Big shoes to fill
If there is anything genuinely new about the « new nepotism », it may lie in its reinforcement by two great post war phenomena.
The first is the rise and rise of the brand. The theory of brands is that a recognisable name, logo or symbol becomes indicative of known quality and quantity: it expedites purchasing by allowing one to show loyalty to the good; it promotes product improvement by allowing recourse against those who do not deliver. A family name is not dissimilar: while people are not exactly repeatable, a familiar name not only instils confidence, but provides a ready made benchmark for comparison.
The other factor is the decryption of the human double helix. Life before Francis Crick and James Watson cracked the DNA code in 1959 can today be hard to imagine. Consanguinity was understood, family resemblances visible and the inheritance of personal characteristics and idiosyncrasies evident. But the mysteries of how and why were impenetrable.
The classic tale is of the beautiful woman who proposed she bear George Bernard Shaw’s child; with her looks and his brains, a prodigy was predestined. Shaw issued the inevitable rejoinder: « What if it should have my looks and your brains? »
DNA supplemented superstition with science. Indeed, by demonstrating that children were not simply reflections but also compositions of their parents, their parents’ parents and all gone before, genetics added a new layer to nepotism: it became a means of partial self perpetuation, for it is explicitly the « us » in « them » we are rewarding.
Rupert Murdoch’s promotion of James is not merely a gesture of preferment for a loved one; it is an investment in himself and in the quality of his own genetic inheritance. The « new nepotism » is of a piece, in its way, with our modern elevation of « talent » to be a virtue in its own right. To be « good » these days is paltry. To be « talented » is the compliment to which all aspire the mere attribute sometimes seems more important than the ends to which it might be harnessed.
But from where does talent come? Nowadays, it would seem, you can’t be too careful in choosing your parents.
These two forces have aligned with a third: the baby boom. The West is ageing; it is disposing of as much property as it is acquiring, if not more. The entailments of this are seldom fully apprehended. Usually we worry about the burden on social services, the stress on children and the inadequacy of infrastructure. But how our elders choose to dispose of their assets will be no less significant.
Australia, which owes so much to the industriousness of its postwar migrant population, faces one of its greatest generation handovers. More than $600 billion of assets will be inherited in the next 20 years, in the form of property, businesses, superannuation and shares almost a third of household wealth. And where there’s a will, as they say, there’s a relative.
So what makes us squeamish about nepotism? In large part it is because the competing economic ideologies of the past century and a half have been about displacement of the family from the centre of our activities: adidas originals communism supplanted it with the state, seeing it as an obstacle to collectivism and nationalisation, capitalism with the commercial enterprise, judging it inimical to the efficiency of corporate bureaucracy.
And while it’s sexy to talk about nepotism in the creative arts and sport, where nothing arrests devotees of either like an unfamiliar given name prefixing a familiar surname, no unit of association has proven a more successful alternative to the family than the modern industrial corporation.
In the beginning, all enterprise was either individual or family based. It wasn’t until the renaissance innovation of double entry bookkeeping that a man’s commercial and personal lives could be separated and even then, most enterprises rose and fell in a generation. With the rise of the joint stock company and limited liability, however, came the emergence of the salaried manager, who first acted on behalf of families, adidas superstar then on behalf of dispersed groups of shareholders.
Not everywhere did nepotism become a custom that dare not speak its name. Asian business expert Professor Gordon Redding has summarised the spirit of capitalism in China, where the Confucian personal ethic has xiao (filial piety) as its central moral imperative, as follows: « The key feature would appear to be that you trust your family absolutely, your friends and acquaintances to the degree that mutual dependence has been established and face vested in them. With everybody else you make no assumptions about their goodwill. »
Business in the industrial West loves its names too: the Cargills, Fords, Guccis, Sainsburys, Tatas and Nordstroms at their eponymous firms, plus the Waltons at Wal Mart, the Galvins at Motorola, Agnellis at Fiat, Sulzbergers at The New York Times, the Mohns at Bertelsmann.
Of the great business families mentioned, though, only the Cargills, with their sprawling grain empire, remain wholly private. In order to prosper, each of the others has needed to go beyond the family’s resources and seek external capital, in return for which they have had to accept a certain degree of external scrutiny and dilution of control. And where investors have a say, they detest even a hint of nepotism.
Virtually every country has in its stock of lore some variation on the idea that it is easier to accumulate wealth than to retain it, and of the first generation building, the second generation growing and the third generation wasting.
There are few stories, meanwhile, where the annals of business are fuller than those of corporations strangled by family ties, usually built round a patriarch like the one in Ring Lardner’s The Young Immigrunts (sic): » ‘Are you lost daddy,’ I arsked tenderly. ‘Shut up,’ he explained. »
The originating classic is perhaps the saga of the Vanderbilts: Cornelius built the greatest fortune of his time; son William doubled it; his son Neily was, within 30 years, almost bankrupt. But every era has its favourite cautionary tale, from Wang Laboratories, where founder An Wang alienated first executives and then investors by promoting his incompetent son Fred, to Adelphia Communications, whose founding Rigas family is being prosecuted for using it like a personal slush fund while presiding over $US60 billion ($A83 billion) in losses.
Certainly no one wishes to be seen as nepotistic. Top executives don’t like it: it casts a bit of a shadow on the basis of their own eminence. Many organisations, fearful of the taint, make their objections explicit: Sandy Weill rules Citigroup like an imperial caesar, but was so loath to promote his daughter Jessica Bibliowicz that she finally quit three years ago.
Likewise are securities regulators leery where blood and business mix. One of the first responses to recent corporate malfeasance was to legislate for more independent directors; families whose members form majorities on boards in the US, Europe and Australia have had to go looking for more countervailing outsiders, even when they hold a majority of stock, in order to pass muster.
Nepotism’s detractors, furthermore, even seem to have economists on their side. Sufficient evidence exists to connect economic underperformance with « low trust » countries, where family ties are tighter than social ties, for there to be considered a causal relationship. « Familistic societies have greater difficulty creating large economic institutions, » is Francis Fukuyama’s conclusion in Trust: The Social Virtues and the Creation of Prosperity, « and this constraint on size limits the sectors of the global economy in which such business can operate. » The savants have finally caught up, it seems, with the character in Charles Dickens’s David Copperfield, Mr Micawber: « Accidents will happen, » he believed, « in the best regulated families. »
Yet there is a caveat here; accidents will happen in the best regulated companies too. And as the blessing investors eventually gave James Murdoch’s succession demonstrates, the case against nepotism is not quite so closed as the textbooks maintain.
Nepotism was a feature of several of the celebrated corporate collapses of the past three years. Enron’s Ken Lay was particularly notorious. Four of his five children worked with either Enron or its satellite Azurix; employees were encouraged to send their travel business to a firm half owned by Lay’s sister; the company’s air fleet was known internally as « the Lay family taxi ». Yet with the exception of Adelphia, nepotism tended to be a symptom of corruption rather than a precondition. And compared with many misdeeds, the appointment of an idiot nephew to a soft job that keeps him out of harm’s way seems rather innocuous.
There are, furthermore, forces that tell in nepotism’s favour in a business environment ostensibly hostile to it. These are associated with what economists call « the theory of the firm ». In the classical, vertically integrated, widget making firm, the widget passes seamlessly from one division to the next, being enriched at every step at a price of actual expense plus a little bit. Turnover is essentially underwritten, profit evenly distributed.
But in the average big company of today, with its devolved responsibilities, autonomous divisions, internal rates of return and competition for scarce capital, loyalty tends to be owed to one’s immediate circle, and concentration to fall on near term profit objectives. To the bigger corporate entity, the affiliation is more abstract; to executives in other divisions, the relationship might well be one of rivalry, even antagonism.
To this, there are a variety of countermeasures. Truly outstanding companies instil a sense of the common weal through shared values or superordinate goals. On a more prosaic level, you can try to unite people by paying them a sizeable proportion of their remuneration in stock, whose value reflects all their efforts (regrettably it also reflects a million other exogenous variables over which no one has any control but that’s another story).
For corporations whose management is united by common blood rather than simply by common cause, there is another possibility: one can appeal to a person’s sense of being a family member.
This cuts both ways: there is no impulse of reciprocity quite so profound as that found in a close knit family; equally, no animosity burns so incandescently as that after a close knit family falls out.