Success and Succession

Peter Buffett doesn't believe in just handing down his business to his kids. (Photo by Alex Wong/Getty Images)

Peter Buffett, son of the investment giant Warren Buffett, admits that he won the “ovarian lottery.” But perhaps the best part of this genetic jackpot is that his dad didn’t pressure him to get involved at Berkshire Hathaway. Instead, the Buffett heir was encouraged to pursue his own interests, like composing music and philanthropy.

This is probably a very good thing. “The odds of having a son or daughter [who is] as passionate and excited and driven as a founder of a business, I think, are incredibly small,” says Peter.

The Buffett family’s stance on nepotism, it should be said, is not the norm. But maybe it should be. Economic research shows that, more often than not, handing down a business to an heir is a terrible idea. Profitability, on average, drops an estimated ten to twenty percent when a family firm is passed on to the next generation. So why do we do this? Why, so often, do family businesses get passed down from generation to generation in America, and in the rest of the world? Today on Marketplace, Tess Vigeland and Stephen J. Dubner talk about the surprising economics of family business succession.

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Gee, a businessman who makes all of his money on purchasing companies that are in severe financial trouble due to the estate tax doesn't believe in handing down his business to his heirs.... you don't say.


I suspect that on average, the lower business talent and passion of heirs is more than compensated for by the more consistent and long-term planning perspectives of business owners who aren't focussing on quarterly reports and maximising the value of stock options.