More on Family Firms

26 June 2006 at 8:56 pm Peter G. Klein Leave a comment

| Peter Klein |

Recent posts here at O&M and at orgtheory.net have discussed the nature and consequences of family ownership. Today’s Wall Street Journal ($) profiles Fiat’s John Elkann, great-great-grandson of founder Giovanni Agnelli and next in line for the top spot, and discusses the challenges of family capitalism more generally. Excerpts:

[A]s Mr. Elkann is poised to move into the driver’s seat at the 107-year-old icon, the European model of family capitalism espoused by his clan is struggling to endure. Financial markets have become impatient with family-dominated companies, which sometimes put dynastic interests first and occasionally have murky corporate-governance practices. There is also increased skepticism that companies controlled by Europe’s grand families can produce top-flight managers. . . .

Some argue that the model has served Europe poorly. “The sooner we get rid of family capitalism the better off we all are,” says Umberto Mosetti, a corporate-governance expert at the University of Siena and president of shareholder adviser Deminor.

When markets were regional, says Mr. Mosetti, families could finance their businesses through cash flow and loans from friendly local banks. As markets went global, large companies needed to go to capital markets to fuel expansion. Family-controlled firms were often ill-prepared. Something similar happened at Fiat. When competitors from Asia entered the European market, Fiat was caught flat-footed and lost market share; it has been trying to recover ever since.