Putting On Heirs

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The investor role isn't always passive; sometimes it can be passive-aggressive, as the Quandt family has demonstrated. Herbert Quandt acquired a controlling stake in automaker BMW in 1959, when it was in dire straits. His heirs today own 47% of BMW's stock. The children of Quandt's third marriage, Stefan, 36, and Susanne, 40, sit on BMW's supervisory board. In 1999, angered by continuing losses at the automaker's Rover subsidiary in Britain, they ousted CEO Bernd Pischetsrieder in a boardroom coup. In Hamburg, the fate of Beiersdorf (Nivea skin cream) has been uncertain for months because of quarrels in the Herz family, which owns a 30% stake. The biggest shareholder, German insurer Allianz, is looking to sell its 44% stake, perhaps to Procter & Gamble. But the five Herz heirs to their father's coffee fortune can't agree on whether to increase their stake in Beiersdorf or to sell it.

There are many advantages to family ownership: the heirs tend to promote quality products and fair dealings, while taking a long view. But families that control firms that are publicly traded sometimes work to the disadvantage of other shareholders. They often create holding companies and shares with extra voting rights to ensure they maintain control and can block takeovers — even by firms that might better manage the business. The Wallenberg family of Sweden holds major stakes in many of Scandinavia's biggest companies through a holding firm called Investor AB. That publicly listed firm has two classes of stock, one with 10 times the voting power of the other. Guess which class the Wallenbergs have? The family owns 21% of Investor's capital — but holds 45% of the voting rights. And in part for that reason, the firm's shares trade at about a 37% discount to its asset value. Still, a pair of younger Wallenbergs are working to reverse the slide in their family's fortune. What follows is a glimpse of that clan and others where a new generation is leading the business.

Pinault
ARTEMIS

The family's retail empire in PARIS revolves around conglomerate Pinault-Printemps-Redoute (PPR), which controls Printemps department stores and luxury brand Gucci

PPR Stake: $2.8 billion

Francois Pinault wasn't born to money; he hustled his way to the top. From simple beginnings in the timber industry — his father owned a sawmill in Brittany — Pinault built a retail empire that today includes some of the best-known names in France, including the Printemps department store and the FNAC bookstore chain, as well as the Christie's auction house and the famous Bordeaux vineyard Chateau Latour. As part of his recent push into luxury goods, Pinault snatched control of Gucci away from another French tycoon, Bernard Arnault, in a bitter battle that ended up in court. Most of Pinault's assets are held by an investment company called Artemis, named after the Greek goddess of hunting, that is entirely owned by his family. Its biggest holding is a controlling 42.2% stake in Pinault-Printemps-Redoute, a retail and industrial conglomerate whose shares are publicly traded.

Francois Pinault's business tactics are controversial. An avid collector of contemporary paintings who is building his own museum on the edge of Paris, he has made an art out of using multiple holding companies. He has had serious brushes with French tax authorities as well as minority shareholder groups. The manner in which he acquired control of Printemps in 1992, with a public offer for only part of the stock, sparked a change in French takeover law. In California, meanwhile, he is fighting fraud allegations as part of a case involving the French bank Credit Lyonnais and the failed U.S. insurer Executive Life. He is named as a defendant but denies any wrongdoing.

There's no sign that Pinault, 66, is letting up, but he has put in place his family succession. Shortly before his 65th birthday, he announced that he was splitting ownership of Artemis among his three children and designating as his successor his eldest son Francois-Henri, 40. "If I hadn't considered any of my children had the character and competence to succeed me, I would have sold my group," Francois says. "The responsibility is too great."

Francois-Henri worked his way up through several of the family businesses over 15 years, in what amounted to an extended apprenticeship, before his father allowed him to join Artemis in 2001. The two men say that they work closely on decisions but that "it's not a tandem that can last for eternity, because you need only one person in charge," says Francois. Of his son he says, "It's clear he will take the reins." Their biggest challenge now is to earn a return on their $5 billion investment in Gucci at a time of worldwide economic weakness — and to prevent Gucci's star designer Tom Ford and CEO Domenico de Sole from leaving when their contracts expire next year.