New Freakonomics Radio Podcast: “The Church of ‘Scionology’”

About one-third of the companies in the Fortune 500 are family-controlled firms. Isn’t that amazing? Isn’t that fantastic? You know the story. Some incredibly hard-working person starts a business – maybe a bakery or a brewery, a carmaker or a newspaper – and, against all odds, the business doesn’t just succeed; it flourishes. But someday, it’s inevitable that the founder will retire (or die). So who takes over then?

Dick Yuengling, CEO of D.G. Yuengling & Son brewery, stands on the bottle shop floor with a bottle of his lager. He is the fifth male Yuengling to run the firm; two of his daughters are being prepped to (someday) take over. (Courtesy Yuengling Brewery)

That’s easy: the founder’s son or daughter. The scion of the family. Who better to protect and grow the family brand? Makes sense, doesn’t it? Who could possibly work harder than someone whose name is on the building? The family firm is a way of life. And it’s a nice story. But we’ve got a big, hungry economy here, people. “Nice” doesn’t necessarily generate jobs; “nice” doesn’t increase productivity or spur innovation. So when it comes to putting the family scion in charge of a company, here’s what we wanted to know: what do the numbers say?

Antoinette Schoar, an MIT economist who has studied family succession. (Courtesy Antoinette Schoar)

That’s the theme of our latest podcast, “The Church of Scionology.” This is the first of five hour-long podcasts we’ll be releasing over the next ten weeks. Some of you may have heard some of them on public-radio stations around the country, but now all the hours are being fed into our podcast stream. (You can download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript here.) The episode is built on a foundation of academic research by economists including Antoinette Schoar, Vikas Mehrotra, and Francisco Perez-Gonzalez. Among the papers they discuss are, respectively: “The Role of Family in Family Firms”; “Adoptive Expectations: Rising Sons in Japanese Family Firms”; and “Inherited Control and Firm Performance.” Bottom line? Handing the business off to a scion is generally a poor move — although there are caveats, bizarre exceptions, and surprising reasons. And you’ll hear from Matt McGue, a behavioral geneticist at the University of Minnesota, discussing whether there’s a “CEO gene.” We also go deep inside a few family firms to see how they’re run and how succession happens (or doesn’t). These include a pair of breweries: Yuengling and Anheuser-Busch. Yuengling, the oldest brewery in the U.S., is run by Dick Yuengling, a fifth-generation owner, and has had significant growth in recent years. (Even though its market share is still relatively tiny, Yuengling is now the second-largest American brewer thanks to consolidations and buyouts.) In the next generation, it’ll likely be run by one of Yuengling’s daughters, two of whom work at the brewery now (he has no sons). And the seventh generation, some of them still in diapers, are already in training. I spent a day at the brewery in Pottsville, Penn. (home of John O’Hara), talking to Dick and his daughters (and drinking some fine fresh beer). He identified the meat of the argument in favor of keeping a business in the family: primary responsibility to family, employees, and customers rather than shareholders:

YUENGLING: Our volume last year was like 2.2 million barrels. You know, when you equate that into market share, we’re like one-tenth of one percent. You know, we’re only in thirteen states. … But we don’t care. I mean, we’re doing very well. Longevity is the name of the game. We don’t have stockholders that we have to say we had a great quarter to. All we have to do is continue to grow. We’ll make money and invest it in our breweries, and grow the size of them.

Julie MacIntosh, author of the Anheuser-Busch book Dethroning the King. (Photo: Guy Rogers III )

In St. Louis, the Busch family had a six-generation run itself. But that came to a crashing end in 2008, when Anheuser-Busch was taken over by the Belgian/Brazilian brewer InBev. It’s a dramatic story — the deal itself but particularly the family dynamic that contributed to it — and we have some excellent voices to help tell it, including former A-B employees Cheryl Stelter and Bill Finnie; and Julie MacIntosh, author of Dethroning the King: The Hostile Takeover of Anheuser-Busch, An American Icon. She described the relationship between the two most recent CEO’s, August Busch III and August Busch IV:

MACINTOSH: You know, the Third was incredibly stingy in giving out compliments to anyone, and in particular to his son. His son actually walked around with the briefcase that held the four or five handwritten notes his dad had given him throughout the course of his career that said things like, good job son. … They absolutely let their personal issues get in the way of running the company very well. Because of these arguments and the fact that the board of directors had to spend time refereeing these arguments, there was less time to spend on the actual matter at hand, which was that Anheuser-Busch was being subsumed by much larger global brewers who had figured out that beer was becoming a global industry.

We also look into family succession rates around the world and find that the U.S. is a big, fat outlier (though I won’t tell you here in which direction). Another outlier is Japan, and the story that Vikas Mehrotra tells about how family succession works in that country is, to my mind, the most fascinating single thing in this episode.

Peter Buffett: raised in a family where nepotism wasn’t considered a good thing. (Courtesy C. Taylor Crothers Photography)

I also very much enjoyed interviewing Peter Buffett, whose father is the third-richest person in the world and yet doesn’t think much of inheritance. So it’s no coincidence that neither Peter nor his siblings followed Dad into the family business. Here’s what Peter thinks of family succession:

BUFFETT: Well, you know, my dad talks about the ovarian lottery, this idea that you’re born into these circumstances that you can’t, at least as far as I’m concerned, you can’t control when you’re on the other side of being born. And so I think there’s a version of that that holds true in this. You know, the odds of having a son or daughter that are as passionate, and excited and driven as a founder of a business was, or even the person that took it over—whatever that might be, whatever passion and drive was there in that person—the odds of that being in the next generation, I think are incredibly small. You would know the details better than I, but I think that if the child is truly passionate about it and lives and breathes the same thing, absolutely. But again, what are the odds?

Dubner in Pottsville, Penn., with a fresh, family-made Yuengling beer. (Photo: Suzie Lechtenberg)

This episode was a blast to produce, and I learned a great deal. I hope you enjoy it too, and learn a bit. Special thanks to lead producer Suzie Lechtenberg, all the folks we interviewed, and the entire production team, including Collin Campbell, David Herman, Diana Huynh, Bourree Lam, and Chris Neary.

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  1. m henner says:

    Your discussion of family nepotism issues left out a bind that business owners in some parts of the less developed world face:

    If all of the other business are giving hiring preferences to their children, then not doing so for your children becomes very unfair. In such a culture, your children cannot go out and fairly compete for employment elsewhere, as the top jobs elsewhere are reserved for the children of their owners.

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  2. Howard Brazee says:

    I’m curious how the scionology has worked out for Playboy Magazine.

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  3. Anonymous says:

    I once worked in middle-management for a company that had been on Fortune’s fastest growing 500 companies list several years in a row (for whatever that is worth). It had been run by one man for 30 years. When he retired he left executive control in the hands of his son, who as far as I could tell had little relevant experience and no demeanor for running a mid-sized company operating nationally.

    Soon anyone in upper-management who disagreed with him was left go. Some upper-management positions had 6 or 7 different people in them in the space of two years as people would get hired/promoted, notice he was running the company into the ground, confront him about it, and get fired.

    Eventually upper-management was filled with type B personalities unwilling to confront him as the ship burned down around them. Dishonest and self-destructive business practices aimed at short term gains began to dominate (lying to clients like HP and Sprint about our procedures and then trying to cover it up when they found out, cutting corners and staff to such an extent that we would have to have high priced contractors and emergency shipments cover the gaps, trying to grow our way out of operating losses when growth would only make them worse, et cetera, et cetera).

    I was eventually fired for criticizing the CEO, then asked back when the other managers revolted at my firing (I was extremely productive). I did not go back. I would be amazed if their business is 25% today what it was 6 years ago.

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  4. Dan the Man says:

    As always, a great podcast. The Buffetts are amazing, and the interviews here just demonstrate that.

    One of the last lines of the podcast stated that the Hoshi hotel line is being run by the 46th generation of the Hoshi family? I’m a 23rd generation descendant of King John of England (Bad King John in Robin Hood mythology), and the only connection I have with him is geneology paperwork.
    46 generations almost seems implausible to me, even with the much longer family historical records. That’s probably more than a thousand years, which includes lots of changes of generations, revolutions, restorations, etc., to keep not just an aristocratic family name, but an active business going without changing hands or losing the dynasty. I wonder if its possible that some gaps in geneology or family/business history have been filled in or brushed over somewhere in the 1300-year history.
    Of course, even if it’s remote, it’s still possible, and if the history holds up, it makes the accomplishment that much more amazing!

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  5. Michael says:

    I just listened to the podcast of this and I was struck by the fact that the central question you kept asking, some variant on “do scions keep the company as profitable as the patriarchs”, seemed to ignore one the essential drives of humanity. Very few people work just to make money, we work to provide a good life for ourselves and our family, particularly our children. While money is a large factor in that it is not the only thing, the much more desirable, more difficult thing to achieve is autonomy. One of the central truths of society is it sucks to take someone else’s orders and it’s sweet to give other people orders. If we can give this to our children (and continue keeping enough money to live on and keep the bills paid) who cares about profits as anything other than an scorecard for gnomes to obsess over?

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  6. Michael says:

    That stage whispered “Scion” you filled the episode with? REALLY ANNOYING!!!

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  7. Owen says:

    Just finished listening to this, great podcast!
    It made me think of Arthur Charles Wellesley, Marquess of Douro and soon to be 9th Duke of Wellington. The general quality of inherited nobility aside, Wellesley has a long resume as director and chairman of various investment holdings companies. All of which leads me to look forward to the day that the head of some corporation is notified “The Duke of Wellington is here to take over the company.” I hope somebody gets a photograph of their expression.

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  8. Ralph Cherry says:

    I live in Winnetka (Los Angeles) now. In the 1950′s I bought 3 lots from Mrs. Yuengling on East Noewegian Street and built a house and lived there for 15 years. What a love story….Pottsville and Yuenglings….you have it all.

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