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Dynasties’ silent revolution
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30th May 2013

Over the next decade, the largest fortunes in Latin America will be passed on to a younger generation. The transition will transform the way in which business is run in the region. Who will be the successors? And, how will the new leaders differ from their forefathers?

Photos: Slim Domit: Alex Gort productions; Slim: Bloomberg via Getty Images; Sarmiento: CLAUDIA RUBIO/El Tiempo de Colombia/Newscom; Santos Diniz: LatinContent/Getty Images; Gerdau: NACHO DOCE/REUTERS/Newscom; Paulmann: Bloomberg via Getty Images

In Argentina, the country’s third richest man, Gregorio Pérez Companc, is in his late seventies and reported to be in frail health. In recent years, he has gifted parts of his energy and agriculture conglomerate to his wife and seven children.

Colombia’s richest man, Luis Carlos Sarmiento, turned 80 this year and is handing the reins of the family-owned banking conglomerate, Grupo Aval, to his eldest son, Luis Carlos Jr.

The upper echelons of the Brazilian business world are packed with septuagenarians. The country’s richest man (according to Forbes) is Jorge Paulo Lemann, who holds a controlling stake in the world’s largest beer company, Anheuser-Busch. He is 73.

Brazil’s second-richest man, Joseph Safra of the Safra banking and investment group, is also in his seventies. Retail magnate Abilio dos Santos Diniz is 76. And the granddaddy of them all, Aloysio de Andrade Faria, is in his nineties. Listed by Forbes as Brazil’s 15th richest man, he is mostly retired these days, having helped build one of the nation’s largest banking empires.

Over the next decade or so, these men, and many like them, will pass the baton of power to a younger generation. Who will they choose as their successors? How smooth will the transition be? And how will the new, younger men — and increasingly women — differ from their forefathers? The answers to these questions will help shape the future of business in Latin America for years to come.

“We’re in the middle of a big generational transition,” says John Davis, a professor at Harvard and chairman of Cambridge Advisors to Family Enterprise, a U.S.-based consultancy that has advised scores of family-owned Latin American companies on their succession plans. “Hundreds of thousands of companies are transitioning as we speak, or at least they should be.”

SLEEPLESS NIGHTS

Many business leaders in the region are already addressing these issues. Last year, Alair Martins, founder of Brazilian wholesaler Grupo Martins, signed an agreement to pass control of his company to his three sons. When he did, he said a weight was lifted from his shoulders. “I lost many nights of sleep over this,” Martins told Brazilian business newspaper Valor Econômico. “Over the last four of five years I’ve been thinking about it more and more. I’m already 78, I’m healthy and I love what I do, but I have to be realistic. I’m not going to be here forever.”

Others are less well prepared. A survey by accountancy firm Price WaterhouseCoopers in 2010 showed that 55 percent of Brazilian companies had a plan in place for dealing with a succession crisis, such as the sudden resignation or death of a key manager, for example. Only 12 percent, however, had such a plan for all senior roles.

The survey found that 36 percent of family-owned businesses in emerging markets, including Latin America, expect a leadership transition within the next five years. More than half of the Brazilian business leaders interviewed acknowledged that their families sometimes quarreled about the future direction of the business.

So, do the owners and heirs of the great Latin American fortunes take this issue seriously enough? “The answer, quite definitely, is ‘no’,” says Gonzalo Jiménez, executive chairman of Proteus Management Consulting, a Chilean-based firm that has helped design succession plans for many of the region’s companies. “Fathers always have a solution in mind for their succession plan. But there’s a big difference between that and actually working seriously on a plan.”

Not only families should worry about this issue. It is also a concern for investors. After all, who wants to plough money into a company that might implode due to an unforeseen family argument? Last year, ratings agency Moody’s published a report on succession planning in Latin America, describing it as “an important credit consideration.” The report’s author, Christian Plath, says he recalls several meetings at Moody’s in which analysts considered upgrading a company’s credit rating but finally decided to keep it on hold due to concerns about succession. “We need to feel comfortable with these issues before we bump up a company to investment grade,” Plath told Latin Trade.

In many ways, the issue of succession is even more important in Latin America than in the United States or Europe because more companies there are family-owned. Jon Martínez, a business professor and expert in this field at the University of the Andes in Chile, estimates than between 70 and 90 percent of companies in the region are family-controlled; among big corporations, the figure is about 60 to 70 percent. That compares to approximately a third of the corporations on the S&P 500 index in the United States and half of the leading companies in Europe.

DEATH AND TAXES

“In this world nothing can be said to be certain, except death and taxes.” So wrote Benjamin Franklin in 1789 and it holds true today. Companies need to prepare for the worst.

Chile’s wealthiest family, the Luksics, were given an all-too-painful reminder of this in March, when Guillermo Luksic, one of three brothers who inherited the family empire from their father Andrónico, died of lung cancer at age 57. Guillermo was chairman of the industrial and financial services conglomerate Quiñenco for more than 30 years. His eldest son Nicolás has assumed his father’s seat on the Quiñenco board.

Nicolás is only 34 and has only a fraction of his father’s experience, but observers say the family had primed him well. He has worked for most of the past decade in various branches of the family empire, is the chief executive of Ionix, a Chilean IT company, and has worked abroad, as a product manager at Heineken and a financial analyst at AXA Investment in Paris. “It’s often a good idea for heirs to get experience outside their family companies and then come back to the family later in their careers,” says Jon Martínez.

Martínez recalls another example of a death that had the potential to destabilize a family business. In 2001, he was advising the Feffer family in Brazil, who made their fortune from wood pulp and petrochemicals. Suddenly, the head of the family, Max Feffer, died of a heart attack, at age 74. “Thankfully, we’d worked on a family constitution,” Martínez remembers. “When Max died, his eldest son David, helped by his brother Daniel, managed the process incredibly well, preventing any disruption to the business.” A decade later, David Feffer is still head of the family business.

passing THE BATON

Some Latin American families have never had to face a succession from one generation to the next. They include the Paulmann family, owners of Cencosud, a Chilean retail colossus with interests in Argentina, Brazil, Colombia and Peru. Horst Paulmann built the company from scratch after arriving in Chile as a German immigrant after World War II. He is still very much the head of the business and a formidable personality. He is reported to have had a fractious relationship with his eldest son Manfred, who resigned from the Cencosud board in 2010 after little more than a year as company vice-president.

Analysts say that first-generation handovers, such as the one the Paulmanns face, can be problematic because the founder of the company, having built it from nothing, is often reluctant to relinquish power. In its report last year, Moody’s cited Cencosud’s succession plans as a concern. It is not entirely clear to outsiders who will lead the company when Horst Paulmann retires or passes away.

Older, more established companies face different issues. Take the Gerdau dynasty in Brazil. It was founded in 1901 by João Gerdau, a farmer who emigrated to Brazil from Prussia in 1869, and is now the biggest steel producer in Latin America. The current chief executive, André Gerdau, is a fifth-generation leader. The Gerdaus, unlike the Paulmanns, have plenty of experience of passing the baton from one generation to the next, but the problem is that the family grows larger with each generation. When André’s father Jorge handed him the chief executive job in 2007, he had to choose from an enormous pool of sons, daughters and cousins, some of whom were arguably as well-qualified for the post as André. Managing inter-family rivalries is therefore of utmost importance in large, long-established family firms.

Ultimately, much comes down to personality. A first-generation founder of a company like Horst Paulmann has to be a very different character from a fifth-generation leader such as André Gerdau. “When you’re the founder you can do what you want but when you’re the owner of 20 percent of the firm, or 10 percent, you can’t,” says Jon Martínez. “You have to be more political, more democratic, more flexible, more sensitive to family dynamics. Unfortunately, lots of sons don’t understand why they can’t run things the way their fathers did. You can’t become a little dictator. If you do, your siblings are likely to say, ‘Wait a minute, we already had one father, we don’t want another one’.”

THE GOOD, THE BAD AND THE UGLY

John Davis at Harvard cites the Sirotsky family in Brazil as one in which succession has been “beautifully managed.” The family controls the RBS media company in Porto Alegre, founded in 1957 by Mauricio Sirotsky. When he died in 1986, the baton passed to his brother Jayme, then to Mauricio’s son Nelson and then, last year, to Nelson’s nephew Eduardo. “They’ve done a marvelous job of selecting and grooming a successor, with Eduardo moving from senior management to COO to CEO,” Davis says. Other observers cite the Gerdaus and the Von Appen family in Chile as families that have handled succession deftly.

Other handovers have been less successful. In Chile, the death in 2005 of Hernán Briones sparked disagreements among his five children over the direction of the family business. In 2007, one of Hernán’s sons, Felipe, went his own way after reaching a deal with his siblings to maintain control of a salmon company, Yadrán. Then, last year, Felipe’s sisters Anita and Loreto parted company with their brothers Hernán and Pablo. They reached a cash-and-shares agreement that resolved differences but effectively meant the break-up of the Briones empire, which included cement company Bío Bío.

The Claro Group is another Chilean conglomerate that pretty much fell apart after its chief shareholder Ricardo Claro died in 2008, without leaving children to inherit the business. The Bethia family bought Claro’s television channel, Mega, while the Luksic family took control of shipping company Vapores, once the jewel in Ricardo Claro’s crown.

TALKIN’ ’BOUT MY GENERATION

So where will the next big family transitions take place and who will emerge as the new company leaders in Latin America? Gonzalo Jiménez at Proteus Management Consulting points to Peru as a country to watch. “There are a lot of Peruvian business groups whose leaders are around 70 years old and we know there’ll be succession handovers soon,” he says. One of the country’s biggest conglomerates, the Romero Group, has already begun what appears to be a smooth transition from third-generation leader Dionisio Romero, now 76, to his son, also called Dionisio.

The Brescias are another Peruvian family to keep an eye on. Mario and Pedro Brescia have controlled their fishing, mining, agriculture, insurance, banking and cement conglomerate for more than half a century. Mario is now in his eighties and Pedro in his nineties. According to Forbes, they have begun the transition process, passing shareholdings to nephews and children.

In México, Alberto Baillères, listed by Forbes as second to Carlos Slim in the country’s wealth rankings, is 81 and still chairman of Grupo Bal, a holding company for his mining, insurance and financial interests. His son Alejandro is tipped to succeed him.

In Venezuela, Adriana Cisneros is the obvious successor to her father Gustavo Cisneros as head of their family media empire (she is currently director of strategy) while in Colombia, Alejandro Santo Domingo is likely to emerge as one of the region’s leading businessmen having inherited the family fortune from his father Julio, who died in 2011.

Many of the region’s new, young leaders have studied at prestigious business schools in the United States or Europe, a luxury many of their fathers never enjoyed. They speak good English – not always the case in previous generations. Observers say that this should mean that Latin American firms adopt a more open, internationalist outlook than in the past. In companies that export goods and services, the new generation will be far more focused on business links with Asia than their fathers ever were, and perhaps less concerned with U.S. and European markets. And, thanks to the internet and social networking, they will need to be more attuned to the demands of their customers than ever before.

The other big change over the next decade or so is likely to be the emergence of female senior managers in Latin America. Although the region’s wealthy families are still notoriously patriarchal, changes are emerging. Fathers no longer automatically assume that their eldest sons will step into their shoes when they retire or die.

In Mexico, María Asunción Aramburuzabala has blazed a trail for women since she took the reins in the 1990s of Grupo Modelo, the vast brewing company that makes the country’s best-known beer, Corona. Through the family company Tresalia, she has enhanced the fortune she inherited from her father by expanding into venture capital, construction and real estate.

In Chile, Pilar Zabala is the head of the Pie de Monte, which owns more than 30 companies, ranging from olive oil producers to real-estate firms and restaurant chains. Pilar has a brother, but he chose the priesthood rather than work in the family business. So, when their father José Luis died in 2006, Pilar stepped up to the plate, becoming one of only a handful of women in Chile to hold positions of real power within large family-owned companies.

Only in April, Brazil’s richest woman, Dirce Navarro de Camargo, died at age 100. She was the world’s oldest billionaire, according to Forbes, and controlled Camargo Corrêa, a giant cement, real estate, construction and energy conglomerate. The family empire is likely to pass to her daughters, Regina, Renata and Rosana, ensuring a female presence at the top of the company.

Jon Martínez says Latin American patriarchs would be wise to consider their daughters when thinking about who should inherit their business empires.

“Most fathers want to pass the baton to their eldest sons and they often want those sons to be clones of themselves,” he says. “But in many cases, the eldest son takes after his mother, and it’s actually the eldest daughter who is more like the father in terms of personality. Quite often the eldest son is not the kind of guy who’s going to go out and conquer the world.”

FAMILY FLAME

As the Latin American business world evolves, many family companies will perish due to competition, poor management or other factors. Studies show that in Argentina and Brazil, 70 percent of family enterprises fail to survive into a second generation. In Chile, the average life of a family-owned company is little more than 30 years, and only 16 percent of them make it to the age of 50. Those that survive to a fourth or fifth generation, like the Gerdaus in Brazil, are exceptional.

Across the region, business leaders are striving to keep their family flames alive. At his brother’s funeral in March, Chile’s Jean Paul Luksic, the head of mining company Antofagasta Minerals, gave an insight into the importance of that principle to those involved. In a eulogy to his dead brother he said: “Like a real perfectionist, you followed, right down to the last letter, the instructions left to us by our father: to keep the family united. That is your great legacy and, at the same time, it’s the greatest challenge you leave to us.”

Gideon Long reported from Santiago de Chile.

 

Gideon Long
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