A patriarch Murdoch should have emulated; Keeping ownership and management in the family invites confusion, uncertainty and conflict

March 31, 2014 4:14 pm

A patriarch Murdoch should have emulated

By Andrew Hill

Keeping ownership and management in the family invites confusion, uncertainty and conflict

Leonardo Del Vecchio and Rupert Murdoch have plenty in common. The chairman of Luxottica, the eyewear group, and the chairman of News Corp and 21st Century Fox were born in the 1930s. Both are billionaire patriarchs of family businesses they largely built themselves but now share with outside investors. Both have six children from different relationships, and both have wrestled with the question of succession.

They differ in one crucial respect. As early as 1995, when I shared a helicopter with Mr Del Vecchio from Milan to Luxottica’s headquarters in the Dolomites, he was already adamant he would not hand management to a family member. Ownership of the company would pass to the next generation, but trained professionals would run it.

Some claimed Mr Murdoch’s decision last week to leave his sons the keys to the board, the executive suite and the strongbox that contains his share certificates also brought clarity. So it does. By anointing Lachlan, his elder son, as co-chairman of News Corp and 21st Century Fox, and naming James, the younger, as co-chief operating officer of 21st Century Fox, it is clear the mogul has made the wrong choice.

Maintaining both ownership and management of a large family business more often than not leads downhill into further confusion, uncertainty and internecine conflict.

Some business dynasties can and do thrive across the generations – think of the Rothschilds or the Wallenbergs in Europe. Many founders of smaller family companies – among Germany’s Mittelstand, for instance – are able to pass the baton smoothly to their children. Businesses are also more likely to survive a handover from the first generation than from the second or beyond as the family tree branches out. But research on dynastic succession warns of the risk of “heir underperformance”, particularly where senior executives are drawn from the family.

The late Tony Benn, the British politician who renounced his hereditary title, summed up one obvious peril when he said it would terrify him “if I went to the dentist and as he began drilling my teeth he said, ‘I’m not a dentist myself, but my father was a very good [one]’”. But irrespective of an heir’s competence, Lloyd Shefsky, co-director of the Kellogg School of Management’s Center for Family Enterprises, says the danger increases as family empires grow. Sometimes they become so complex that “not only could [the son] not run the business, his father probably couldn’t run it any more either”.

At the time of my helicopter trip, Mr Del Vecchio’s approach was unusual in Italy – and for many family companies, it still is. Some Italian patriarchs still insist on total control. This can spark familial conflict on a grand-operatic scale. Bernardo Caprotti, who opened Italy’s first supermarket in the 1950s with Nelson Rockefeller, handed over the majority of his Esselunga chain to his children, then retook control amid lawsuits and intergenerational strife. He ran the company until he stepped down last year, aged 88. But Mr Del Vecchio has held the line. His oldest son Claudio is a chief executive – but of Brooks Brothers, not Luxottica, which is run by Andrea Guerra under the board oversight of the family.

Andrea Colli of Milan’s Bocconi university says larger Italian companies’ realisation they need a more professional approach as they go global has coincided with the rise of a cohort of highly competent managers. Mr Guerra, for instance, used to run Merloni, the white goods company (now called Indesit) that is also under family control. In such companies, the family provides stability, but non-family management supplies the strategic and operational expertise that underpins expansion and innovation, through ventures such as Luxottica’s deal last week to develop Google Glass eyewear.

Italy is only a forerunner of what is now happening in developing markets, where entrepreneurs are planning more orderly handovers, using western-style family offices to advise them on succession management. There, the founders of bigger companies are starting to understand that drawing a line between family ownership and professional management is “do-able and may be their best bet”, according to Prof Shefsky. In fact, the most depressing aspect of last week’s Murdoch move is the signal it sends from the old corporate world to the new that it is fine to keep everything in the family, whatever the unhappy consequences.