Family business, or more broadly, family enterprise, has always been at the core of human society. Their form and nature shifted as society evolved from villages and agriculture to global trade and commerce. Millennia ago, nomadic families began to ally to form clans, villages, communities, and then states. The engine of social and economic development was always the family. At its core, a community is a network of interconnected enterprising families that help and care about one another. Society is made up of connected families, not isolated individuals. Families form the bridge between, on the one hand, intimate life and livelihood and, on the other, communities, nations, and trading networks.

While much is new and unique about how generative families function in our postindustrial world, many continuities arise from the sociobiological heritage of families as the building block of society. This chapter contains a brief, impressionistic journey through social evolution, with snapshots from several stages of emergence of global family enterprise:

• Prehistory of Extended Family Formation
• Asian Origins of Thousand-Year Family Enterprises
• Traders and Financiers: Accumulating and Sustaining Vast Family Fortunes
• Paternalistic Industrialization: The Company Town
• The Gilded Age in the New World
• Managerial Capitalism: The Rise of the Modern Corporation and the Eclipse of Family Business
• Hidden Champions: Family Business Quietly Enters the Modern Era
• “Refamiliazation”: Family Advantages Reemerge in a Wired but Short-Term World

This history highlights what it is about family presence and ownership that gives family-owned businesses a competitive advantage. While much can be learned from previous generations of dynastic families, forces of digitalization, globalization, and fast change make the contemporary situation facing families fundamentally different. To sustain themselves, the adaptive capabilities that arise from their nature as family enterprises are needed more than ever.

Prehistory of Extended Family Formation

The history of family business is the story of human civilization. A family is the social and economic unit of species survival. In order to nurture, protect, and launch children, the family had to provide security and a livelihood as well as teach children to survive into adulthood. Part of that teaching was sharing the parents' work experience—how to hunt or farm and how to develop skills to produce something valuable toward trade. Every family was also a family business, in that livelihood was a family activity. Every family was a business by necessity.

Following eons of nomadic tribes, the emergence of agriculture allowed human groups to cluster together and help and support each other. Villages were formed. Trade built social connection and community prosperity. Individual family units became extended families, which in turn became clans, that is, groups of intermarried, interdependent families. Several clans made a tribe, which built alliances that led to the creation of a kingdom or state. Families learned that they could thrive if they practiced trust and cooperation. Through marriage and building and defending communities, the circle of who was to be trusted and relied upon became larger. Land was held by a family; families allied through marriage were able to add to their holdings, leading to the rise of different levels of family wealth. But there was always a clear boundary between the family, where safe refuge, cooperation, and trust existed, and outside the family, where suspicion and competition resided.

A young person had little choice but to follow the path of his or her parents. The home was also a family workshop, whether the families were farmers, hunters, craftsmen, or traders. Families often took the name of their profession, identifying themselves as weavers, smiths, cooks, farmers, coopers, or tailors. The family passed its knowledge and resources to its children.

Clans, communities of related families, arose when families intermarried. Living closely and exchanging goods and services built interdependence, trust, security, more wealth, and a better life. While each family's business was important, the core was the family—its values and resources as well as the people who emerged in each generation to move it forward. Tribes selected leaders, and families became more or less wealthy. Children found mates from nearby families, enabling families to share and accumulate resources, and create alliances, by marriage. The social roots of inequality rested in the differentiation of families and their inherent drive to succeed and provide a better life for their offspring.

In a dangerous world, extended family communities became safe refuges. They built walls and weapons to defend their homes. Inside, they limited competition for resources, emphasizing sharing and caring as being more adaptive. Trading resources and mutual aid gave rise to what anthropologist Marcel Mauss calls “the gift economy,” in which people develop obligations to one another.¹ By giving and receiving gifts, people have an obligation to repay, which can take different forms. If these social obligations didn't exist, Mauss suggests, there would be a state of war between families. Gifting also offers an opportunity for people to socialize and develop emotional bonds across families. The gift exchange is reciprocal altruism and develops trust within a community. Even today, societies exchange gifts on holidays, and large extended families like the DuPonts stay connected via a family ritual of exchanging holiday gifts and visits.

Every family was also a commercial entity. Differences in the amount of wealth began to emerge as some families were better at what they did, more fortunate in family alliances, or talented enough to do something that was highly valued. A successful family expanded not only by offering employment and livelihood to its children but also by having so much work that it began to employ nonfamily members. When a family accumulated land, wealth, and expertise, it became a wealthy family dynasty.

The drive for advancement of offspring and relatives is an essential element of social structure. If parents do not invest in their children's future, motivation and drive to succeed will be blunted. Children are their future, and because of children, families began to practice altruism and develop trust as they built with the future in mind. Abstract motivation for everyone to work hard or help others was not yet a part of human nature. Social bonds and relationships led people to care for one another and their children. Nepotism grew naturally as a reason for the family to exist. The extended family was a reservoir for shared purpose and values, a drive to build and create, and an engine for social innovation, altruism, and long-term outcomes. In his book In Praise of Nepotism: A Natural History, Adam Bellow defines nepotism not just as “undue preference for kin” but more so as “doing things with kinship.”² He goes on to say, “In each of these great families, success was a multigenerational project. The question is: How did they do it?”³ In short, Bellow argues, “Nepotism, properly understood, is an aspect of what anthropologists call the gift economy—the system of noncommercial exchanges that serves to regulate moral relations between individuals, families, and groups in a prestate society.”⁴

These elements of society led family businesses to become the fundamental social institution. Practices like education of children, intermarriage, family alliances based on social networks, and social trust through exchange are the reason we have successful human societies. The family business and wealth could be passed down across many generations.

Asian Origins of Thousand-Year Family Enterprises

Family businesses can last not just for generations but for centuries, particularly if culture and social conditions are stable. Some of the oldest known families that have owned and managed business are in Japan. Toshio Goto has written about the origins of family enterprise in Japan hundreds of years ago.⁵ The families espoused a value system of Confucianism, a social-religious philosophy that prescribed family cooperation with established roles and respect for elders. The Confucian ethic is comparable to the Protestant ethic, which emerged a millennium later, prescribing principles and values for ethical family relations and social enterprise.

Goto views the nature of these effective families in the development of management skills, organization, accumulation of “reserves” to cover periods of difficulty, separation of ownership and management, state-of-the art bookkeeping and personnel management, and adherence to philosophical principles families pass on to their children. These factors prefigure the ideas of managerial capitalism that would arise in the twentieth century. Japanese families used the term House for the extended family, which could reach out by marriage, adoption of unrelated children, and alliances to include talented nonfamily members. The perpetuation of the House and its enterprise was the central purpose, a social process that has since taken root in many cultures.

The principles and practices of these ancient Japanese businesses, following Goto, prefigure common practices that this study has found in long-lived families today:

While Confucianism itself as an ethical philosophy and a prescription for family and business relationships is recognized as having made a unique contribution to the longevity of Japanese family firms, it can also be said that the specifics of its teachings and the business ethics it incorporated are factors that have similarly contributed to the longevity of family firms worldwide. These are family unity, a commitment to continuing the family legacy as the bedrock of survival, a product catering to basic human needs, allowing the business, rather than the family, to come first, an obligation to community and customer service, conflict arrangement and a system of governance.⁶

Offering a credo for the next generation, employees, and the public is a common activity in dynastic families that continues today. In Asia, family enterprise embodied a cultural style that we call collective harmony.⁷ In this style, the individual gains significance by being part of a family and the social fabric. An individual does not exist without being a part of a family. One adheres to the wisdom of society, which has developed over many generations and which is represented by the tradition of one's parents and ancestors. One's purpose in life is to fulfill the dreams of one's family. Society is made up of networks of harmonious extended family relations.

The founder/patriarch wants to pass on acquired wisdom to each new generation; this is often expressed in a family values statement. One ancient family, the Mogi, now approaching its twentieth generation of food manufacturing (Kikkoman soy sauce), codified its family rules for living hundreds of years ago. This set of family rules was meant to teach and direct the behavior of the family's successors. Reading them is remarkably similar to reading modern family constitutions and codes of conduct that arise in today's generative families. They read as follows:

• Make strong morals your foundation and focus on money last.
• Don't forget your foundation.
• Strive for harmony in your family.
• Avoid luxury: a simple life is a virtuous life.
• Do the job that you were born to do, and only that job.
• Treat a loss and a big gain the same.
• Competition can help you get ahead, but do not compete unfairly or to an extreme.
• Make your main meal boiled rice and barley and one bowl of miso soup.
• Eat the same food as your servants.
• Be strict with yourself but be kind to your servants.
• Keep your personal expenses low.
• Use the rest of your money for the good of the community to a level in keeping with your circumstances.
• Keep track of your finances and save money for the unexpected.
• Have a family reunion twice a year. At these reunions, don't judge your family members based on their income, but rather on their character.⁸

One of the oldest continuously existing family businesses is Kongō Gumi, which has been building temples (and now apartments and high-rise buildings) continuously in Japan since the sixth century. The family was commissioned by Prince Shōtoku to bring its expertise from Korea and build the first Buddhist temple to celebrate the adoption of this philosophy by the region. The craft of temple building was passed down by the family. Through the centuries, leadership passed to the oldest son, if he was capable.⁹

In addition to passing craftsmanship across generations, like other successful families, Kongō Gumi also transmitted traditions and values. The family expressed these in a statement of family values, codified first by the thirty-second “master” of the family enterprise. Like other ancient family values statements, this one is surprisingly relevant even today:

• Always use common sense.
• Do not drink too much, use obscene words, or harbor vicious will toward others.
• Master reading and calculating with the abacus, and practice [your craft] all the time.
• Give each task your full attention.
• Don't diversify; concentrate on your core business.
• Be well mannered and humble, and respect status.
• Respect others and listen to what they say, but don't be overly influenced by their words.
• Treat employees with a warm heart and kind words. Make them feel comfortable and work with them heart-to-heart but create an atmosphere that reinforces your role as the boss.
• Once you accept a job, do not fight with other people about it—especially clients.¹⁰

This statement anticipates many elements seen now in generative families, such as a personal philosophy of ethics and high performance, dedication, respect for employees and clients, and good business and management principles. These values were taught to successors in each generation. There is a philosophy of dedication, focus, discipline, and commitment that is about business importance rather than personal wealth and enjoyment.

Japan was a closed society with relatively little contact with the outside world until the arrival of Commodore Perry in 1853, which led to the opening of Japan and a path of growth, modernization, and Western influence that was taking place everywhere. For Kongō Gumi, the modern era ushered in a time of great social and economic change and a need to evolve. The family faced crises. The thirty-seventh master passed away, leaving three daughters—a challenge to male succession. His wife, Toshie, made the decision to become the thirty-eighth master, and she led the business for many years. She in turn passed the business to her youngest daughter, whose husband took the family name and was adopted into the company as the thirty-ninth master. During his tenure, there was a world war, and the family had to adapt to many societal changes. While the core of its business remains temple building, the family diversified into apartments and commercial buildings in order to keep its business afloat and take care of its employees, who expected lifetime employment. The emerging fortieth generation has been educated in the West and has adopted modern business technology and practices while respecting and continuing the family's legacy values and traditions. These traditions, as the remainder of this chapter will show, are remarkably similar around the world, which suggests that there is something biologically hardwired into humanity to develop family-based economic entities.

Traders and Financiers: Accumulating and Sustaining Vast Family Fortunes

With the Renaissance, aristocratic commercial families emerged in the West, taking advantage of the rise of global trade. These families formed global alliances, facilitated trade and commerce, and also supported the arts and philanthropy. They often feature courageous, visionary, and colorful founders who forged a family enterprise out of modest roots. They spotted opportunities for making products, providing services, and producing goods that could be transported into wider and wider geographies. They helped found and support governments and also financed the development of cities, wars of conquest, and wars of commercial opportunity. They even had family offices, led by a nonfamily leader or majordomo. These were wildly successful families, but too often they were also tragedies, as the family then declined and fell apart in later generations.

The most famous example of a great house was the Medici family, which ruled the Republic of Florence through economic, political, and religious dominance during the thirteenth to fifteenth centuries. Beginning as a family textile business, the Medicis then created a bank, which became one of the largest in the world. Out of their economic power, the Medicis accumulated aristocratic titles and political power. Several family members became popes. Marriages cemented alliances with other powerful families, so their influence was felt throughout Europe. The Medicis are remembered as art patrons, sponsoring the building of cathedrals like St. Peter's as well as centers for art, music, and drama. Their support led to the development of opera and the invention of the piano. Their family used personal relationships to build and sustain vast power that touched every element of society. Their values led to the support of art and religious institutions that lasted well beyond their own century of influence.

But as they accumulated fame and political power, the Medicis neglected the economic engine of their success—the bank. It declined, setting the stage for the family's loss of social and political power. The incredible wealth and influence of prominent families frequently leads to their decline. Over multiple generations, a wealthy family tends to become deeply integrated into the social leadership and consumption of their wealth and, like the Medicis, begins to lose its focus as a shared enterprise. More and more Medici family members joined the aristocracy and leisure class, and the business and wealth-producing focus was lost.

This is the fate of most dynastic families in their third and later generations: the fruits of success lead to their downfall. Thomas Mann's classic novel Buddenbrooks tells the story of this gradual decline of family will and talent, as the great family succumbs to temptation. Generative, successful family enterprises find active ways to counteract this tendency, but it is always a seductive option to family members. The allure of assimilation frequently overcomes the discipline and shared effort that goes into sustaining a business empire.

The Medicis are an example of a cultural style we call the “honor culture,” which is characterized by strong unquestioned family leadership and patronage. Medici family members were extremely loyal, needing protection from enemies. While reaching out to other families to create alliances, they were also constantly jockeying for power against them. Their rise, their hegemony, and their downfall were all the result of winning and then losing, often through violent power struggles. This style differs from the Asian “harmony culture,” as the Medicis' honor culture style stemmed not from trust and connection to a cultural heritage but from suspicion and self-preservation within a larger community of warfare and conflict. Honor cultures are more volatile and emotional and less constrained by duty and obligation.

In the Medicis' time, family fortunes, once built, were sustained through mechanisms of success rooted in kinship systems. Primogeniture allowed landholding to remain with a single family. Marriage was another practice to keep wealth within the family. Families intermarried, cementing alliances and connecting families and thus allowing huge fortunes to grow. Today, when marriage is a personal choice rather than a family transaction, the use of prenuptial agreements serves this function for family wealth.

Dynastic families prioritized the family enterprise over individuals and households. The family name, reputation, and wealth were viewed as a unit called, as we have seen, the House. The house was the wealth-creating and -sustaining part of the family. Clear leadership and control were centralized into a single family leader or into a group of directors, as with the Rothschild family. This is the honor culture.

The new economic dynasties were based on networks of families that could sustain trust, cooperation, and communication across boundaries. While communication was difficult, it was possible to move money across boundaries, share information, and reduce risk. The value of a family network and the advantages of shared family values, policies, and trust enabled family dynasties to sustain their wealth and postpone decline.

The Rothschild model of family solidarity, internal trust and cooperation, and external adaptation and business development is a common pattern in many countries as they transition to modern industrial states. Families are able to provide the capital, the organization, and the sustained effort to modernize societies. The Wallenberg family grew in Sweden over five generations of entrepreneurs. They invested in many businesses and are among the very wealthiest families in the world.

Over several centuries, European families have developed both great family enterprises and huge businesses. Another example is the French Wendel family, whose fortune began with iron ore on the border of Germany. This family has grown despite social revolutions and warfare. The French Revolution, two world wars, and also family strife and conflict have greatly challenged this family. But through the perseverance of family matriarchs, development of successive generations of family entrepreneurs, many children marrying well and adopting professions that added to their network and prominence, and the ability to adapt in business, the family continues to thrive. After being split into two parts by the First World War, the family used its sterling credit to borrow and invest in modernizing their plants in order to provide higher grades of steel better able to compete with British and other European competitors. Like many such families, by 1977 they had sold most of their factories and have now become a financial family, with a family office and diversified investments.

Traditions in India and China and in Jewish communities of families wandering into new territory account for some of their strength as generative families. These families didn't have land, so they had to make their living through trade. Their wanderings made them families with the goods and resources of different places, and they could draw on family networks to buy, sell, and transport. They couldn't depend on anyone else but their extended family networks. So they taught and valued trust, cooperation, and partnership over individualism. They also used marriage to cement alliances and sustain and expand wealth. Before the twentieth century, marriage in most societies was not based on personal relationships but was an economic transaction initiated by the family leader.

A global group of families that have been in business for more than 200 years, with family in ownership and direct management, the Hénokiens Association offers some insights into the factors that promote longevity. These forty-eight families shared histories of businesses that in Europe average nearly 300 years and that in Japan have existed for many more centuries than that. The member families include Hōshi Ryokan, a Japanese inn founded in 718, and the Italian Beretta family, a gun manufacturer over five hundred years old. These families cite five factors that they connect with their longevity: leveraging family assets, overcoming roadblocks, planning succession, promoting professionalization, and valuing adaptation and innovation. As I will show, especially in Chapter 6 on family culture, my study of contemporary family enterprise uncovered similar strengths.

Paternalistic Industrialization: The Company Town

As they move into the modern, global, industrial era, family enterprises began to give up some of the practices and trappings of medieval family enterprise; this allowed them to become more adaptive and flexible. Skill and capability as well as loyalty to the family values and practices became more important than seniority in birth order to maintain the family's commercial success and impact. The role of primogeniture, passing the family resources to the oldest son, became less important than it had been to sustain the family territory. In some families, the hidden role of women came to the fore, as widows and daughters showed that they had the talent and demanded participation. The choice of whom to marry began to pass from the family to the individual. The perks of landed gentry and aristocracy gave way to the ascent of economic power in the dawn of the industrial age.

Family businesses developed new industrial ventures following the model of family landholders. Large, long-lived industrial families were frequently associated with their communities, and they felt a strong responsibility for the well-being of their employees and their families. This paternalistic view of taking care of employees has developed into today's value-based concern for the social, economic, and environmental impact of their work.

The Gilded Age in the New World

As trading and manufacturing opportunities in Europe allowed families that created unique goods through their craftsmanship to develop businesses, new family fortunes arose in the fledgling United States. The Civil War marked the downfall of the landed aristocracy of the Southern states and the rise of the industrialists in the North. Larger enterprises grew up in the early stages of industrialization. These ventures, and trade in commodities from the rich natural resources of the New World, led to the fast accumulation of enormous fortunes. Industrialization and new technology created the opportunity to develop immense wealth and employ vast numbers of people. Without regulation, the power of the land or factory owner made employees almost serfs.

The Asian harmony culture and the European honor culture were the original models of family business, with the honor culture spreading to other continents by colonial transmission. But with the industrial age and the rise of cities and social migration, a new cultural style emerged. In this “individualist” cultural style, the individual is recognized as the basic building block, as individual initiative becomes more important than inherited social norms. Individualists are culture creators and build new fortunes without links to previous generations or the benefit of inherited social aristocracy. This type of industry created whole new family dynasties. This style is exemplified by the behavior of the business leaders of the emerging industrial age in the United States.

Many of the embryonic US family businesses at the dawn of industrialization were more notorious than beloved. The entrepreneurs who founded them were often viewed as greedy, immoral “robber barons” whose pursuit of profit was at the expense of workers and society. They attained great wealth and expected to pass it on to their families, but as a group, they were not good stewards. Next-generation siblings of many hugely wealthy families were quick to dissipate the wealth, mismanage the businesses, and fragment and disperse. They were the exemplars of the “shirtsleeves to shirtsleeves” mythology, and their behavior merited it.

Along with the rise of family fortunes came the creation of legal structures that enabled continuity of the family's wealth across generations. Sociologist George Marcus has spent a lifetime observing the dynamics of these “dynastic” families that accumulated vast intergenerational wealth. He observes:

This country is now old enough to have accumulated a large number of great families. Though we have insisted for two hundred years in viewing ourselves as a society of striving individuals, the constructive contributions of these families are too obvious to deny any longer. Americans admire the Adamses, Roosevelts, and Kennedys not just for their unity—a value that is becoming increasingly difficult to preserve in our mobile society—but for their sense of common purpose and the spirit of public service that they cultivate.

Families developed estate plans and trusts to retain their fortunes across generations, creating vast new family dynasties. Marcus writes:

A legally devised plan to transfer and conserve patrimonial capital in one generation becomes in the next generation an organizational framework for extended family relations—actually a formal model or surrogate of the family, with law rather than the founding entrepreneurial patriarch as its source of authority. Law overlays, and to a degree, complicates kin relations by giving a more formal organization to the extended family clan than that of most middle-class families.

These entities—trusts, foundations, and family offices—create the institutional structure by which the family can sustain its wealth and institute rules and policies that regulate the tendency to fight and struggle for power and authority. The hiring of neutral family advisors to manage these entities allows families to find ways to regulate themselves and keep their values and connections alive. Long after the founder has passed away, the family legal organization can help manage the growing network of family relationships. Marcus continues:

In generational aging and transition, a family must create a transcendent, controlling version of itself in the organization of its property to achieve a coherence of organization that can preserve the mystique of its name and ensure its continuing exercise of patrician functions in its social environment.

Thus, even if a wealth creator shows little talent or interest in the family future, the trust or family office can oversee the family's wealth and business. The family structure and governance, my study shows, reinforces the family's desire to instill and pass on a distinct culture and values in each generation.

Gilded Age wealth creators were not very attuned to preparing their children for wealth or training them for their role. They had no idea that this was important or that it was a role that needed preparation. They were self-made and self-oriented and did not look to the future. They often worked at cross-purposes: they showered their children with the trappings of affluence to show their power and importance while at the same time expecting their children to make it on their own.

Managerial Capitalism: The Rise of the Modern Corporation and the Eclipse of Family Business

Industrialization and the Gilded Age produced highly centralized family wealth that, after the passing of the founder, was difficult to operate and sustain. With the growth of the large businesses—railroads, real estate, stores, manufacturers, raw materials, hotels, and cars—the challenge of running them successfully led to the adoption of a new business model, one based on mechanical and bureaucratic rationality. As these businesses grew, traditional family governance models could not manage the huge task of sustaining the family along with disciplined oversight of huge businesses. Enter the public corporation and the rationalization of management and leadership.

The modern era of business is identified with Alfred Chandler's model of the corporation, embodied in the structure and operations of General Motors. As industrialism spread, large businesses needed to rationalize their operations and create machine-like organizations that operated by principles of mechanization and bureaucracy. There was no place for the personal management of companies and less need for the secrecy, alliances, and communication networks of the family. Family enterprises did not disappear, but the pressure to rationalize and separate ownership from control in order to raise capital and form public companies put family businesses on the defensive.

The large bureaucratic corporation is run by managers for large groups of shareholders who have no personal connection with one another or any shared goals or values, other than the desire to share profits. In this model, direct control by families was replaced by a group of professional managers who used rational principles to create effective organizations. Business research defined the problems of “agency” as the distinction between the different goals and agendas of the professional managers, who were compensated for being loyal to the owners, and the goals and agendas of the owners, but who had to be watched closely. Over time, the company leadership became tied to these leaders, who were hired and fired for their performance.

At the turn of the twentieth century, there were dozens of car companies, using artisans to turn out costly but beautiful and creative models. Two huge companies emerged. Henry Ford created the modern assembly line for manufacturing and pioneered the mass-produced car. He created a loyal labor force by raising wages significantly and by creating the “company town,” which was a feudal, company-owned community that offered housing much as the system overseen by a medieval lord. But this was motivated not so much by caring but by the economic need to have a dedicated and dependent labor force. Ford had a team of social workers who enforced rules for his employees' family behavior in a highly coercive manner. At its worst, he created a kind of private police state among the workers. Alongside his giant achievement as an industrial pioneer, there was an oppressive approach to labor relations that became counterproductive, leading to the rise of labor unions to challenge these practices. The caring community-based industrialism of the Cadbury model was replaced by a more predatory, less benevolent attitude toward workers. Family enterprises adopted either of these models, but the values-based Cadbury model offered clear advantages over the long-term.

Ford was a giant as an industrialist but not very effective in inspiring loyalty or innovating in his own model. After developing the affordable Model T and doubling the wages of his employees, his success was so great that he appeared to stop learning and innovating. He resisted suggestions that he offer cars in colors other than black, that he upgrade and develop different models for different economic and social groups, or that he actively advertise and market his cars. In his mind, his creation was all that people needed. Period. He was unable to change, let go of power, and listen to or trust others, including his son, Edsel, who tried to dutifully follow his example. Henry never let him lead, despite his capability. Edsel died very early, and Henry reemerged as the sole leader once again.

The company declined, and the beneficiary was Chandler's General Motors, which was one of the first huge modern companies, with many shareholders and no family behind it. In fact, they bought up family car companies to develop their life-cycle model of brands and consumer marketing. It was only after World War II that Henry's grandson, Henry Ford II, brought in a business-disciplined group of “whiz kids” from the US Department of Defense to organize the company. While the Ford family retains ultimate control to this day, the company was able to develop by delegating management to a succession of nonfamily leaders. They have rekindled their family values and legacy along a new path.

The Chandler model was popularized in the emerging business schools, which focused exclusively on the business, not on the owners. Under this model, there was no reason to understand or even look at the families that had founded these companies. The business could be studied as an entity in itself. If everyone was concerned with rational self-interest, it should make no difference if the owners were a family or a bunch of disinterested strangers. Family business was seen as archaic, needing to adopt a rational business structure and delegate leadership to nonfamily managers. If there were stories about family business, they were about how family leadership in the second or third generation caused the business to lose value or self-destruct. The emerging field of family business began to counter this trend, but the prevailing assumption that the highest form of business was the rational, managerial enterprise has kept the study of the family aspects of family enterprise from being fully integrated into business schools and research.

Since the business was the only focus, the role of the family in defining the business's values or culture was below the radar. Family oversight over the culture and over the role of nonfamily operating managers was hidden from public view. The rational model of family enterprise did not clearly recognize the difference between the Cadbury or the Ford approach by families. The presence of family influence was not always obvious and tended to remain hidden, and this reinforced the focus on the management of the business. But given the huge footprint and success of public corporations, the focus of the media and business education was on nonfamily managers and not on the governance or control exercised by the family. Since the focus of business education was on the business alone, when the business was sold, went public, or merged with another, this was seen as the end of the family enterprise. However, as this book shows, if we look at the evolution of the business as a unit of enterprise, over time families buy, own, and sell multiple businesses and exercise oversight via ownership control. When the family is looked at as the core rather than an individual business, a different view of enterprise emerges.

Hidden Champions: Family Business Quietly Enters the Modern Era

The rise of managerial capitalism did not lead to the demise of family enterprises, but for a while their prevalence and role was hidden and largely unheralded. Without much public attention, family businesses were thriving all over the world. Media would publicize family feuds and conflicts, which were colorful and offered a look at the private worlds of family owners. The media presented family wealth as a morality tale, where the rapacious owners who did not deserve their wealth were given their comeuppance. Negative press about business families became the norm; family feuds and dysfunction sold many newspapers, many of them owned and operated by families themselves.

In the twenty-first century, there have been significant difficulties in public companies that do not practice focused oversight and long-term focus. Professional managers are agents for the dispersed owners, and rather than subordinate their personal self-interest, they want to earn their salaries and bonuses by producing short-term profit, if necessary, abandoning legacy values in this quest. Business leaders can be awarded significant ownership and compensation to the detriment of smaller shareholders and the long-term value of the company. Pressure from shareholders who want immediate returns can also damage the long-term prospects of a company. The pursuit of immediate gains and profitability can make a rational company very risk averse and unwilling or unable to invest in new ideas, innovations, and long-term projects with higher risk but potential reward.

But when a family business is successful as a large public company, family control and ownership actually can add qualities that are in limited supply in managerial companies. During the rise of huge companies, the cases and theories studied in business schools focused on these larger public companies. But there was another layer of business development, one in which family companies are the major players. These are small- and medium-sized enterprises (SMEs), mostly privately owned by a family, that succeed under the radar, applying an approach to business that is hugely effective but differs from the bureaucratic impersonalism of large public companies. These have been labeled “hidden champions”¹⁸ because, while highly successful, they largely exist with quiet leaders and do not seek publicity. While they are found all over the world, they proliferate in German-speaking and Scandinavian countries, which have a long tradition of a stakeholder view of enterprise.

They are profitable companies with unique products that inspire customer loyalty and market leadership. They reinvest in innovation and development and are expanding globally and in new products, with a clear focus on a core technology or product. They have long-term leaders, originally from the founding family and then from successful internal leaders who have a great loyalty to the company. They also have a clear set of values about the quality of their product and their loyalty to customers, suppliers, and employees as well as a long-term vision and plan. As later chapters will show, this model is common to generative family enterprise.

Two recent books¹⁹ compare the evolution of key families that avoid this decline. They profile families that were early models of generativity. The accounts describe qualities of family enterprise that, when carefully and thoughtfully applied to commerce, are adaptive rather than dysfunctional.

The qualities of hidden champions apply to family enterprises in general. In 2005, Danny and Isabelle Le Breton-Miller studied high-performing and long-lived global family businesses.²⁰ Their research contains many case examples of how these families had clear and inspirational values that were attached to their products and brands and how they created businesses that were about alignment regarding core purpose, adherence to cultural values and long-term sustainability, closeness to customers and suppliers, creation of a strong and dedicated company culture, and ability to make quick and adaptive decisions. Unlike other family businesses, the more successful ones were more transparent, were based on sharing information within the company, were loyal, trusting, and respectful to others, and were collaborative. They were able to extend power and authority within the company while having the courage and willingness to make quick decisions and changes when needed.

Family enterprises began to change in the era of managerial corporations. They distinguished themselves by continuing to adhere to their family values, and in successive generations, they sometimes even challenged the corporations they shared ownership of to respect them. The families also began to shift their focus from accumulating wealth to defining and upholding the purpose of their wealth. New generations pursued social missions that diverged from those of the corporations. A Gilded Age family that pioneered this new direction of family enterprise was the Rockefeller family, which overcame the exploitiveness of its family wealth creator to move the family in new directions.

“Refamiliazation”: Family Advantages Reemerge in a Wired but Short-Term World

After a period of huge growth in public companies and the rise of a rational, bureaucratic model of organization, we have begun to experience the downside of these huge public companies. They are plagued with investors who want to see short-term profits and who do not have the patience to invest in long-term success. Their leadership turns over quickly, and they find it difficult to maintain a consistent culture or sustain core values that take into account the needs of nonowners, such as employees, suppliers, or their community. Viewing these deficiencies of public companies, we have begun to rediscover and turn attention to the family enterprises that developed largely outside of public attention as the economic foundation of most countries. We have begun to see that their virtues as business entities with a long-term focus, patient capital, and trusting relationships enable them to sustain long-term consistency in leadership and a culture that adheres to stated core values.

As we enter a new century of global business, characterized by uncertainty, unpredictability, high risk, and dramatic technological innovation, the public company managerial model may no longer be the most adaptive form of business. All over the world, business is discovering advantages of long-term family ownership and control. Family enterprises are not new. They have always been there. But instead of being hidden, they are now emerging from the shadows. Their model of personal capitalism is more suited to a period of social and economic volatility. In an impersonal world, they can sustain trust in personal relationships extending from the family. They have patient capital, which can withstand reverses and lack of immediate return.

In the twenty-first century, the family business has come to center stage once more but in a different form. When a family firm is able to overcome emerging challenges in each generation and continue to grow and expand, it can become a portfolio of family ventures, united by family control, values, and oversight. Writing about the Benetton family, historian Andrea Colli writes, “The family seems to have been able to coexist with professional management by building up an organizational structure where the virtues of family involvement are associated with the advantages derived from the delegation of responsibility into a multi-subsidiary structure.”²⁵

There has also been a shift in how the family is viewed. Earlier, the focus was on the family as owner of a legacy business. In the twenty-first century, families have begun to differentiate themselves from their roots in a large legacy business. Many generative families continue in the form of family offices, as family holding companies for a portfolio of enterprises, or through identification with a foundation or various family philanthropic vehicles. The basic unit is no longer a family business but the evolving family as a values-creating cross-generational group. The family enterprise is more than just a business.

The emergence of new models for family enterprise was made necessary by the vast societal changes taking place in the twenty-first century where the special advantages of family enterprise were sources of competitive advantage. The sweeping changes are all part of a new information-based industrial revolution:

• Rise of digital platforms and technology in communication and manufacturing
• Globalization: diminishing cost of moving goods, rising connectedness
• Sale of family business, leading to family ownership of huge amounts of capital, and reorganization of families as diversified family offices

Indeed, as this book will show, these changes offered capabilities that public nonfamily companies found it hard to duplicate. They created a need for companies that can assemble information and adapt quickly. The huge corporate behemoths were at a disadvantage while family businesses were not. The newer view of the family enterprise can be considered a response to the mechanistic assumptions of managerial capitalism. As Colli writes, “The family firm … presented a human dimension where ‘people mattered.’ It also held out the prospect of a new production mode—one much more creative and less impersonal, molded by elements like friendship and kinship.”²⁶ By working within a framework of trust established within a family, with a long-term commitment and set of values about people and business, and with an ability to try out new ideas, the family enterprise presented an antidote to certain consequences of industrial corporations. By keeping identity and power as a family, the family owners could also exercise leadership in communities, commerce, and society. Rather than seeing the business as a commodity that can be bought and sold, a family enterprise is viewed by the family as a community to which they have certain obligations and values.

This study of one-hundred-year generative family enterprises enables us to look more closely at the potential embodied in these family enterprises. This book looks at their evolution as families that share business and financial assets and shows how the presence of family stewards as owners drives them to act and operate with values and relationships at their core. With their ancient roots as the foundation of society, maybe it is time to learn more from their example as we look to create business and financial structures that support the good of everyone as well as the well-being and vision of wealthy families.