BARINGS, VESTEYS: WHO'S NEXT?

Martin Vander Weyer examines the prospects

of old money in the wake of two spectacular business failures among the gentry

IN AN ERA of giant impersonal corpora- tions known only by initials or by meaning- less names from Aegis to Zeneca, it is easy to forget that almost all businesses start life as family concerns. But recent days have offered vivid reminders of the dynas- tic complications of many of our most famous companies — the Barings looking foolish, the Moores of Littlewoods fighting back and the billionaire butcher-baron Vesteys in unexpected trouble.

Big business may be a dry science of number-crunching remuneration commit- tees and interchangeable Sir Brians and Sir Johns, but is it also an endless soap opera of patriarchs and matriarchs, black sheep and prodigal sons, hubris and nemesis. Does exceptional acumen pass from gener- ation to generation, like weak chins and red hair? Can tycoons be bred like thor- oughbred racehorses? Or should business families recognise that, through the com- bined effect of dilution of the gene-pool and the softening of moral fibre which comes with expensive education and too much pocket-money, later generations are bound to make idiots of themselves? At what point should corporate dynasties face the fact that they are no longer up to the job, and devote themselves instead to good works, gardening or the slaughter of furred and feathered wildlife?

It is not unusual to produce a second tal- ented generation. There is Sir Rocco Forte, just as, in slightly different contexts, there is President Kim Jong Il of North Korea and Mr Dominic Lawson of The Spectator. As shrewd third-generation stewards of family fortune, we have seen the examples of Lord Inchcape, saviour of P&O, and Lord Cowdray, head of the Pearson conglomerate, grandsons of two of the great self-made men of the late-Victo- rian era. Cowdray in particular was immensely rich and very keen on polo, traits which, as we shall see, do not tend to encourage hard-headed application, but he was also a man of plain taste and sharp eye, and he passed on a to his nephew Vis- count Blakenham, current head of the firm, a robust protfolio of business which this week reported £300 million of profits.

In the City, pace Barings, the dynastic principle is seen to be holding up vigorous- ly in houses such as Rothschild and Ham- There have been complaints about your interviewing style.' bro, well into the sixth and seventh genera- tions — partly as a result of a sensible prac- tice of breeding like rabbits, and thereby producing sufficient numbers of cousins from which to choose the brightest leaders. But this extended dynastic selection pro- cess carries with it special kinds of manage- ment problem. One difficulty is the risk of breakaway family factions, hankering after the partnership style of former generations or higher levels of risk: in the case of both Rothschild and Hambro, there are not one but two thriving businesses in London, because one branch of each family has tired of the mother firm and has gone off to exercise its inherited talents elsewhere. Thus Lord (Jacob) Rothschild in St James's operates a more adventurous pri- vate investment business than his cousin Sir Evelyn, steward of the ultra-Establishment family bank in St Swithin's Lane.

At Hambros, according to one employee, `every few years one part of the family accuses the branch who are in charge at the time of gambling away the ancestral capi- tal, so they all change round'. Frustrated by the constraints of operating within a large public company, the late Jocelyn Hambro and his three sons, in 1983, broke away from Hambros Bank to form their own `boutique' finance house. Jocelyn, a war hero and Jockey Club official, described by an American client in 1950 as 'a charming, handsome Englishman who talked about horses and jazz', was in many ways the clas- sic example of urbane, entrepreneurial breeding.

Elsewhere in the City, family fortune has often been sustained by clever marriages. The benign, bespectacled Bruno Schroder, a keen private pilot and deer-stalker, has been a non-executive director of the bank which bears his name since 1963 — with- out, as John Arlott might have put it, excessively troubling the scorers. Mean- while, the shop is actually run, with great success, by his sister's formidable German husband, Georg von Mallinckrodt, and a younger von Mallinckrodt is rapidly climb- ing the ladder.

So it is possible, directly or indirectly, for dynasties to keep on producing the goods, and were it not for the intervention of Mr Nick Leeson, no one would have suggested that the Barings had suddenly failed to do so for the first time in two centuries. In stylistic terms, the mainstream Barings (excluding, that is, jokers in the pack like, Lord Revelstoke, the hermit of Lambay Island, and one or two raffish types in the younger generation) were consistently sub fuse enough to convince the business world of their unflagging seriousness. They may enjoy the pleasures of owning most of Hampshire, but they still go to the office every day and wear the soberest of suits and expressions.

This places them in contrast to the Vesteys, whose giant fortune was based on the importation of refrigerated beef from Argentina, but whose meat businesses, Dewhursts and Union International, went into receivership last week having failed to reach an accommodation with their bankers after many months of wrangling. The fun-loving, friends-of-royalty Vesteys have had conspicuous entertainment out of their inheritance, once valued at £1.4 billion, now very severely, but by no means terminally, dented. Edmund Vestey, joint master of the Puckeridge & Thurlow Fox- hounds and cousin of the polo-playing, racehorse-owning third baron, is the one who said, 'We all have to try to pay as little tax as we can in this rough, tough world.' Although the Inland Revenue lost a 60- year battle to stake its claim on the Vestey's impenetrable offshore trusts, that remark was a temptation of fate if ever there was one: with hindsight, the Vesteys were riding for a fall.

Family disagreements have been a factor in the latest Vestey crisis — Edmund Vestey's 33-year-old son, Tim, had been put in charge of trying to save the meat businesses, but fell out with his elders and resigned. Other parts of their financial empire, however, appear to be unscathed — these being the parts over which they had delegated management power to Sir John Collins, former chairman of Shell, who took the job two years ago on the clear understanding that he would have no interference from the family.

This is the first sensible option when breeding starts to fail: appoint professional managers from outside, whilst preserving dignified honorific roles for the family. It is an option which may be forced on com- panies which have chosen to go public, diluting the family shareholding in order to give the family members more cash to play with, but removing from them the right to rule their company as absolute monarchs. It is not always an easy option, because autocratic families and those with a repu- tation for dynastic strife find it difficult to attract talented senior managers to work for them. And whether forced or volun- tary, the appointment of new-broom out- siders can sometimes lead to even bigger disaster.

The 3rd Earl of Iveagh, a sensitive bib- liophile, inherited the chairmanship of Guinness when he was only 25. As sales of stout declined in the 1970s, he responded with a strategy of frenzied diversification, into everything from films to mushroom- farming. The result was not a success: fear- ing a predatory takeover bid, Iveagh finally had to appoint Ernest Saunders to save the company. Saunders' disposals and share manoeuvres looked impressive, even though they diluted the family's ownership even further. Some family members insist- ed on referring to the new man as 'our brewery manager', but Iveagh backed his protégé all the way, even telling him at one stage that he had become an adopted Guinness.

In the end, however, after the Depart- ment of Trade and Industry launched an investigation into Saunders' tactics in the takeover of Distillers (eventually resulting in a jail sentence), Iveagh had to face the sad fact that delegation to this particular professional manager had brought scandal and humiliation on the 200-year-old busi- ness. 'Once a friend, always a friend,' he observed lamely of Saunders on television, before retiring to his Irish library, tut I do feel let down.'

Another family apparently feeling let down this week were the kinsfolk of Sir John Moores, the founder of the football pools and chain store group Littlewoods — which has been quietly floundering ever since Sir John relinquished executive con- trol. In the latest of a series of boardroom upheavals within this secretive £2-billion group, the 32 family members who now share ownership between them succeeded in ousting their chief executive, Barry Dale — brought in only 18 months ago to mod- ernise the group and mastermind its response to the challenge of the National Lottery. Dale's office is reported to have been bugged by the family, and his chief executioner, Lady Grantchester, one of Sir John Moores' daughters, is now said to favour her own 39-year-old son James to head the company. In the circumstances, she will certainly find it difficult to recruit anyone suitable from outside.

The case is unproven as to whether commercial acumen is passed through the genes just as much as, say, musical gifts. Sheer intelligence may be inheritable, but most aspects of business skill, having to do with intuition, grit, judgment and appetite for risk, seem more likely to be the prod- ucts of environmental conditioning. A myriad of successful examples proves that anyone can do it, whatever their birth or background, and the worst mistake the inheritor of a business empire can make is to assume that he or she is automatically best qualified to continue to run it except, perhaps, in the backward-looking sense of being the person most likely to know how the deceased founder might have wanted things to continue.

No, for those great-grandsons who feel no burning urge to conquer new commer- cial frontiers and put in a 14-hour day at the office, the answer is to entrust the business, before the rot sets in, to thrust- ing professionals who do feel that urge. And, like past generations of the Baring clan, they should exchange enough of their have a fine, and I'm fining in the morning, and I'm fining in the evening, all over this land.' stake for land and other fail-safe assets, which make them impervious to the future fortunes of the family business and which will continue to fund whatever it is, whether sybaritic or philanthropic, that they would rather be doing.

There are plenty of contented grandees whose surnames reveal a connection with sweated industry in the not-too-distant past: the late Viscount Wimbourne, for instance — family name Guest of the great Midlands metal-bashing company Guest, Keen & Nettlefold, and descendant of one of Britain's first iron-founders — who, hav- ing retired from the mastership of the Pytchley, divided his life in tax exile between two homes in France, an ante-bel- lum mansion in Virginia, a sporting proper- ty in Scotland and a yacht in the Mediterranean. And why not, indeed, if a hard-working ancestor has left you the means to do it?

But if you would rather keep working in the family business, there is one particular- ly fine British example to be followed. Almost as far as it could possibly be from the City of London, is Baxters of Speyside, under the leadership of 76-year-old Gor- don Baxter, with his wife Ena (the one who tastes Baxters soups in television adverts) and his three children — who are, geneti- cists may care to note, all adopted, and all competently filling senior positions in the business. The business is worth at least £60 million, but Gordon is proud to have turned down more than 170 offers to buy the family out and reduce them to a tartan brand-name — offers from every giant multinational corporation from Heinz to Colgate-Palmolive.

The Baxter recipe may be Scottish and frugal to a rather extreme degree, but it works: all the shares are held by the imme- diate family, they borrow no money from banks, and they have never attempted to diversify or acquire other companies. They control every tiny detail of the business, from flavour to packaging; it is impossible to imagine, for example, a Baxters employ- ee breaking the company by going berserk on the potato futures market. No one can tell the Baxters that they ought to make way for professionals; they are the profes- sionals, gradually developing a business founded by Gordon's grocer grandfather and continued by his parents, who invented that icon of the 20th-century larder, canned Royal Game Soup.

As to money, they have more than enough, in a comfortable Scottish way, but as Gordon says, 'We don't have yachts and we don't have mistresses.' The secret of a strong dynastic business, it seems, is not to let the wealth which results become more important than the business itself: when it does, it's time for the family to make the most of their wealth, but let someone else run the business. 'Where's Mrs Heinz?', Gordon Baxter asks gleefully. 'Collecting French Impressionists. Where's Mrs Bax- ter? In the kitchen making soup!'