The Church of Scionology

Season 1, Episode 1

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 first hour-long episode of “real” radio, called “The Church of Scionology.” What I mean by “real” is that, even though we’ve been making Freakonomics Radio content for more than a year, until now it’s been in the form of podcasts (subscribe to iTunes here) and brief segments on Marketplace.

Now we’re hitting the airwaves in a big way on public-radio stations across the country. We have made five one-hour programs: “The Church of Scionology,” “The Economist’s Guide to Parenting,” “The Suicide Paradox,” “The Folly of Prediction,” and “The Upside of Quitting.”

WNYC in New York will broadcast the first episode on Fri., June 3 (3pm on 93.9 FM and 8pm on 820 AM), and will run the next four on subsequent Fridays at the same time, with a “shark week” (all five programs replayed in one week) during the week of June 27 (every day at 2pm on 93.9 FM and 8pm on 820 AM). We don’t have a complete schedule of when other stations around the country will be playing the hours, but you should be able to find out via your local station. You can also listen using the media player at the top, and use this map for the stations information that we do have. Let us know what you think!

If you are a devout Freakonomics Radio listener, you’ve already gotten a small taste of the “Scionology” episode in a Marketplace segment and podcast about Peter Buffett, son of Warren. But in this hour, there is much, much more.

The episode is built on a foundation of academic research by economists including Antoinette SchoarVikas 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.

Click here for a full transcript of “The Church of Scionology.”

 


Trevor

Will these be available as podcasts as well?

Stephen J. Dubner

Absolutely! However, timing TBD.

Ted Pavlic

The latest is already available at the alternate feed location:

http://www.freakonomics.com/feed/

If you already have a feed with the latest special... why not just put them all there? Of course, it's better to incorporate them all into the podcast feed... but in the meanwhile, why restrict the /feed/ feed to the latest special only?

Shane

Could family-businesses inhibit social mobility? If opportunities are reserved for blood relatives, do outsiders face greater disadvantages in getting decent jobs?

Web Design Companies in Chennai

hi,

What is sinology...???

James

Sinology is the study of China and its language, history, and customs :-)

But scionology (I word which I suspect the authors coined especially for the article) would be the study of descendents, from scion, a child or descendent.

bob

On the flip side of that, who else has a better chance to learn from the master than a son or daughter?

Seriously, learning from a Warren Buffet on investing has to provide huge advantages over even the most prestigious education.

I know it looks unfair, but any system of wealth distribution is going to have losers.

Eric M. Jones

Unless you're in the Mafia, the concept of "family" seems to be a leftover from long ago. Most children are born due to the failure of birth control, most kids have a very tough time growing up, and by the time she/he has pubes, the glow of "Mom and Dad and hearth" is all over.

The children simply may or may not be capable or interested in following in their parents' footsteps. The difference between friends and family is that I choose and like my friends. Family Get-togethers require holding my nose to invite people I would never willingly know.

Am I too cynical? My family is better than most, and I'd still rather hang with friends, neighbors and strangers. Most families stick together because of an agreed-upon set of lies and scotomata.

"...Don't bring up uncle Fred's drinking....Pass the cranberry sauce."

So should Junior run the company business? Only if she's the best man to do it.

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Bbbent

I grew up a few miles from Pottsville. I live in the midwest now, where we have a plethora of unbelievably great local beer. But I still pine for the Yuengling, which we don't have.

That said, i was super excited to see Dick Yuengling in this story, and I absolutely agree with his philosophy about first priorities. But at the same time Buffet has a great point. If your kids don't have the drive then they shouldn't be running the company.

Great stuff!

Mike B

Keeping things in the family so to speak should result in very high variance outcomes. It's just like how autocratic leaders can either be much much more effective than a Republican form of government....or much much worse. So yes having a child who grows up training for their inevitable role in taking over the reins of the family enterprise can provide the long term stability and knowledge transfer that an organization needs to succeed. On the other hand if the designated heirs are not up to par or, worse yet, there is a fight between rival family factions, the organization can very quickly implode.

I can't wait to see the numbers because I think that while many of the best firms end up being closely held within a family, probably more firms implode because of it. Of course with the state of corporate governance these days it wouldn't be hard for families to do better.

Personally I am opposed to family concentration of wealth and I support high estate taxes to counter such aristocratic creationism.

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John G

Looking forward to the podcast (the NPR signal is poor in Ireland). Just wondering is there some objective data on family versus non-family business sucess rates? e.g. has anyone compared the sucess of farms that are handed down between generations to farms that are bought and run by first generation entrepreneurs? What about the difficult 3rd generation transition is this grounded in fact?

Hopefully all will be revealed in the Podcast

Frank Lotz

I have just finished listening to the Peter Buffett interview. I am impressed that
he and his syblings were raised well. I was even more impressed that intelligent
programs such as Freakonomics are available.
Perhaps I will be less critical of the earplug generation if I imagine they are listening
to your thought provoking, savvy, well written, well produced programs

Kimberly White

I listen to all of your podcasts and this is one of my favorites!

Jeff

I was very disappointed by this podcast. It is obvious that every instance of passing a company to a scion is based on Values, not value. A more interesting and relevant statistic than profitability would be the relative benefit - or lack thereof - to the lowest employment rung in Family Owned VS. Public companies.

I understand that this podcast is ostensibly for those interested in economics, but some of us don't care about "biggering" anymore.