The topic of family businesses has long been of interest around here. Stephen Dubner wrote about it a few months ago, and our “Church of Scionology” podcast looked at the research on family firms. A new working paper (abstract; PDF) from Oriana Bandiera, Andrea Prat, and Raffaella Sadun explores how the behavior of family firm CEOs differs from that of professional CEOs, and why the former seem to perform worse. If you had to sum it up in one word: sloth. From the abstract: Read More »
With the recent sale of The Washington Post to Jeff Bezos, the less-recent sale of the Wall Street Journal to Rupert Murdoch’s News Corp., and the N.Y. Times’s exuberant denial that it is for sale, one thing came to mind: family businesses.
Not an obvious common thread, perhaps. But I have long been interested in how family-run businesses succeed or fail — and in fact this week have just re-released an hour-long Freakonomics Radio podcast on the topic, “The Church of ‘Scionology’” (subscribe here). It features stories on a pair of family beer businesses — Anheuser-Busch and Yuengling — as well as the strange tale of adult adoptions in Japan in the service of corporate stability (i.e., if your son or daughter isn’t up for the job of running your company, then you can simply adopt your successor).
The Post and Journal were long-held family businesses, the Post by the Graham family and the Journal by the Bancrofts. The Times, in an ownership structure similar to the Post, is a public company whose voting shares are controlled by the Ochs-Sulzberger family, and Arthur Sulzberger, like his ancestors before him, is the publisher of the newspaper. I haven’t worked at the Times for some time but the feeling then — and I am told that the feeling persists — is that the Sulzberger family has done an extraordinary job of protecting the editorial integrity of the newspaper, as might be expected of a family steward, but has been less competent than one might wish in shepherding its business interests. (This is all speculation, of course, as there is no counterfactual.) Read More »
Our latest Freakonomics on Marketplace podcast is called “Why Family and Business Don’t Mix.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.) It’s based on a recent paper by Alberto Alesina and Paola Giuliano called “Family Ties.” It argues that strong family ties bring a lot of benefits, but may also depress economic activity:
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We study the role of the most primitive institution in society: the family. Its organization and relationship between generations shape values formation, economic outcomes and influences national institutions. We use a measure of family ties, constructed from the World Values Survey, to review and extend the literature on the effect of family ties on economic behavior and economic attitudes. We show that strong family ties are negatively correlated with generalized trust; they imply more household production and less participation in the labor market of women, young adult and elderly. They are correlated with lower interest and participation in political activities and prefer labor market regulation and welfare systems based upon the family rather than the market or the government. Strong family ties may interfere with activities leading to faster growth, but they may provide relief from stress, support to family members and increased wellbeing. We argue that the value regarding the strength of family relationships are very persistent over time, more so than institutions like labor market regulation or welfare systems.
Jennifer Colosi runs a San Francisco executive search firm with a concentration in finance. Here’s what she wrote in to say about our analysis of the persistent female-male wage gap:
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Agreed with all you wrote about wage gaps between women and men.
Why yes, women do love kids!
You are exactly right – a higher wage isn’t as important to some woman – because it comes at a “household” cost.
Introducing “AI: Adventures in Ideas,” a New Blog Series from Sudhir Venkatesh. Episode 1: Going Solo
This is the first installment of a new Freakonomics.com feature from Sudhir Venkatesh. Each AI: Adventures in Ideas post will showcase new research, writing, or ideas.
A new book is garnering significant attention. In Going Solo, Eric Klinenberg, a sociologist at NYU, looks at a growing trend in contemporary adulthood: living alone. How we live, Klinenberg argues, is shifting, and it could be one of the most important developments of the last half-century. Read More »
The takeaways from our “Church of ‘Scionology’” radio program were as follows:
+ Economists have found that family firms that pass the company down to the next generation perform worse than if they had brought in professional management.
+ Family firms are particularly dominant in less-developed countries, which tend to have weaker markets and rule of law. Here’s Vikas Mehrotra on that point:
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In the developed world, you have good contracting environments, a good system of law enforcement, and so on. So, in the developed world, you can hire professional managers and expect a certain, you know, sticking to the contract law, and so on. It’s rather more difficult to have the same kind of adherence to the rule of law in emerging economies. So, in emerging economies, family firms sort of provide a second-best solution to this poorly developed institutional problem.
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?
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?
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.) Read More »
My younger son’s family visited the nearby Amish country and did a tour of several farms. The guide mentioned that the youngest son usually takes over the farm from his father. The older brothers typically learn trades. She thought this happens because the father isn’t ready to give up the farm when the older brothers reach adulthood.
My economic explanation is that this minimizes the frequency of paying estate taxes (no longer a very binding constraint, but it was until quite recently). Perhaps this “ultimogeniture” is an illustration of an unusual excess burden generated by estate taxes. Or perhaps there’s another explanation? (Related: check out Freakonomics Radio on “The Church of ‘Scionology.’”)