Families and fortunes

Accumulation, management succession and inheritance in wealthy families

Michael Gilding
Swinburne University of Technology, Australia

Abstract
Since the managerial thesis (notably Berle and Means classic study), the role of the family in capitalist enterprise and organization has often been viewed as an anachronism, the remnant of an earlier era. This article uses qualitative interviews with wealthy Australians to argue that family relationships are an enduring inuence in relation to accumulation, succession and inheritance. There are two reasons. First, the decline of family control in big business is not just a historical event, but also an ongoing event that informs the passage of most entrepreneurial businesses as they grow in scale and complexity; hence the enduring inuence of nepotism in large companies such as News Corporation. Second, a variety of considerations including dynastic ambitions, tax minimization and trust encourage family members to cooperate in the management of inheritance through family business institutions, from family holding companies to family ofces. These family business institutions possibly reect the rise of network forms of organization grounded in personal trust, at the expense of large companies. Keywords: accumulation, capitalism, family, family ofce, inheritance, management succession, wealth

Each year the business magazine Business Review Weekly (BRW) compiles a list of the Rich 200 in Australia. As far as possible, this is a list of the richest 200 individuals in Australia. Yet it is not entirely so: hence the ambiguity of the phrase Rich 200. There are in fact two lists in the Rich 200: the longer one consisting of individuals, the other of families. Even then, there remains ambiguity. Roughly one-tenth of the entries in the list of individuals actually consist of more than one individual, invariably related through kinship: spouses, siblings and multi-generational groups.
Journal of Sociology 2005 The Australian Sociological Association, Volume 41(1): 2945 DOI:10.1177/1440783305050962 www.sagepublications.com

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There is no doubt that BRW would prefer to make the individual its unit of analysis. It is more consistent with the underlying narrative of the Rich 200: that any individual can become super-rich in Australia. Accordingly, on one occasion BRW heavily culled its list of families, transferring entries to its list of individuals. Yet the problem is intractable. Ultimately BRW is listing fortunes or, to put it in more colourful language, piles of money. The problem is that fortunes are rarely vested in individuals alone. For a variety of reasons notably, tax minimization, business partnerships, the terms of inheritance, and protection against bankruptcy and criminal proceedings they are usually spread out among groups of individuals. Most commonly, these groups of individuals are related through kinship. Ultimately it is a qualitative judgement on the part of the compilers of the Rich 200 as to when a particular individual exercises such control over a fortune as to make it an individual fortune; when an individual fortune has become dispersed enough to count as a family fortune; and when a family fortune has became so dispersed as to become a number of individual fortunes. This article uses the BRW Rich 200 as a launching pad to examine the institution of the family and its enduring inuence in the accumulation and transmission of wealth. First, it addresses the long-standing literature concerning capitalism, the capitalist class and the family. Second, it describes the methodology of this article, based upon interviews with 43 individuals drawn from the Rich 200. The article then addresses the enduring inuence of family relationships in wealth accumulation, management succession and inheritance. This inuence is exemplied in a complex of family business institutions, ranging from family businesses, to family investment companies, to family ofces.

Capitalism, the capitalist class and the family

The family was once at the heart of capitalist enterprise. Family businesses were the units of production and accumulation, with one of the satisfactions of ownership being the family name by which the business was known. Succession was guided by family continuity, creating dynasties across generations. Many historians now describe this era in terms of family capitalism (Rose, 1995). In the 1920s Adolphe Berle and Gardiner Means documented a fundamental shift in the ownership and control of large companies. Public companies, in which shares were bought and sold through the stock exchange, had broken the nexus between ownership and control. The dispersal of share ownership had progressively undermined the inuence of owners, notably family dynastic groups. Instead, there had emerged a new class of professional managers, who depended upon training and technical skills rather than birthright or family connections for their position (Berle and

Gilding: Families and fortunes 31

Means, 1968). By the post-war decades, Berle and Means managerial thesis had become an orthodoxy; not just in the United States, but in other English-speaking countries such as the United Kingdom and Australia (Burnham, 1945; Wheelwright, 1957; Baran and Sweezy, 1966; Galbraith, 1969). It was also the basis for more wide-ranging arguments across the political spectrum about the irrelevance of the family in relation to the organization of the capitalist class (Bell, 1960; Playford, 1970). In this context the role of the family in capitalism was regarded as something of an anachronism, the remnant of an earlier era. From the 1980s, the managerial thesis came under growing critical scrutiny. Researchers argued that the thesis was not generalizable beyond the USA, or perhaps the English-speaking societies (Wong, 1985; Redding, 1993; Whitley, 1994); that direct family control through majority ownership had given way to control through a constellation of interests (that is, loose groupings of major shareholders), rather than management control (Scott, 1979: 73, 1990: 360); and that the anti-managerial counter-revolution of the 1980s had resulted in the reassertion of owners at the expense of managers in any case (Useem, 1996; DiMaggio, 2001: 202). More generally, diverse lines of inquiry drew attention to network forms of organisation (Powell, 1990; Podolny and Page, 1998), making it difcult to know where the rm ends and where the market or another rm begins (Powell, 2001: 58). In other words, the rm might once have been an appropriate unit of analysis (as assumed by the managerial thesis), but this was no longer the case. During the same period, several distinctive and somewhat marginal lines of inquiry challenged the managerial thesis in terms of its account of family control in English-speaking societies. First, some neo-Marxist sociologists observed the enduring inuence of the family at the top levels of business and society. In particular, the US sociologist Maurice Zeitlin anticipated debates around network forms of organization when he described large corporations as administrative units of social capital. More specifically, the basic units of capital were not large companies, but rather principal capitalists, engaged in the competitive struggle for prot and organized in various forms of alliance and combination, including companies and family spheres of inuence (1989: 44). From this perspective, family groups and companies were both nodes within networks, deployed according to circumstances. In turn, family spheres of inuence operated both within and between companies, involving a complicated structure of family and charitable trusts and foundations (1989: 278). In the same spirit, another US sociologist Marvin Dunn documented the emergence of a new institution, the family office, responsible for managing the nances of wealthy families whose economic power would otherwise dissipate as the fortune was transmitted across generations. The family ofce, Dunn observed, functions to perpetuate internal and external

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coordination of the family fortune. It achieved internal coordination among the extended family through the management of joint stock holdings, holding companies, trusts and foundations. It achieved external coordination through its links with other social institutions in society, such as corporations, political parties, and the institutions to which foundations give (Dunn, 1980: 43). Rather than having been broken up, he argued, the upper-class family and its mechanisms of control and cohesion have taken on new organisational form (1980: 18). Second, there was a burgeoning literature mostly by business academics on the scale and dynamics of family businesses (Rosenblatt et al., 1985; Family Business Review, 19872003; Connolly and Jay, 1996; Gersick et al., 1997; Smyrnios et al., 1997; Neubauer and Lank, 1998). The point of departure for this literature was the generally unacknowledged scale of family business. Family control still operated among a small number of large companies: in Australia, News Corporation (the Murdoch family), Westeld (the Lowys), PBL (the Packers) and Visy (the Pratts) are well-known examples. More to the point, most small and medium-sized enterprises were family businesses. For example, one Australian study estimated that family business constitutes about 70 per cent by number of the total of Australian companies, employs more than half of the private enterprise workforce, and provides the majority of growth and employment increase in the Australian economy (Connolly and Jay, 1996: 32). The literature then proceeded to address new types of problems and issues in the management of family businesses. In particular, it elaborated on strategies for reconciling divisions and conicts in family businesses, including the family ofces documented by Dunn. For example, John L. Ward one of the pioneers of family business research in the USA explained how family businesses faced new challenges in reconciling family and individual ambitions, giving rise to new vehicles or institutions:
The overriding challenge is how to integrate the need for business continuity and the need for personal independence. Many vehicles help reconcile this contradiction. Leading and governing this process of reconciliation is the central task for the family. Happily, committed families can learn from other families pursuing the same dream. (Ward, 1988: 5)

As it happened, the neo-Marxist literature on family spheres of inuence zzled out. This was one aspect of a general falling away of sociological research about class, power and wealth in the 1990s (Gilding, 2004: 128). On the other hand, the business literature on family business went from strength to strength, but barely made a mark in the social sciences. Ultimately neither line of inquiry undermined the orthodoxy originating with the managerial thesis that the family is an anachronism at the top levels of business and society. Both of these lines of inquiry provide an important point of departure for this article, drawing attention to the

Gilding: Families and fortunes 33

enduring inuence of family relationships in the accumulation and transmission of wealth.

Method
The research for this article involved interviews with 43 individuals drawn from the 1999 edition of the BRW Rich 200. The Rich 200, like comparable lists in the USA and UK, is based on public information and necessarily reects the limitations of such information. Even so, it provides the best available prole of the largest personal fortunes in Australia (Gilding, 1999: 16976). In turn, it provides scope for exploring family dynamics in relation to wealth accumulation and succession. The 1999 Rich 200 consisted of 174 individual fortunes and 27 family fortunes, making 201 fortunes altogether. Of the individual fortunes, 19 (11 percent) actually listed more than one individual, all related through kinship. As already observed, methodological difculties in compiling the Rich 200 highlight the intractable inuence of kinship in wealth accumulation and transmission. The largest fortune in the 1999 Rich 200 was that of the media magnate Kerry Packer, valued at A$6.8 billion. The minimum point of entry was A$75 million. Most of the fortunes were of relatively recent origin, assembled by entrepreneurs who began with small businesses. Of the 201 fortunes, only 20 (10 percent) had their beginnings before the Second World War. Of the 174 individual fortunes, 56 (32 percent) were accumulated by entrepreneurs who had been born overseas. The main vehicle for two-thirds of the fortunes (134, or 67 percent) was a private company (such as Richard Pratts Visy Industries), rather than a public company (say, Frank Lowys Westeld Group). In other words, large public companies as described by Zeitlin were not necessarily as effective for wealth accumulation by principal capitalists as smaller private companies. Altogether I contacted 110 persons drawn from the 201 individuals and family groups included in the 1999 Rich 200. Of these 110 persons, 95 were listed by name as the owners of individual fortunes and 15 were substantial stakeholders in family fortunes. Of the 110 persons contacted, 43 individuals (39 percent, or 22 percent of the Rich 200) agreed to be interviewed. Of these 43 informants, 33 were listed by name for separate individual fortunes, while the remaining 10 were substantial stakeholders in family fortunes. Of the 43 interviewees, 39 were men and 4 were women; their median wealth was A$128 million; their median age was 56 years; 39 (91 percent) had fortunes that were assembled during the post-war era; 38 (88 percent) were born in Australia; 28 (65 percent) were based in the two major cities of Sydney and Melbourne; and 26 (60 percent) had fortunes that were held mainly through private companies. Table 1 makes a comparison between

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Table 1: Selected characteristics of listees on the Rich 200 and respondents Rich 200 N = 201 Wealth (median A$millions) Age (median)* Men (%)* Born in Australia (%)* Based in Sydney or Melbourne (%) Fortune made since Second World War (%) Mainly held in private company (%)
* Individual listings only (not family listings).

Respondents N = 43 128 59 93 84 65 91 60

145 62 95 68 72 90 66

the sample of interviewees and the population of individuals and families listed in the Rich 200. Only individual fortunes are compared in relation to median age, sex and birthplace. The one characteristic where there was substantial difference between respondents and the larger population was place of birth. Of individuals listed in the 1999 Rich 200, 68 percent were born in Australia; of individuals invited to participate in this study, 76 percent were born in Australia; and of those who agreed to participate, 84 percent were born in Australia. By implication, this study is biased towards Australian-born entrepreneurs. Of the 43 respondents, 31 requested that the interviews were condential and 12 all of them rst-generation entrepreneurs did not. All of the names used in this article are pseudonyms, for the sake of consistency. Identifying information has been removed for all respondents who requested condentiality. It has not been removed for those respondents who did not request condentiality, in order to preserve the richness of the data. Interviews addressed the family dynamics of wealth accumulation, family succession in the management of businesses, and family succession in the ownership of the business and the fortune. Questions were mostly openended, followed up by probing where appropriate. Interviews varied in length from 45 minutes to three hours, with most lasting about 90 minutes. They were taped and transcribed, with one exception (as required by the respondent) where notes were taken. They were then coded on the basis of family involvement in the business, family management succession and ownership succession.

Accumulation
Families inform wealth accumulation because, as the family business literature observes, family relationships are pervasive in small and medium-sized

Gilding: Families and fortunes 35

enterprises. Some of these small and medium-sized enterprises go on to become large enterprises in the lifetime of the founder: for example, Frank Lowy and John Saunders continental delicatessen in Sydneys western suburbs (the global Westeld shopping centres) or Andrew Kellys stall at the Sydney Markets (Stratheld Car Radios). Alternatively, some of these small and medium-sized enterprises become large enterprises over several generations: for example, the Brown family farm-turned-winemaking business, or the small paper factory established by Richard Pratts father. Of the 43 respondents, 27 (63 percent) founded the businesses on which their fortunes were built. Of these founders, 15 (56 percent) had worked alongside family members (spouses, parents, children, siblings and in-laws) in the course of building their businesses. Respondents described how family members were prepared to work long hours for small rewards, putting prots back into the business. Family relationships meant that family members trusted their sacrices would eventually be repaid. For example:
We [husband and self] thought, Well heres an opportunity So we set up the manufacturing in my mothers living room and [my husbands] mothers living room, and coerced all the family members to help. (Isabel Downer) We [brothers and cousins] ploughed the dividends back into the business. We paid practically nothing in the way of dividends. (Harold Jackson) We [father and brothers] didnt even take home the basic wage for many years. We kept the money in the company and just built it, and built it, and built it. (George Montgomery)

Another six respondents had joined small and medium-sized family businesses and then played a major role sometimes the main role in building the business. They necessarily worked alongside parents, often siblings, and sometimes uncles, aunts and cousins. For example:
The hardest step in going into business is the rst step. I thought, well, there was my father with this business why didnt I go back and join him? I joined my father and worked with him. At that stage, he only had one employee. So when I joined him, we doubled our workforce. (Ernest Rowley) [My fathers] ambition was more about survival. When I joined him, the staff numbers went from ve to six. (John McAdam) See, I worked closely with my father. The company, at the time I got involved, was fairly small. We probably had a staff of about 20 people or something of that nature. There was no management structure as such. He was the boss; everyone else was the worker. You know, the opportunity to work at his right hand was there. (Tom McKay)

Management succession
Most small and medium-sized family businesses have a short life. Only a small proportion are passed on to the second generation, and an even

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smaller proportion make it to the third, fourth and fth generations. Nonetheless there are some well-known examples of substantial sometimes very large multi-generational family businesses in Australia, where children still follow their parents into management. These include Brown Brothers wine-makers (ve generations), the Michell familys wool processing business (ve generations), Kerry Packers PBL (four generations) and Rupert Murdochs News Corporation (three generations). Of the 43 respondents in the current study, 31 (a remarkable 72 percent) had personal experience of management succession; either through joining the business of their parents or bringing children into their own business. Eighteen respondents (42 percent) had joined their parents business at some stage; 14 (33 percent) had at least one child currently in the business; another 6 (14 percent) had once had at least one child in the business. Even those who had not brought their children into the business sometimes expressed a natural desire (as one respondent put it) for family succession. Perhaps the fact that management succession was regarded as a natural desire meant that respondents did not feel much need to elaborate on the case for family management succession. When they did elaborate, respondents observed that a family management team was more cohesive, more motivated, and more able to take risks than professional managers. For example:
By management, for management! Thats why I want my kids to come in, because I dont have a high opinion of professional management. (Tony OKane) So in theory you get more commitment from the family, more energy, more loyalty, and the strong carry the weaker. Thats understood in the family. Theres more stability. You can have more Japanese long-range planning. Theres not every six months, we have to report to the bloody Stock Exchange. We can waste some money or invest some money for ve years down the track. (Tim Cohen)

In fact, respondents were much more forthcoming about the difculties with family management succession. For rst-generation founders, there were two main concerns. First, they worried about the effects of management succession on their children and their relationship with their children. Second, they worried about the effects of management succession on the business (and the fortune). They were concerned that their children might not have the skills or motivation to operate the business effectively. In any case, the growing scale of the business made it increasingly difcult to bring children into the business without damaging staff morale. For example, Gerald Singer, who had decided against management succession for his children, reected:
Our genuine feeling is that, two things. One is that the rm needs to be professional at the extreme level. Once youve introduced somebody without the skills, simply because hes your son or daughter, it creates a totally different environment

Gilding: Families and fortunes 37

The second thing in terms of succession and so on I believe that the best thing you can do for your children is a good education and some help.... They need to have their own skills and their own sense of value for themselves.... If you look at the Gettys and various other families who went totally discombobulated, you know, resulted in disasters for the individuals!

Second, third and fourth generation respondents were even more eloquent about the practical difculties of family management succession. The more generations, the more this was so. These respondents had always held a stake in the business alongside other family stakeholders. Accordingly, they had always been obliged to negotiate with other family members to greater or lesser extent. Respondents described a variety of family tensions and conicts around management succession: notably, role confusion between business and family relationships; conicting interests between different branches of the family, and between those who joined the business and those who did not; autocratic management at the expense of sons and daughters; and family members who had not earned their positions and did not have the skills to run the business. For example:
At that time I didnt understand the important role my father had in adjudicating those [resource] decisions. When it became my job to make the decisions, my brothers were not at all ready to do that and they still defaulted to my father. I was given the responsibility of running the business, but not the authority to make the decisions. (John McAdam) One of the troubles you get in families is that everyone knocks off work.... Really my brother hasnt worked for 40 years. (Keith Lumley) I had the beginnings of a psychotic depression soon after I joined the company, which I think was really triggered by a feeling of hopelessness and a lack of mentoring. (George Middleton)

In the context of ambivalence, there was enormous diversity as to whether respondents wanted their children to join the business, and as to whether their children wanted to join the business. Some respondents did not allow their children the option of joining the business; some allowed their children to join the business with reluctance; some tried to bring reluctant children into the business; in some instances both respondents and their children acted in concert to bring about management succession, albeit in a variety of ways. For example:
My strong feeling is that we wouldnt have nepotism in the rm. (Gerald Singer) I wasnt successful [in persuading my children to join] no. Disappointed, probably, yes. Many times I lie in bed and try to read a book, but yes, disappointed. My children know that, but they look at it differently. (David Langer) I gave all these businesses to my son, when he was 23. Most people want their family in their business. I always played the game, I dont want you in my

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business. Right? Simply because its like wet paint, then they want to touch it. (Bob Thompson)

Notwithstanding diversity, the overwhelming majority of respondents 34 out of 43 (79 percent) did not expect their children to take over the management of their businesses. Some respondents had already sold their core businesses on this basis. For example, Kevin Poster described how he and his brother decided to sell the second-generation family business on account of the next generation:
Some will want to go into the business; some will want to go and do other things. We believed that, in the longer term, it wasnt fair to have them all dependent on one family business and have some working in it, some not in it. The potential problems of that!

Even those respondents who were most strongly committed to family management succession did not expect the business to stay in the family for more than one or two generations. Tom McKay, for example, described how he had a bit of a job persuading them [his children] to come into the business. His youngest son was saying, Ill come into the business now, but I dont know whether Im going to stay in the business. Similarly, Bill McAdam, who had established a structure of family business institutions (including a family constitution and a family assembly) in order to formalize family management succession, explained:
I have two grandsons. Id be surprised if its still a family business by the time that they get into it, in another 20 to 25 years time. The next generation of cousins are going to have to nd a way of working together. I really cant see that happening, by the time they marry into lawyers, or accountants, or into other disciplines, where people want to get out and take their share.

There is a sense in which respondents narratives reafrm the decline of family control, as rst proposed by the managerial thesis. Yet the management thesis presented the decline of family control in historical terms, occurring progressively between the late 19th and mid-20th centuries. In fact, the decline of family control is not just an event in the past. Rather, it is an ongoing event, informing the passage of most entrepreneurial businesses as they grow in scale and complexity. It is on this account that the majority of respondents have grappled with family management succession in personal terms. It is on this account also that family management succession and nepotism remain enduring issues at the commanding heights of the economy, as reected in PBL, Westeld and News Corporation.

Inheritance
The transmission of large estates across generations usually requires the consolidation of the estate at the point of generational transfer. In aristo-

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cratic English society the vehicle for such consolidation was the institution of primogeniture; that is, leaving the estate in the hands of the oldest male son (Flandrin, 1979: 242). The continuation of most famous family business dynasties in Australian society for example, the Fairfaxes and the Clarkes has usually involved a degree of consolidation; if not in the hands of the oldest son, then at least in the hands of those sons who were actively involved in the business (Clarke, 1946; Souter, 1991; Gilding, 2002: 13448). Consolidation meant that the family business and the family fortune were not split between different branches of the family, thereby facilitating management and ownership succession across generations. Overwhelmingly, respondents in the current study (38, or 88 percent) planned to leave the larger part of their fortunes to their children. More than this; they overwhelmingly (40, or 93 percent) upheld the principle of equal inheritance among children, including daughters. They also consistently emphasized that the family estate and the family business should not stie childrens capacity for independent action. The individual was a constant point of reference in the course of interviews. For example:
I think that [unequal inheritance for sons and daughters] is appalling. Every one of my children or every one who has my blood will participate in it dead-set equal. (Bob Thompson, 1st generation) I think that were individuals, and we all have different goals, aspirations and preferences. This business of trying to harness them [children], or putting them in some shape or form isnt realistic. I mean, we are moving into a very individualistic age, I think. (Darren Kennedy, 1st generation) Having broken that chain [of family succession in the business], I dont think that there should be any obligation for them [my children] to go in here [the new family business] after me, or anything like that. Theyre individuals. Theyve got a life to lead. (Alexander Waterman, 3rd generation)

In this context, respondents were more concerned with transmission of the family fortune than transmission of the family business whether its management or its ownership. Indeed, protecting the fortune sometimes meant selling the business. Of the 43 respondents, 18 (42 percent) no longer had the larger part of their fortune in the original business; at least 16 (37 percent) had private investment companies that managed a diversied portfolio of investments; and 12 (28 percent) had already divested the original business. In their own words:
When youre a smaller size, you work like hell to try to build up and you have all your money in one asset or one business. When you get over a certain size, then youve got to stand back and say, Does that still make sense? (Kevin Poster) Nearly all the wealth was in the business. You couldnt risk it forever. It was time to take some money out you know, playing it safe.... We thought, Let it go! (George Miriklis)

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Diversication and divestment also facilitated the formation of exible vehicles for the division of the estate among children. Ernest Rowley, for example, described the transition from a private family company to a public company, controlled by a family holding company. The transition was probably mostly driven by succession: our family came to the realization that I wasnt immortal. One of the biggest issues for the holding company was how much of the familys assets should be tied up in the one entity:
At the moment, we have a disproportionate amount of our assets tied up in the [public company]. If you go to any nancial adviser, hell tell you, Dont have all your eggs in one basket. If we followed that advice, wed sell out most of our shares in the company. But emotionally, a number of the family members dont want us to do that. The staff dont want us to do that. I dont particularly want us to do that. So while Im head of the family that wont happen. But when I die Id be surprised if, within another decade or even less, they dont sell down the shares in the company quite substantially. But at least we have a vehicle where they can do it easily, and reasonably, and fairly.

James Armstrong, a fourth-generation respondent, addressed the same issues in more general terms. Family businesses, he observed, were like family farms insofar as they were both tight structures. Family members all had to work there and wait until Dad dies or something: all the capital is there, and theres no income, so youre really stuck. Tight structures could be extraordinarily stressful. On this account the best chance of going forward was in setting up a very loose structure.
What you see with generations is that people, when theyre setting up in a generational sense, move away from their original business. They move to structures which are much broader investment companies. Youve seen the Lowys do it. The Myers have done it. Theyve built investment companies outside the core business, and thats for exibility.... At the end of the day, you can foresee that in a generations time the original business is almost irrelevant.

Respondents accounts of the shift from tight structures to loose structures are consistent with the diminishing role of the family in capitalist enterprise, as rst proposed by the managerial thesis. After all, loose structures allowed individual family members to follow their own interests and preferences, irrespective of family continuity. Yet the dynamics are more complex than this. Respondents also described enduring tendencies towards the creation of family business institutions, concerned with the management and distribution of the estate. The following discussion of these tendencies is necessarily tentative, given that respondents were often reluctant to elaborate on inheritance arrangements. Even so, respondents identied at least three important dynamics leading to family business institutions and ongoing involvement among family members. First, there was the will in both senses of the word of the founder (and to a lesser extent, the founders descendants). Respondents set limits

Gilding: Families and fortunes 41

on the dispersal of the fortune among individual children: partly because they still harboured a dynastic ambition of sorts; partly because they feared that their children might squander the fortune; and partly because they feared that the fortune might damage their children, affecting their initiative, self-esteem and social relationships. For example:
Ive got too much wealth! If I said to any of my children, Heres $10 million, I think they wouldnt know what to do with it. They wouldnt be capable of controlling it. When theyve got hundreds of millions of dollars, its a bigger problem still. (Bill Pease) I said to the kids, Whats in the family trust passes on. You physically wont own that ever. Youll be a beneciary and you might end up being trustees of the trust, but its not your asset. Its not my asset. Its not Mums. Its there to exist as an entity in its own right. (Craig Thomas)

In turn, some respondents created family trusts and philanthropic foundations, whereby children and their descendants would necessarily be involved with each other. Bill Pease, for example, did not want his children to follow his footsteps in the management of his diversied private business empire. Nor would they be able to sell their stake in the empire. At the same time, the children and their lineal descendants were the major beneciaries of his estate and could expect an income for life. Pease described his model as something like the Rockefeller Foundation, and these types of things:
Theyre big families and theyve managed to keep going, without any particular Rockefeller running the thing. I think this will go on the same. I dont know. Mine [the fortune] will go on forever, as far as Im concerned. It will be one of those fortunes that will multiply indenitely. I think that weve got the perfect system, but I dont know.

Similarly, Sam Walters a third-generation respondent described how the complicated will of his grandfather had led to a complex of family business institutions, including family philanthropic foundations, annual family assemblies, a family charter of values, a family council, and a family ofce where the business and philanthropic activities of the family were coordinated. The term family ofce, he reected, was a term imported from the United States, but weve come to use it ourselves:
Originally there were just one or two advisers, accountants and nancial managers.... But recognizing that we all had a common business legacy and an ongoing philanthropic duty, we decided that it was best to try to create a space where these organizations could be together.... With requests for services from other family members who were living outside the city, or interstate, or overseas for a while, they wanted one central point of contact, and it has just grown organically from there.

A second dynamic that promoted the creation of family business institutions was tax minimization. In earlier times this consideration encouraged

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wealthy individuals to transfer their assets to their children before death. For example, Ernest Rowley explained that he did not have any assets at all, apart from the clothes Ive got on and a few things, notwithstanding his individual listing on the Rich 200:
Because 30 or 40 years ago, I gave it all to my kids. That was because at the time we had death duties, and so there were terrible situations particularly for farmers, but for anyone in business.... Farmers were often bankrupt, even though they owned farms that were worth several million dollars. Thats because their wealth varied tremendously with the business cycles. Businesses such as I had were very difcult to value. Also, they vary like that. To avoid that, I essentially gave all my wealth to my kids, so that when I died, I wouldnt have anything.

The removal of death duties in the 1970s meant that there was no longer cause to transfer assets to children. By the same token, capital gains tax introduced in the 1980s has (in Rowleys words) almost taken the place of a death duty. Capital gains tax promotes the formation of entities such as family holding companies and family trusts, such that the death of the owner does not crystallize the capital gains of the business. In turn, family holding companies and family trusts require family members to work alongside each other. For example, Rowley described the involvement of all his children as directors of the family holding company:
We have regular board meetings. Some of the most interesting company debates are in the family company; its much more interesting than the public company. Directors meetings theyre dull by comparison, I can tell you!

The third dynamic that promoted the creation of family business institutions was trust. Just as personal trust underpinned the enduring role of family relationships in small and medium-sized businesses, so it promoted cooperation among family members in the management of family estates. James Armstrong, for example, observed that whereas trust once depended on shared institutional background (such as schools, clubs and boards of directors), it now depended more on personal relationships. In his own words: Its not necessarily coming through some sort of wider association, its much more through individuals. Following this logic, he had not joined the boards of public companies, unlike his fathers generation. In his fathers day, the owners were the owners. Nowadays the owners were the Australian institutions; the Australian Superannuation Council, and so on: they can look after themselves. Instead, he had created a family ofce, whereby family members were able to work together and pool their resources. The family ofce, he observed, has the exibility and characteristics to go on for some generations if thats what people want. In his own words:
The thing is: for a family thing to go on, everybody who is in it has got to want to be in it. For a family shareholding, its very difcult. Essentially, the investment company portfolios its very easy: you can either take your portfolio away, or put it in, or put part of it in. That exibility means that there are not the stresses

Gilding: Families and fortunes 43

involved, but you can combine to get the benets of pooling resources, and administration, and talents and so on.

In this context, the family ofce becomes one node within a network of companies and other entities, promoting family interests within and between companies. Family investment companies, family holding companies and other family business institutions can be understood in similar terms. This is consistent with Zeitlins account of family spheres of inuence, notwithstanding the decline of family control in large companies. It is also consistent with network forms of organization, ascendant since the 1980s. By implication, the upper-class family and its mechanisms of control and cohesion have taken on new organisational form, as described by Dunn (1980: 18). By the same token, the new family business institutions are not the functional equivalent of earlier institutions. They place more weight on individual autonomy (for sons and daughters) at the expense of family continuity. In turn, they are contingent, exible and voluntaristic. Or, as Armstrong observed, they are loose structures: everybody who is in it has got to want to be in it.

Families, accumulation and succession

There is no doubt, as the managerial thesis rst proposed, that family control has declined among the largest companies in capitalist societies. As businesses become larger and more complex, there is a tendency for both management and ownership of the business to pass out of family hands. In turn, loose structures such as holding and investment companies facilitate the dispersal of family fortunes among individual family members. Even so, the decline of family control in large companies does not imply that the institution of the family is an anachronism in relation to capitalist enterprise, or the remnant of an earlier era. There are two reasons for this. First, family relationships are still pivotal in small and medium-sized enterprises, as observed by the family business literature. In turn, family relationships continue to be important as some entrepreneurial small and medium-sized enterprises become large companies. The decline of family control is not just a historical event, but also an ongoing event that informs the passage of most entrepreneurial businesses as they grow in scale and complexity; hence the enduring issue of nepotism at the commanding heights of the economy. Second, family relationships are still pivotal in the transmission of wealth across generations. More than this; a variety of considerations promote family continuity and family business institutions, from family holding companies to family ofces. Wealthy individuals still harbour dynastic ambitions that will shape the trajectories of businesses and families. The taxation system encourages the formation of family entities, limiting the dispersal of family fortunes. There are also enduring advantages of family

44 Journal of Sociology 41(1)

cooperation within loose structures, grounded in trust. The upshot is enduring family spheres of inuence among wealthy families, as described by some Marxist sociologists. It is possible that these spheres of inuence have become more important with the rise of network forms of organization, at the expense of large companies. Briey, family business institutions from family businesses, to family investment companies, to family ofces exemplify the enduring importance of the family in wealth accumulation and succession at the top levels of business and society. By the same token, these institutions are more exible structures than in earlier times, allowing more weight for individual autonomy. This is why the individual is a plausible unit of analysis for the compilers of the Rich 200. It is also why the family presents an intractable problem for the compilers of the Rich 200.

Acknowledgements
The research for this paper was made possible by a Large Grant from the Australian Research Council. I am endebted to Karen Farquharson for her penetrating comments on an earlier draft of this paper. I am also indebted to the constructive criticisms of the anonymous reviewers for JOS

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Biographical note
Michael Gilding is Associate Professor of Sociology at Swinburne University of Technology. He is author of The Making and Breaking of the Australian Family (Allen and Unwin, 1991), Australian Families: A Comparative Perspective (Addison Wesley Longman, 1997) and Secrets of the Super Rich (HarperCollins, 2002). He is currently working on two ARC Discovery Projects: one on biotechnology entrepreneurs in Australia, and another on the creation of a market in genetic paternity testing. Address: Dept of Sociology, Swinburne University of Technology, P.O. Box 218, Hawthorn, Vic. 3122, Australia. [email: mgilding@swin.edu.au]