A Really Old Family Firm

7 April 2008 at 11:10 pm Peter G. Klein 5 comments

| Peter Klein |

One advantage of the public corporation over the family-owned firm is longevity: few family firms last beyond two or three generations. Saturday’s WSJ profiled an interesting exception: Marchesi Antinori Srl, a wine business founded by Giovanni di Pietro Antinori in 1385 and run today by Piero Antinori, 26 generations later. Some of the Antinoris’ unusual business practices:

The Antinoris have flourished in part because of their willingness to flout conventional wisdom over how a family company should be run. Instead of creating clear lines that separate the family’s interests from the company’s, the Antinoris blur the two beyond recognition. The Marquis, his wife and their youngest daughter still live on the top two floors of the 15th-century Palazzo Antinori, a few steps from the Florence cathedral, where the family has resided for the past five centuries.

The business is still run on the palazzo’s bottom two floors, and the three daughters are top executives. . . .

Though the company has a six-person board of directors — including two non-family members — the Marquis says it only meets “for formalities.” The real board meeting, he says, “happens every Sunday, when we sit down to lunch.” That often takes place in one of the family’s nearby vineyards, either in the hills of Chianti, or along the Tuscan coast.

Instead of focusing on quarterly results, the Antinoris plan far into the future, laying the foundations for a company their grandchildren can run. They have been wary of following popular business trends. The family is suspicious of growing too much, which they say can compromise quality and run a company into debt.

One should be wary of drawing strong inferences from a sample of one. Of course, as Herbert Simon once noted, a sample of one is infinitely more informative than a sample of none.

Here is the Antinori wikipedia page. are some older posts on family firms.

Entry filed under: - Klein -, Corporate Governance, Management Theory, Theory of the Firm.

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5 Comments Add your own

1. tf | 8 April 2008 at 4:44 pm

“One advantage of the public corporation over the family-owned firm is longevity: few family firms last beyond two or three generations.”

I thought the opposite was true, or? Throughout Europe you have longstanding family firms that appear to have persisted for quite some time, while at least the turnover in F500 companies suggests (I seem to remember that the Tushman/O’Reilly piece in CMR talks about this) that large public companies aren’t around (comparatively) for too long.
2. Peter Klein | 8 April 2008 at 4:52 pm

Not so for the US. I don’t have the exact figures handy, but the family-firm survival rate is quite low. Maybe somebody out there can help….?
3. josephlogan | 10 April 2008 at 12:49 pm

The Antinori’s make a very nice wine, by the way. No clue how the quality has or has not varied over those 26 generations, but it would be an interesting study.
4. Bill Schulze | 21 April 2008 at 6:03 pm

The myth about family firm survival is that only about a 1/3 survive each generation. The belief was reinforced by a study done in the 1970’s that traced the survival of family firms using Chicago area phonebooks from 1921 to 1965. Oddly, the study failed to take into account the effect of a variety of a few minor, but potentially confounding events, like the Great Depression or WWII. Nor did this study offer any explanation why the failure rate might be uniform over time. (The latter seems preposterous; a host of organization theories suggest surviving firms should emjoy greater persistence).

I looked into question at one point in time and found a variety of studies — none definitive — that provide some hints about the distribution of firms (going-concerns, that is) by age.

The data do seem to support the idea that there are sharp declines in firm population by age at various times between birth and age 20 to 24 (e.g., liabilities of newness and adolescence). In the data I had at hand, about 2/3rds seemed to disappear over the period.

However, suvival rates by age improved thereafter. If you use the generally accepted period for a generation of firm ownership (24 years), you end up with about a 50% survival rate from 2nd to 3rd gen, and about the same, or even slightly better, in successive ages. So the odds of survival for family firms seem to start out poor, but then seem to level out.

On the other hand, Peter, what data do you have to support your initial premise? All the data I have seen suggests that that family ownership of enterprise is so prevalent that its really not meaningful to contrast “family firm survival” with “non-family firm survival”. Statistically speaking (at least in terms of the number of organizations counted), the number of non-family firms as a percentage of the population of firms is trivial. And while the percentages change a bit if one takes sales or employment into account, the data indicate that it is the public corporation, not the family firm, that is by far the most rare (See La Porta et al). Doesn’t this state of affairs suggest that it is the family-owned enterprise, not the public corporation, that has the “survival” advantage?

:-}
5. Peter Klein | 22 April 2008 at 12:33 am

Well, great, Bill Schulze, probably the world’s leading expert on this question, has to come around and challenge the number that I pulled out of my, um, imagination.

Seriously, Bill, thanks for the great comment. Your points are well taken. I was thinking of figures I’ve seen from Joseph Astrachan’s group showing that only a small percentage of new family-owned businesses survive beyond the second generation. But you are right that it is hard to make a meaningful comparison (especially outside the US) between family- and non-family-owned businesses. Moreover, I don’t have data handy on corporate survival (e.g., average years of survival after IPO) to compare average or median survival rates across firm type. When we refer to corporations being long-lived we typically think of P&G or Sears or others that have been around for a century or more — hardly a random sample of all new corporations!

On the point about the problems of the corporate form more generally, I heartily agree that this structure, like all organizational forms, has drawbacks as well as benefits. (Indeed, last week I taught Jensen’s “Eclipse of the Public Corpotation” in my strategy class!)

Anyway, regardless of the sloppy way I framed the post, I’m sure you agree that 27 generations is longer than most. :-)