Monday, January 20, 2020

What do wineries, corporations and Benedictine abbeys have in common?

This title sounds like click-bait, but it is not, as you will discover below — the question is real, as is its answer.

A decade ago, the Journal of Management History published an interesting paper by Katja Rost, Emil Inauen and Margit Osterloh, entitled “The corporate governance of Benedictine abbeys: What can stock corporations learn from monasteries?” (2010 16: 90-115). This unlikely topic was explained thus:
Objective: to analyse the governance structure of monasteries, to gain new insights, and apply them to solve agency problems of modern corporations ... The paper uses a dataset of all Benedictine abbeys that ever existed in Bavaria, Baden-W├╝rttemberg, and German-speaking Switzerland, to determine their lifespan and the reasons for closures. The governance mechanisms are analyzed in detail ... [Results:] The monasteries that are examined show an average lifetime of almost 500 years, and only a quarter of them dissolved as a result of agency problems. This paper argues that this success is due to an appropriate governance structure that relies strongly on internal control mechanisms, [based on] the tendency to promote groupthink, the danger of dictatorship, and the life-long commitment ... Benedictine monasteries and stock corporations differ fundamentally regarding their goals.
Abbey of Mont Saint Michel

You can read the paper if you want more details, but the three points that the authors highlight do seem to be fundamental differences between corporations and monasteries. My point in this blog post is to note that the same differences can exist among wineries, some of which survive and some of which end up being “dissolved” in various ways (frequently by a corporate predator).

The essential point, I feel, is the one about life-long commitment. This is a feature of many religious groups, of course, who therefore have had longer-term effects than have most other groups (eg. Centuries later, Jesuit missions in South America are still strengthening communities). Wineries cannot claim the same social value as can educators, but a number of their creators have tried to generate similar longevity.

I have discussed before that Keeping the family wine business is often hard. I noted that, throughout much of the world, vineyards and their associated wineries are often family-run concerns, either small or large, but that most family wineries outside of Europe are still in the hand of first-generation owners. I used some data from Australia to explore this point in more detail.

Sadly, things have gotten worse in Australia, with the recent news about fincancial problems at McWilliam’s, which has been family owned for 6 generations (143-year-old McWilliam’s Wines falls into administration). McWilliam’s was one of the founders of Australia’s First Families of Wine, a group of 11 of the oldest “family owned multi-gernrational” wineries. The problems seem not to have been short-term (see McWilliams Wines in receivership).

Succession problems are not a feature only of wineries, of course. In a discussion of Porto’s Bakery, in Los Angeles (How long lines keep Porto’s Bakery affordable — and growing), we are told that: “Only 30% of family-run companies hand off a business from the first generation to the second. Only 12% make it to third generation, and less than 5% make it to the fourth generation.” Indeed, not many winemaking families still exist in America that have been serially and continually involved in the wine industry for more than three generations (see 3 years of hurt on horizon, but despite challenges wine remains relevant).

Family businesses are reported to account for 64% of U.S. gross domestic product, generate 62% of the country’s employment, and account for 78% of all new job creation (see America’s economic engine). Moreover, family firms apparently out-perform non-family firms, economically. On the other hand, family-firm CEOs seem to earn on average nearly 10% less than their non-family counterparts (see Family Business Alliance).

Monastery of the Holy Trinity, Meteora

As Nick Butler recently noted:
We’re all quite familiar with stories of the rise of family empires, with one hard-working, founding generation handing over a burgeoning business to a second, equally hungry and focused one ... Sadly, we’re also quite used to the disintegration of those powerhouses when an entitled third or fourth generation gets their hands on the steering wheel. There is a genuine art to succession and longevity, in any business.
One basic issue, I suppose, is often that children see how hard their parents work, and few of them then choose to work just as hard, in the same business. Agriculture, in particular, has undergone a personnel drain since the beginning of the Industrial Revolution, with more and more people moving off the land and into a city. Indeed, the European Commission’s EU Agricultural Outlook report recently commented on: “the increasing abandonment of small vineyards due to ageing farm owners and/or difficulties to compete on the market.”

Family business succession can, of course, be planned. In the recent reports about the death of Beaujolais wine-producer Georges Duboeuf, it was noted that he retired only last year (at age 85). This certainly represents a life-long commitment, but it is not a way to ensure a family succession. The idea is to generate life-long commitment in the next generation, not keep them at bay for decades.

Wealth-planning companies suggest the following (Family business transitions: rising to the challenge):
  1. Develop a plan and process to prepare the next generation of leadership, as this can improve the odds of a successful transition
  2. Learn specific steps you can take to overcome two of the most common roadblocks:
a. The next generation is not interested or prepared to lead the business
b. Leadership has not planned or prepared for the leadership transition.

Monasteries do not have to concern themselves about direct succession, of course, but only about an on-going source of novices, each of whom will make a life-long commitment. They still exist in the modern world, although there are many fewer than there once were. Monarchies have also usually been quite good at organizing successions, in a very strict manner — although the unusual longevity of the current British (and Australian) monarch seems to be creating succession problems. There are many fewer monarchs these days, as well.

On the other hand, there are many more wineries now than ever before — but they are not nearly so good at succession, as recently pointed out by Betsy Andrews (How vintners in Sonoma County are tackling succession planning). So, maybe there is a better lesson to be learned from monasteries, rather than from corporations.