names such as Rockefeller, Rothschild, Morgan, Ford, Porsche, Quandt (BMW), Defforet (Carrefour), Agnelli (Fiat), Toyota, Kikkoman, Michelin, Lee (Samsung), Bosch, Heineken, Walton (Wal-Mart), Sains-bury and Tata are to be found among the international financial and industrial dynasties. Some of them have very long histories. For 16 generations, starting in the thirteenth century, the family business of Kikkoman has produced and sold soy sauce, while the French Wendel family has pursued various industrial activities for 13 generations. The Japanese guest house Hoshi Onsen has been run by the descendants of the founder for 46 generations spanning more than 1,300 years, and the family history of the wine maker Château de Gouline goes back more than 1,000 years. Many started as merchant houses, food and wine makers, banks or investment firms. Others accumulated their fortunes through the exploitation of natural resources during the Industrial Revolution, or have their roots in the expanding production of vehicles and consumer goods during the twentieth century. The latest ones have appeared in the wake of the digital revolution.¹

Many of the family dynasties have attained great influence in society, from their amassing of economic and social power, even political and moral power. By obtaining access to capital with a long-term perspective to provide for succeeding generations, family dynasties provide a balancing force for the short-term perspective of financial markets.² On the other hand, the figures on increasing economic inequality in the word raise questions about the appropriateness of allowing a less regulated accumulation of private fortune. Moreover, a world predicated on the ideal of transparency and meritocracy may see dynasties, with sometimes cronyism, murky structures, patrimony and organizational obfuscation, as a threat to democratic values. The phenomenon of family dynasty has indeed a double nature.

The Nordic countries have more dynasties than most others per capita and in GDP terms.³ A remarkable 15 Nordic family businesses are among the 500 biggest companies in the world. The willingness, often reluctant, of both the political system and labour movement to accept asset accumulation has helped these Nordic businesses survive. The top 1% of Swedes own close to 25% of the country’s wealth, as opposed to 16.5% of Spaniards, where dynasties are also abundant. The pattern has held a firm grip on the Nordic countries since the Industrial Revolution and emergence of free enterprise. The trend is particularly pronounced in comparison with the Anglo-Saxon countries—somewhat less so relative to places like Italy and Germany.⁴

This book describes the factors and dynamics behind the ability of Nordic businesses to grow and thrive from one generation to the next in the process of becoming dynasties. Far from being commercial enterprises, they are a venue for power, philanthropy, passion, conflict, freedom and captivity. Like many other dynasties, the Nordic ones are a witch’s brew of Machiavelli’s Prince, Marx’s belief in the potential of the meritocracy and Smith’s baker who works to sustain his family—topped by a spoonful of Weber’s Protestant Ethic.

The book explores the behaviour and motivations of families without weighing in on whether such businesses represent the most efficient structure for generating profitability and growth. The fact that 90% of Nordic dynasties trace their roots to towns and rural areas has created both distance and dependence in relation to political elites. Besides, history shows many examples of tension between the government and family representatives. The book also examines the ability of families to manage succession and the impact of their beliefs and values on the spirit of entrepreneurship.

Each and every dynasty owes its birth to one or more individuals with the ability to spawn economic benefit by identifying essential unsatisfied needs. A family business may include cousins, in-laws and partners as well. The power of imagining new products and processes that would serve far-flung burgeoning interests and demands was their great incentive. Change was in their blood. They proceeded with incredible stubbornness and flexible savvy to manifest their dreams and satisfy their curiosity. Defiant of old structures and monopolies, they often flew in the face of the logic and unspoken institutions that governed the industries of their day. They challenged the status quo, won others over to their visions, launched new products, introduced unprecedented processes and evolved into charismatic leaders. They wielded the weapons of frugality and caution to weather recession and weak balance sheets so that the next generation could carry the baton farther. Religious and middle-class virtues informed their principles and business culture.

The Lucky Sperm Club

Family businesses—which have existed long before the Industrial Revolution begat the multinationals we are familiar with today—seem to have been the original method of structuring economic activity. They still constitute a species all their own, weaving together personal and commercial interests in a unique way.⁵ As crucial as they are to every era, their child mortality rate is suggested to be fairly high. A study in the United States found that 30% outlived their founders, whereas 13% made it to their grandchildren⁶ and 3% to the fourth generation. The absolute number of survivors was impressive nonetheless, the largest ones accumulating large private fortunes.

Another study concluded that 20% of the businesses were still around 60 years after their genesis.⁷ Comparative research has shown, however, that the life expectancy of ordinary businesses is no better.⁸ John Ward and other leading experts focus on the primary activity rather than the holdings of the entire family, as the yardstick of longevity. John Davis, an expert at Harvard Business School on the succession of family businesses, says that the most successful executives understand that personal and commercial interests do not always coincide and learn to deal with the consequences.⁹ The challenge is to separate the two spheres and welcome outsiders to the board and management team without compromising the fundamental objectives of the family.

The key to longevity seems to be a belief in dynamic and flexible boundaries for both “family” and “business.” Families with rigid assumptions regarding what a family is and/or what business we are in are less likely to prevail over generations, according to previous research. The element of flexibility enables adaptability to the changing internal and external environment. In turn, this adaptability seems to be crucial for dynasties searching for a long life.¹⁰ Another insight is that people play multiple roles in a large family business. The cast of characters includes managers, board members and family members. While some people play all three roles, others are only owners. To sort out various interests inherent in these roles and relationships help make sense of any issue or decision within a family firm.¹¹

Warren Buffet likes to brag that he belongs to the Lucky Sperm Club of major investors. He forgets the importance of the egg and implies that the next generation will be born with a silver spoon in its mouth. No way. Far from all heirs can bear the weight of an illustrious past. A strong brand reflects previous achievements in terms of both personal finances and contributions to the general prosperity. That’s why family businesses are so anxious to be reliable while nourishing relationships with the employees, customers, suppliers and community organizations on which they are so dependent. They barter commitment, caution and sacrifice for long-term success. Insolvency is equivalent to loss of face. The process of pulling down the shutters for good at a store or bank may leave deep emotional wounds. The market is unforgiving and the credibility of the family is forfeited. The Damocles sword of asset depletion turns these enterprises into a vulnerable and circumspect species.

Political ground rules and friendly institutions have been the breeding grounds for successful, expansive Nordic family businesses. The dynasties have never been demure about crawling into bed with the powers-that-be. Lobbying and the right contacts have been their open sesame. Ever since the beginning, regulation of the credit market has been based on the needs of corporations and traditional shareholding structures.

Dynasties are famously fond of catchwords and rules of thumb, which constitute a kind of cultural capital to serve as guideposts for everyone associated with the business. Similarly, the values and principles that inform the venture are passed down from generation to generation. Dinners, get-togethers and family council meetings are perfect opportunities for acquainting children with traditions and unwritten laws. Planning for succession starts early in life. Progeny attend elite boarding schools, meet business partners, hear about the latest developments and absorb expectations that they will follow in the footsteps of their elders. Rituals are of the essence. The Wallenbergs have even been known to celebrate the birthdays of their forbears. The role that the family plays in the economy and labour market is a source of pride and self-esteem. But what is good for the goose is not always good for the gander. The welfare of the individual may be sacrificed at the altar of continuity, and suicide has been the final resort for more than one desperate heir to be.

Transparency may be further down on the list of priorities. Important decisions may be made behind closed doors and outsiders may find themselves peeking through the keyhole. Cohesion and continuity have their advantages as well. Passion for the business and its success makes family members more willing to renounce personal interests in poor economic times. If a recession hits, they may waive their salaries in addition to suspending dividend payments. They are the entrepreneurs with a long view of things. Their importance is magnified in eras of the quick buck and short-term profits.

The ancient practice of primogeniture has given way to a world in which a well-educated daughter is just as likely to the scion of the dynasty. Moreover, the natural branching of the family tree, including in-laws, means that each generation offers a wider selection of people who can take over the business. The trend goes hand in hand with the stricter demands for formal education and experience that are inherent to the digital economy. Outsiders who are willing and able to abide by the values and principles of the family can assume professional leadership. To succeed, they must make up for their alien status by taking advantage of their experience and formal qualifications to maximize benefit for the owners.¹² An outsider who is brought in to serve as managing director must be receptive and respectful of the family’s preferences at all times instead of simply resting on past laurels.

This is not to say that the most prominent representatives of dynasties are any less likely to be one of their own. History makes it clear that blood is still thicker than water. The comparative lack of experience typical of the younger generation is redressed with time as its understanding of its patrimony matures in preparation for the flame to be passed on once again.

Family businesses are magnets for new impulses. Dynasties are tenacious and a mainstay of most economies. Studies have shown that in addition to their prevalence and power, these dynasties operate under a set of deep moral and spiritual values, and take a long-term view on wealth creation that they sustain independently of the marketplace.¹³ Many of such businesses thrive in the largest developing areas of Asia, not to mention the developed countries of Europe and North America. Empirical evidences confirm the long-standing presence of family-controlled business groups in Italy, France, Germany and Spain.¹⁴ Given rapid population growth coupled with the emancipation of women, dynasties with female leaders will start to emerge in India and other parts of Asia, as well as in the diverse and so-called emerging economies in Latin America. Their prospects remain bright.

Successful family businesses have been able to achieve a balance between control and professional leadership. Thus, they have avoided the Budden-brooks syndrome of continuing with poor leadership; black sheep have been put aside where they could make no trouble. It is a balance between not letting outsiders into the heart of the firm where the family sets the rules and hiring outside managing directors when the situation calls for it. In an open family-controlled firm, outsiders are able to get to the top of the organization based on their combination of qualifications, experience and cultural understanding of its values.

For the next generation, the heritage of ownership can be an emotional burden, since he or she is judged in relation to the past. Later generations will always be compared with the visionary founder. It is almost impossible for heirs to deliver on the same level, viewed from the outside. If the second generation does as effective a job as the founder, the judgement in the public eye will be “not quite as good.” If the heir does a much better job, he or she will be viewed as just as good. This sad story reveals the scope and influence of the previous generation and casts a long shadow ahead on subsequent efforts. This faith might explain why succession is a critical phase, associated with conflicts in the family, before, during and afterwards.

The old generation has many chances to prepare. Resources can be devoted to the most talented youngsters, giving them proper educations, international experience and practical learning opportunities. If no one is interested in participating in the operating activities of the business, ownership can remain within the family, including board position, either directly or through an investment company or foundation. In these cases, outsiders are hired to take care of daily operations in each industry.

Mature and Emerging Dynasties

It is characteristic of a dynasty that a family or clan has succeeded in obtaining and maintaining a dominant position in one sector of society. In the political sphere, there are royal families and princely and ducal houses within which political power has been inherited from one generation to the next. Sometimes the word dynasty is used synonymously with an entire period in a nation’s history when a king or emperor held political power. The epic novel Buddenbrooks by Thomas Mann describes a typical lifecycle of a family business—sometimes referred to as the Buddenbrooks syndrome.¹⁵ It consists of three stages or generations: creation, maintenance and decline, or “from rags, to riches to ruins” or “building to consolidating to divesting” or “from shirt sleeves to shirt sleeves in three generations” or “clogs to clogs.” The founder builds up his enterprise, often on the basis of a clever innovation; the second generation administers the firm without further innovations; and the third generation concentrates on interests other than those of the founder, including cutting corners, self-indulgent luxurious living, and the fortune is thus dissipated. However, the discontinuity of family businesses is not so much a consequence of internal matters as external conditions. Many dynasties have expired due to various exogenous chocks, such as war, political revolution, financial crisis or the implementation of a less favourable institutional infrastructure.

The Buddenbrooks syndrome has become an engrained, ominous myth that business consultants worldwide use to market their services at times of succession. But the concept of the life-cycle is an old wives’ tale that is more prone to arouse fear than confi...

Table of contents

• Cover
• Title
• Copyright
• Contents
• 1 Dynasties in the Age of Capitalism
• 2 The Theory of Dynasty
• 3 New Industry Logic
• 4 Strategy, Structure and Dynamics
• 5 Values and Credos
• 6 Blood Is Everything—Succession
• 7 Business, Politics and Culture
• 8 Conclusion
• Epilogue
• References
• Index of Companies, Foundations and Individuals