Lessons from the rise and fall of family dynasties

Business books:While most of the limelight in business falls on public companies organised on the managerial/corporate model, it's worth reminding ourselves from time to time of the enormous role that is still played in Western economies by companies that are in family ownership.

As David Landes points out in the introduction to this book, family firms make up 60-90 per cent of EU businesses, depending on the country, and account for two-thirds of GNP and jobs. In the US, over 90 per cent of firms are family units, accounting for over half that country's output. Even more important, family firms tend to be better performers; on average they outpace by far their non-family competitors.

What damns family firms in the eyes of economists and government planners is the undeniable fact that most of them don't last. Most either fail to survive beyond the second generation or their ownership passes out of the hands of the founding family. For this reason, many jump to the conclusion that the managerial model is the single ideal, and that it should be adopted from the start.

Landes believes, and I agree, that this is faulty thinking. I feel strongly that start-ups gain a valuable double boost from being fully-owned by the promoter: first, they allow a talented and visionary entrepreneur to be driven by a passion to achieve something other than simply to make money; equally important, closely-held ownership allows the fledgling company to take a long-term view, rather than the need to deliver results quickly to impatient investors.

In particular, Landes suggests that in trying to foster the economies of developing countries, it is the family business culture that we should be trying to transplant, rather than the apparently more sophisticated managerial approach. Only when business is firmly rooted in an economy does it perhaps make sense to look beyond the family model.

This is an interesting (and perhaps important) thesis, and one would like to hear more. Unfortunately, however, that is not what this book is about. Landes chooses to focus instead on telling the story of a small selection of what he calls "dynasty" firms - enterprises that have bucked the general trend by remaining both successful and in family ownership for more than three generations.

Taking three examples from each of three sectors - banking, car manufacture, and natural resources - he devotes most of his space to recounting the story of how these untypical exemplars succeeded in surviving in family ownership over many generations.

This would make for rollicking storytelling if David Landes was more of a journalist and less of an economic historian. As it is, I found the book somewhat of a boring read.

Even with such a small sample, Landes has difficulty getting his examples to fit his model. One of his banks, Barings, ended spectacularly due to the depredations of a rogue trader whom the family lacked the specialised knowledge to control. The Rockefeller family soon lost interest in the original oil business and survives today as a philanthropic dynasty not a business one. And indeed, most of the other family firms chosen by Landes have diluted their control by bringing in outsiders to manage their business or investors to share the spoils with.

The shining exception, the Rothschilds, maintain their family hegemony by ruthlessly restricting involvement in the running of their business not only to family members but also to people of the Jewish faith. Their very success raises questions of its own: to what extent should individuals sacrifice their own visions and convictions to the service of the family of which they are a part? Also, in this egalitarian world, what can we say about a firm that systematically cuts off progression to its top levels to anyone who - however talented - does not happen to be born into the founding dynasty and profess a particular religion? Reading this book, it is hard to avoid the conclusion that maybe it is better for family firms to pass on the torch before they reach the dynasty stage.

• Feargal Quinn is an independent member of Seanad Éireann. He is the founder and president of Superquinn

Dynasties: Fortune and Misfortune in the World's Great Family Businesses
David Landes. Viking £25 (€36.90)