Would you read an article about the “Lucky Sperm Club?”

by fpman

We sure would. In fact, there is one recent article like that in the Economist, and so we were happy to.

It is about family-run mega-firms in Fortune’s Global 500 where you can, in Warren Buffett’s expression, be born into fortune by being the lucky “sperm” (though based on our high school studies we think an egg may also be necessary to get lucky).

In the decade from 2005 to 2014 the share of family-managed large firms in the 500 has grown from 15% to 19%. The ratio has actually decreased somewhat over this period for Western firms, but in the emerging economies, and in fact in the developing world in general, being family-run, or at least being owned dominantly by one family, is apparently more the rule than the exception. Think of examples from Tata Corporation (of the Indian Tata family) to the Saudi Binladin Group (of the bin Laden family). Given all the “emergence” there is these days, those firms are now better represented among the 500.

Fortune500The 500 visualized (honestly, I didn’t count them)

Here’s the regional breakdown on firms with over one-billion dollars in annual revenue:

“Around 85% of $1 billion-plus businesses in South-East Asia are family-run, around 75% in Latin America, 67% in India and around 65% in the Middle East. China (where the proportion is about 40%) and Sub-Saharan Africa (35%) stand out for their relatively low share of family firms, because in both cases many large firms are state-owned.”

The whole article makes for very interesting read, and is highly recommended. Given the concentration of enormous power in the 500 firms in question they surely merit attention on the agenda of this blog.

Of most interest to us, however, is actually this observation in the article (following upon the discussion of research findings from various sources pointing in this direction):

“The families that do best are those which understand that their interests and those of their business can diverge, and put in place processes to manage the consequences of these differences.”

It may not be a popular idea but patrimonialism – let’s add a very important caveat: in its legal forms – in fact should not be inherently disadvantageous (or in other words “non-Pareto-optimal,” or a “public bad”), either in politics or economics. Patrimonialism is rather what people and circumstances make of it. It can resolve issues of trust and reduce transaction costs in both the political and the economic realm, and it can be practiced in an enlightened manner – with a view to the public good in the case of politics, and with a view to the good of the corporation in the case of a company.

It just doesn’t always happen that way.