🔢 Key Takeaways
- Family businesses make up a large portion of successful companies, but deciding to keep it in the family should be based on logic and numbers. Sometimes the best candidate to lead may be outside of the family.
- Despite its regional status, Yuengling beer has become a standard for lagers. The brewery's five generations of family ownership and the passion for beer-making have kept it going through tough times.
- Despite facing tough times, Yuengling Brewery has achieved steady growth by focusing on long-term goals and maintaining a responsibility to employees and customers. As an American-owned business, it remains committed to quality and tradition.
- Yuengling Brewery offers a unique tasting experience, with a family tradition spanning seven generations. With no official succession plan, the next generation is being prepared to continue the legacy.
- Succession planning is crucial for family businesses as studies show a drop in profitability during the transition. Loyalty to the family business may increase share prices but careful consideration of options is necessary.
- Family CEOs from lower-ranked colleges tend to underperform, and inheritance may decrease their talent. Leadership is not hereditary, and individualism is important in capitalism success.
- Inheriting a family business may not be the best option for long-term success. Consider choosing successors based on talent and skills rather than solely relying on familial ties.
- A good CEO, not genetics or family dynasties, can maintain long-term success. August Busch III's leadership and investments in employee satisfaction led to significant returns for shareholders.
- August Busch III was a detail-oriented CEO who focused on expanding Anheuser-Busch's American market share. He ousted his father in a boardroom coup and was deeply invested in beating his biggest rival, Miller.
- August Busch IV's journey to becoming CEO of Anheuser Busch emphasizes the significance of hard work and privilege in the business world. His marketing skills and ability to connect with people made him a valuable asset to the company.
- The Busch family had a unique tradition of giving potential heirs five drops of Budweiser beer before anything else. The sale of Anheuser-Busch to InBev in 2008 caused controversy and rumors of euthanasia for the iconic Budweiser Clydesdales.
- Even successful companies can fail due to poor decision-making and disputes within a family-owned business. Creative solutions like encouraging individual passions or adoption can offer alternatives to traditional succession planning.
- Pursue your interests, not expectations. Don't feel obligated to follow in the footsteps of family members or society's standards of success. Forge your own path to achieve fulfillment and happiness.
- Passing down a family business may not always be the best choice, as studies show that family firms tend to perform worse when scions take over. This is especially true in emerging markets with stronger family control.
- Family firms provide a solution to weak institutional problems in emerging economies, while in Japan, adopting outsiders into the family has contributed to the success of family-managed firms outperforming professionally managed firms.
- In Japan, family firms often adopt adult males as successors, ensuring a competent leader takes over the business. It's a formal process that is highly regarded, although blood succession is still preferred by many.
- Family continuity and cultural traditions in business are highly valued in Japan, with adopted heirs playing a significant role in the success of second-generation-managed firms. This practice may not work in other countries due to cultural differences.
📝 Podcast Notes
Family Businesses in the Fortune 500: The Pros and Cons of Keeping It in the Family
Family businesses, like Ford, Levi’s and Yuengling, make up one third of the companies in the Fortune 500. The founder's children are often the ones to take over the business. While it may seem logical for family members to take over, it isn't always the best decision. In some cases, there may be better candidates outside of the family with the necessary skills to grow the company. The decision to keep it in the family should be based on hard numbers. It is fascinating to see how nearly 300 years ago, Dick Yuengling's great-great-great-grandfather started his business, which has remained a family enterprise to this day. However, the family name's pronunciation, 'Y-U-E-N-G-L-I-N-G,' has been a significant drawback, but it doesn't stop people from recognizing the company's product.
The Story of Yuengling Beer: America's Oldest Brewery
Yuengling beer, America's oldest brewery, has a weird kind of fame, with tourists coming from all over the world to see it. The company has remained in the Yuengling family for five generations, with a history dating back to the founder, David G. Yuengling. Dick Yuengling, the current owner, recounts how the brewery was on the verge of financial collapse before turning things around. Despite its regional status, Yuengling beer has become a kind of standard for lagers, with orders for 'a Lager' in many Philadelphia bars resulting in a pour of Yuengling. Dick is passionate about beer-making, and it's clear that his love for the business has kept it going through tough times.
Yuengling Brewery: Triumph Through Hardship and a Commitment to Quality
Despite facing tough times and near-bankruptcy, Yuengling Brewery has managed to turn things around and experience steady growth through slow expansion and hard work. Unlike most major beer companies, Yuengling remains American-owned and is the second-largest American-owned brewer, behind the Boston Beer Company. Despite having only a small market share and being in only thirteen states, Yuengling has a bright future with a focus on longevity and a responsibility to employees and customers, rather than stockholders. The brewery has been run by Yuengling men for over 180 years, but with no sons to take over the family business, the future of the brewery lies in the hands of Dick's four daughters, two of whom already work at the brewery.
Yuengling Brewery: Tasting Fresh Beer and Passing the Torch
Yuengling brewery offers a unique experience of tasting fresh beer straight off the bottling floor, where a conveyor system carries bright green bottles filled with beer. The break room doubles as a bar, with all the company's beers on tap, perfect for chilling with the family. Wendy and Jennifer Yuengling are preparing their children, the seventh generation, to take over the family business. However, there is no official succession plan in place, and their father has no intention of retiring any time soon. Despite uncertainty being bad for business, the Yuenglings seem relaxed and confident, paving the way for yet another successful generation of brewers.
Challenges Faced by Family Businesses in Succession Planning
Family businesses often face challenges when transitioning to the next generation. Studies show that a drop in profitability is common when the founder passes the business to their heirs. This can be a steep price for loyalty. However, loyalty may pay off in the form of increased share prices if the company is publicly traded because Wall Street loves the story of the family firm. According to one study, when a publicly traded family firm hands over the reins to the heir, the stock price drops by around 10 to 15 percent. It's important for family business owners to be aware of these challenges and consider their options carefully when it comes to succession planning.
Family CEOs: The Impact of Educational Background and Inheritance on Performance
Family CEOs are found to underperform due to their educational background where those who attend colleges outside the top 100-180 colleges in the US were found to be driving the performance of the family CEO pool down. The Carnegie Conjecture suggests that inheritance of a fortune for the second generation deadens their talent and wealth distribution is important. The heritability of leadership is also brought up, whether there is a CEO gene or not. This sheds light on the importance of individualism and entrepreneurship as opposed to nepotism in the success of capitalism. This is not a new insight as it has been pointed out by scholars and businessmen alike throughout history.
Potential Risks of Handing Down Family Businesses
Handing down a family business to the next generation, instead of picking from a wider talent pool, may destroy value according to economists. Warren Buffett believes inheritance creates a lazy aristocracy. While genetic factors play a large role in physical traits like height and athletic ability, behavioral traits like personality and IQ are less heritable and therefore not necessarily passed down through genes. The notion of creating a family dynasty, like the Vanderbilt family tried to do, may not be sustainable or beneficial in the long run. It's important to consider a wider range of potential successors for a business rather than solely relying on familial ties.
The Legacy of August Busch III and Anheuser-Busch's Success Over Five Generations
Family dynasties and talent tend to get diluted over generations due to intermixing, and there is no CEO gene. The story of Busch family and Anheuser-Busch's success over five generations proves that a good CEO can create and maintain long-term success. August Busch the Third, who is regarded as one of the best CEOs, turned Anheuser-Busch into a successful company. From sponsoring every possible sport to throwing glamorous parties and events, the company's human resources department provided a great working environment that was cherished by its employees. Investing in Anheuser-Busch stock during August Busch the Third's tenure as CEO could have resulted in significant returns for shareholders.
The Calculating CEO: August Busch III
August Busch III was a highly focused and calculating CEO who took Anheuser-Busch to new heights, increasing the company's market share to 52% by 2001. He ousted his father in a boardroom coup to take over the company, which was resting on its laurels. He surrounded himself with MBAs and focused on expanding the American market. His biggest rival was Miller, and he was deeply invested in beating them. He was extremely detail-oriented and expected nothing less from his employees. His standards were high and he expected perfection, but he was also cold and didn't have many close friends. He remained immensely powerful until the very end, and his son, The Fourth, followed in his footsteps.
The Rise of August Busch IV: Success Through Marketing and Company Culture
Despite his personal struggles and controversial behavior, August Busch IV was able to rise through the ranks at Anheuser Busch thanks to his marketing skills and upbringing in the company culture. While his father dedicated himself to the business, August IV struggled with addiction and legal issues, but was known for being personable and easy to get along with. Had he not been the son of the CEO, it is unlikely he would have become CEO himself, but his success in marketing and ability to connect with people made him a valuable asset to the company. His story highlights the importance of both hard work and privilege in achieving success in the business world.
The Busch Family Legacy and the Sale of Anheuser-Busch
The Busch family legacy at Anheuser-Busch had a unique tradition of giving potential heirs five drops of Budweiser beer before anything else to ensure their first drink was beer, not milk. After the sale of the company to InBev for $52 billion in 2008, August Busch III and IV made considerable profit, but the sale was not well-received by the people of St. Louis, who viewed Budweiser as a symbol of American culture. With only 4% of the company stock owned by the Busch family, Warren Buffett's company, Berkshire Hathaway, owned 5%. The sale prompted rumors of euthanasia for the Budweiser Clydesdales, sparking outrage and disbelief among loyal fans.
Corporate Mismanagement and Family Issues: The Downfall of Anheuser-Busch
Corporate mismanagement and family issues can hinder the growth and success of a company. In the case of Anheuser-Busch, personal conflicts between the Busch family members resulted in a lack of focus on the global industry of beer, ultimately leading to their subsumption by larger brewers. Despite this, family ties and the desire to keep the business within their bloodline prevailed over logic and ability. The story serves as a reminder that even the most successful companies can fall victim to poor decision-making and familial disputes. To handle the family-business dilemma, creative solutions such as encouraging individual passions or considering adoption, as seen in Japan's high adoption rates, can provide alternatives to traditional succession planning.
Peter Buffett's Unconventional Path to Success
Peter Buffett, the son of the famous billionaire Warren Buffett, had a very ordinary upbringing and was not aware of his father's wealth until he was 25 years old. Buffett's father was a consistent human being who read a lot and focused on actions rather than words. Growing up, the Buffett children were not interested in their father's business, but Peter was considered the last great hope to join Berkshire Hathaway. However, Peter followed his own path and went off to college to study various subjects. This highlights the importance of pursuing one's own interests and not feeling obligated to follow in the footsteps of their parents or family members.
Challenges of Passing Down a Family Business
While it may seem like a good idea to pass down a family business to the next generation, the odds of finding someone as passionate and driven as the founder are incredibly small. Studies show that family firms perform worse once the scions take over, and this is especially true in emerging markets like Asia and South America where family control is strongest. In fact, the US has one of the lowest rates of family ownership in the world. This is possibly due to the developed world having better contracting environments and a better system of law enforcement, making it easier for businesses to thrive without relying on familial ties.
The Tradition of Family Firms in Emerging Economies and Japan's Exceptional Approach
In emerging economies, family firms provide a second-best solution to the poorly developed institutional problem of weak rule of law. Family firms perform some of those functions themselves, when external contracting environment is ill-developed. Japan is a stark exception to this phenomenon, despite being a wealthy country with strong institutions, where handing off a business to a family member is common, but there's a twist. In Japan, there's a tradition of adopting outsiders into the family in situations where there is no male heir or the male heir is not deemed capable enough. This tradition seems to have contributed to the success of family-managed firms, as they outperform professionally managed firms, unlike in other developed economies.
Adoption of Adult Males as Successors in Japanese Family Firms
In Japan, family-run firms often adopt adult males as successors instead of handing the company off to an actual blood heir. The adoption process is formal, including taking on the adopting family's surname and filing legal papers. Adoptees are often males around 25 or 30 years old, and they make up more than 98% of all adoptions in Japan. Adoptees are chosen from a select pool and their birth families feel honored by the selection. About 20% of succession events in family firms in Japan involve an adopted son, but blood succession is still preferred by many. Adopting an outsider can be an effective strategy for ensuring a competent CEO takes over the family business.
The Cultural Significance of Adopted Heirs in Family-Run Businesses in Japan
While blood succession is still preferred, adopted heirs have accounted for a significant portion of the superior performance of second-generation-managed firms in Japan. However, this cultural tradition would not work in countries like India due to various reasons, including a lack of trust in adoption contracts. In Japan, family continuity in running a business holds great importance, as evident from the Hoshi hotel, which has been passed down through 46 generations by adopting sons-in-law. This practice showcases Japan's clever solutions and highlights the prevalence of cultural traditions in family-run businesses, which contribute significantly to their success.