Entrepreneurial Dynasties in the Making—Heredity

The self-made pioneers of new big business turned their back on this individualistic philosophy when the time came to think about the future of their huge fortunes. In this phase of their family history, they became advocates of heredity. This happened even though heredity was incompatible with the laws of capitalism, as Weber understood them. The idea of continuity was firmly embedded in the minds of the founders of family firms. Early on, sons figured centrally in the founders’ business plans. Junius Morgan, for instance, knew that the houses of Baring and Rothschild operated largely as family enterprises, grooming sons to inherit their respective businesses. He projected his imperial ambitions onto Pierpont, his lone male heir, and bequeathed the Morgan Bank to him (Chernow 2010, 19-20). The same was true of all other founders in my top ten sample: they had strong aspirations to keep the firm in the family. Second-generation heirs in particular were responsive to this idea. Not only were they keen to own the firm and to put its profits to good use, but they also had an appetite for growing the enterprise, in the family’s honour. However, the founder’s children were not equally assumed heirs.

As in royal and noble families, the first hierarchical distinction for succession purposes was made between legitimate and illegitimate children: only legitimate children could be legal heirs to the throne or the title, whereas illegitimate children were categorically excluded from the succession. The same rule applied in entrepreneurial dynasties, at least at the pinnacle of entrepreneurs’ status hierarchy. A good illustration is provided by the Swedish Wallenberg banking dynasty. The founder, Oscar Wallenberg (1816-86), had two out-of-wedlock children borne by his housekeeper, Lovisa Andersson. These children never had any title to the Wallenberg Bank (Olsson 2006, 15-19). Henry Ford, too, had an illegitimate child, a son borne in 1923 by Evangeline Dahlinger, who was a typist (Bak 2003, 121-4). George Peabody also deserves mention here. As said, he bequeathed his bank to Junius Morgan, his partner, because George was a bachelor and without a son. He did in fact have a son borne by his mistress, but as other high-ranking entrepreneurs at the time, he chose to exclude his illegitimate son from the firm (Chernow 2010, 9). This hierarchical distinction between legitimate and illegitimate children carried on in successive generations as well. For example, Heikki Herlin, son and heir of the founder of the Kone dynasty, had an illegitimate son in 1928, two years before he married another woman. Heikki’s out-ofwedlock son had no part in the inheritance of Kone (Michelsen 2013, 186-7). Entrepreneurial dynasties were thus built in successive generations by legitimate children born into families set up by the entrepreneurs with their wedded wives. In this respect, entrepreneurial dynasties did not differ from royal and noble dynasties.

The authority of marriage was decisive when heirs to the family firm were assigned, but in the realm of private life relationships between illegitimate children and their fathers varied widely. Henry Ford installed his son and his mistress with her husband in a magnificent mansion and gave them generous benefits. In this he was as benevolent as many kings. He also made visits to his mistress, and the son sometimes visited Henry Ford’s family. Oscar Wallenberg’s two illegitimate children stayed with their mother when Oscar married Anna von Sydow. Later on, however, these children were accepted into the family circle, not as siblings or halfsiblings but as ‘poor cousins’. With this newly bestowed kin status, they called Oscar not their father, but ‘uncle’ (Nilsson 2005, 128-40). Many other illegitimate children were born to men of entrepreneurial dynasties, but little is known about their fate. It is possible that their lots resemble those of Oscar Wallenberg’s out-of-wedlock son, whose occupational status was much inferior to his well-off half-brothers’. His descendants inherited the same low occupational status.

Gender was again another important source of inequality between entrepreneurs’ children: sons were categorically preferred as heirs. In the nineteenth century it was easy to expel daughters from the family firm. Mayer Amschel Rothschild, founder of the Rothschild dynasty, proclaimed in his last will and testament that his daughters and in-laws with their heirs shall have no share of the firm’s assets: the firm shall be owned and belong exclusively to his sons (Ferguson 1999, 74). This was the imperative that other founding fathers were also inclined to follow at the time, and it even applied to working for the firm. When their rich father died, daughters had to content themselves with less valuable bequests than their brothers. There was much variation in the amounts of cash settlements, incomes from the family trust and the values of bonds inherited by daughters as recompense for their exclusion from the family firm (Vanderbilt II 2013, 53; Chernow 2004, 624; 2010, 42, 159), but the money they received was enough to make them comfortable for life, by the standards to which they were accustomed in their birth family.

There were exceptions to this rule, but only if the family had no sons but only daughters. The founder of the Warburg dynasty (Chernow 1994, 8-12), Marcus Moses, had no son but only one daughter, Sara. Her father decided to leave the firm to Abraham (Aby) Warburg, Sara’s (1805-84) husband. Dynastically, this was an appropriate choice because Aby was Sara’s second cousin and Warburg by surname. This would ensure the due transition of the Warburg name to the next generation. Moses Marcus’s determination proves that daughters were still seen as the ‘weaker sex’, just as ruling queens before them had not been considered competent to rule alone over a state. This weakness was often addressed by co-ruling. Much later in the Krupp family firm, the handing over of power was arranged differently (Manchester 2003, 242-9): Fritz Krupp (1854-1902) had no son but two daughters, Bertha (1886-1957) and Barbara (1887-1972), the older of whom inherited the whole firm. But like many queens regnant, Bertha ruled together with her husband, Gustav, who thereby firmly attached himself to the Krupp dynasty, as was indicated by his new surname: Krupp von Bohlen und Halbach.

When the time came for second-generation sons to inherit the family enterprise, two rival approaches were applied, that is, primogeniture and equal partition. Primogeniture found more favour (Gersick et al. 1997, 78). As far as the owners were concerned, the firstborn son’s right to the firm seemed the ideal solution, for the exact same reasons as in the case of royalty: not only was it important to keep the empire intact to ensure that its power remained undiminished, but the eldest son’s right to the throne as a primeval right was an irresistibly attractive idea. In many of the family firms in my top ten entrepreneurial dynasties, primogeniture was put into effect as a matter of course because only one son was born into the family. The situation was more complicated if there were two or more sons, particularly after the entry into force of new inheritance laws which decreed that all legitimate children in the family were to have an equal share in inheritance.

The Krupp dynasty applied the principle of primogeniture most rigorously (Manchester 2003, 59-60). Friedrich Krupp, founder of the Krupp dynasty, had three sons, Alfred (1812-87), Hermann (1814-79) and Friedrich (Fritz) (1820-1901) and one daughter, Ida (1809-82), who was the family’s firstborn. Due to their father’s premature death, the burden of sharing the inheritance was left to the widow, Therese, who made her decision on heir in 1848. The eldest son Alfred inherited the whole business fortune as sole owner, and he was convinced that the factory was indeed his birthright. Hermann, the second son, was rather oddly given the metal factory, which he had established himself and which he already owned. Fritz, the youngest son, and Ida were left without shares in the Krupp businesses; they only received a cash settlement apiece, a typical arrangement for daughters at the time. This special privilege of primogeniture to the Krupp dynasty was granted by the emperor (Manchester 2003, 249). Primogeniture was also applied in Bertha and Gustav’s family, into which four sons and three daughters were born. Bertha took it for granted that it was the eldest son, Alfried (1907-67), who would take control of the firm and who should be raised accordingly. This is what eventually happened, but only with the aid of Reich Chancellor Hitler, who decreed the Krupp Law and so confirmed the legal implementation of primogeniture. The application of primogeniture in the Krupp dynasty followed the same principles as in the English nobility, where dukedom and estate were passed on categorically to the first-born son.

In the Krupp dynasty, primogeniture was applied both to the ownership and to the leadership of the family firm. In many other family firms, however, ownership became dispersed when shares were bequeathed to all children, but even in these cases only one son was appointed to run and administer the firm’s affairs. This was prescribed by the Companies Law, which granted the chief executive the highest standing in the family. Due to this privilege, general managers or CEOs, as they later became known, were acclaimed kings, emperors or tycoons, distinguishing them from their brothers and cousins who were in charge of minor undertakings in the family firm. This inequality often led to fraternal rows (Gordon and Nicholson 2010, 35-67). Primogeniture gradually began to lose its significance as growing emphasis was placed on business skills and capabilities. The oldest son was not necessarily the most competent in this respect. When Knut Wallenberg (1853-1938), the childless head of the Wallenberg fortunes (Olsson 2006), started to think about who should take over as head of the bank, there were six candidates, one full-brother and five half-brothers. Knut’s younger full-brother, Wilhelm, who was a sea captain, was not considered a suitable candidate, nor was the oldest son in his father and stepmother’s family, because he did not show enough interest in banking. Later on, he made a career as a diplomat. But the second eldest son, Marcus (1864-1943), showed a natural talent for business, making him a good candidate in Knut’s eyes. And so it happened that power in the Wallenberg Bank was transferred to Marcus Wallenberg.

The other pattern of inheritance was equal partition. This was applied in two of the ten entrepreneurial dynasties in my sample: in the Rothschild

Bank in the second generation and in the Warburg Bank in the third generation. The Rothschild fortune (Ferguson 1999, 48-51, 110) was divided into five branches so that each son was given his own ‘realm’ to rule. Nathan Rothschild took responsibility for the London branch that had been established during Mayer Amschel’s lifetime. Nathan’s brother, Amschel, took charge of the original Frankfurt branch. The three other brothers were given charge of new branches that were specially created for them: Salomon the Vienna branch, James (Jacob) the Paris branch and Carl the Naples branch. Despite this partition, the five branches continued to operate as a joint concern. The idea was to keep the family firm intact and so to maintain its power and influence, but at the same time to give relative independence to the heads of the branches. In contrast to the partition of the Rothschilds under their father’s command, the partition of the Warburg family firm into two branches resulted from boisterous rows in the family (Chernow 1994, 12-22). Sara Warburg had bequeathed the family firm to her sons, Siegmund (1835-89) and Moritz (1838-1910), but they were unable to settle their differences over the leadership of the firm—the exact same thing as happened with their grandfather, Moses Marcus, and great uncle, Gerson. Although a division of labour based on personal dispositions helped to curb the worst squabbles, the Warburg Bank was eventually split into two separate branches in the 1860s, identified as the Siegmund or Alsterufer Warburgs and the Moritz or Mittelweg Warburgs.

Merging finances with the family is often a difficult process because these two social orders function differently, as entrepreneurs knew full well from the outset. Gumbrich Warburg, who was the father of the Warburg banking dynasty’s founder, drafted a will to reconcile his quarrelling sons, Marcus Moses and Gerson. Their father asked them to never part: only unity would make them strong and allow their business to flourish (Chernow 1994, 5-6; see also Gordon and Nicholson 2010, 39). Mayer Amschel Rothschild had a similar wish in mind when he asked his eldest son to maintain fraternal unity, which would make the brothers the richest people in Germany (Morton 1998, 78). Both fathers appealed to the interests of their firm when they advocated family unity, but apparently Warburg’s and Rothschild’s requests also stemmed from fears of the damaging effects of the rationale of business (Gordon and

Nicholson 2010, 35-67). Paradoxically perhaps—paradoxically indeed because there was really not much else in their life other than the company (Manchester 2003, 75; Bak 2003, 290)—the heads of these gigantic family firms placed unusually strong emphasis on family unity but, as I noticed in reading histories of entrepreneurial dynasties, the common enterprise really created an extra tie between family members. Staying in the business meant retaining first-class status in the family, choosing another path being sidelined from family interaction (Gersick et al. 1997, 78).

Among the ten family firms in focus, 63 per cent of the sons in the second and third generations and 53 per cent in the fourth and fifth generations were employed in their family firm, but their contributions varied quite widely. A small number were managing directors, and they formed the privileged direct dynastic line in the family. Some sons were partners, but their workload in the family firm varied: some of them were employed as directors, while others had minor roles in the firm. Seven per cent of the sons in the second and third generations withdrew from the firm to set up their own companies; this was slightly more common in the third and fourth generations (12 per cent). One cannot but conclude that entrepreneurship was a highly preferred option in entrepreneurial dynasties, whose business successes made entrepreneurship an attractive field of work, a necessary precondition for the creation of an entrepreneurial dynasty.