I’ve been poor and I’ve been rich. Rich is better! — Beatrice Kaufman, author and raconteur, 1895-1945
Here’s some good news for those UHNW families who have worked hard to make it and hope to keep it. Turns out that contrary to conventional wisdom, wealthy families are likely to stay wealthy over multiple generations.
“We can predict strongly, based on family background, who is likely to have the compulsion to strive and the talent to prosper” writes professor Gregory Clark, University of California, Davis.
He rejects the apocryphal adage that it’s shirtsleeves to shirtsleeves in three generations and the related oft-quoted statistic that 70 percent of family businesses don’t survive the second generation.
After combing through the literature, Dr. Grubman traced each hoary myth back to the same narrowly focused study published in the mid-1980s. His conclusion? These pessimistic views of family business survival simply aren’t true.
The Quick and the Bold
According to the Center for Family Business at University of St. Gallen, a privately-held firm is considered family-owned if a family controls more than 50 percent of the voting rights, while a publicly-held company is defined as family-owned if a family holds at least a 32 percent share of the voting rights.
Although it’s hard to get an accurate fix on the number of family businesses in the US – between 7.2 and 32.4 million in one recent study – there is broad consensus that family controlled enterprises are key drivers of U.S. GDP and employment, accounting for anywhere from 14 to 54 percent of private sector GDP and 14 to 59 percent of the private sector workforce. Walmart alone, with 2.3 million employees, adds 2.4 percent to GDP.
But it’s not just their numbers that gives them clout, explain professors Asker, Farre-Mensa, and Ljungqvist, “private firms invest substantially more than public ones on average, holding firm size, industry, and investment opportunities constant” and their “investment decisions are around four times more responsive to changes in investment opportunities than are those of public firms.”
Some family businesses are exceptionally good at navigating life’s twists and turns.
Take the Zildjian company for example, the oldest family-owned and operating business in the USA. Supplying the world’s percussionists from Norwell Massachusetts since 1929, Avedis Zildjian the elder began forging cymbals – those shiny shimmering saucers – around 1620 in Constantinople. Four hundred years later they are still at it. Same family, same specialty.
By the way, they are not the oldest family business by a long shot. The record was held by Japanese temple-builder Kongo Gumi, in business from 578 to 2005. Bad luck and a fading heritage finally did them in. But what a run.
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