Good habits start at home. Michelle Innis investigates why some family businesses are more successful than others.

It is the best of times. It is the worst of times," says Gabriel Kemeny, borrowing from Dickens to describe a family wine business that has consumed his life and that of his mother, father and brother.

Kemeny's, a single wine shop that sells as much bottled wine as 140 average liquor stores, has been the Kemeny family's life since 1960. Kemeny says his parents fled the Hungarian revolution, resettling in Sydney in 1956. Within four years, they had opened Kemeny's in Bondi.

"When we couldn't pay the mortgage, my mother kept the shop open all hours to help," Kemeny says. "We lived on top of the place."

Kemeny's, which now employs about 100 people, is planning to open five super-stores around Australia to expand the business.

Investing in your own family business is one of the world's oldest wealth creation strategies, and postwar Australia is full of examples of migrants who came here with little or nothing but managed to build successful businesses and dynasties.

Families own and manage more than 90 per cent of all the world's firms, and they employ 50 per cent of the workers, according to eminent US academic Alan Carsrud.

Carsrud, a clinical professor of management and the faculty chair at the Florida International University's International Family Business Institute, says: "For most family firms, the family is there as the economic engine to support the [business].

"That is why family businesses are perhaps the oldest economic unit in the world. Solo entrepreneurs are usually less successful and are often creating only income substitution firms with very small revenues."

So what makes a good family business? And why do some grow into successful listed firms while others founder?

Clearly, not everyone has the talent or ability to grow a business empire, but is there a point to hitching a ride on one as an investor?

Surely the strong entrepreneurial drive and single-minded commitment that comes from ownership must have advantages over the plague of executive failure and "easy come, easy go" greed that we've seen at some Australian companies recently.

The difficulty, of course, is identifying which family-dominated companies make the grade.

Mount Eliza Business School's professor of strategic management, Graham Hubbard, says the transition from family company to public company is not an easy one to make.

"It is very difficult when you go from being a small family-owned company, one that can do pretty much what it likes, to being publicly listed," he says. "You have to give up control.

"Some families have the right structure and attitude from the start and don't struggle too much with that. But others take shareholders' money and treat the company as if it was still their own, with no other interests to consider."

Carsrud and Hubbard say anyone can form a family firm and bring money into a business to get it up and running.

"But it is a real injustice to think that family cash is what makes a family firm work," says Carsrud. "If anything, it is the reverse. Families bring a long-term focus to a firm, which is often not the case in a public firm that is looking at immediate profits [see "A Tale of Two Listed Companies" below].

"The family's values are often adopted as the firm's own. You see this in firms like Johnson & Johnson and Ford Motors.

What the family brings most to the family firm is a sense of trust and loyalty."

Carsrud says one of the oldest family firms is a 1000-year-old winery in Italy. In the US, beermaker Budweiser, owned by the Busch family, is almost 150 years old. In Australia the privately held McWilliam's Wines has just celebrated 125 years in business.

In his book The First XI: Winning Organisations in Australia, Hubbard says another highly successful Australian family-dominated firm is the commercial property developer and retail shopping centre manager Westfield.

Frank Lowy and John Saunders established Westfield in Sydney in 1956. By 1997, Lowy's sons, Peter, Stephen and David, were all central to the business, which has operations in the United States, Britain, New Zealand and parts of Asia. Westfield companies are listed on the Australian and New York stock exchanges.

"Westfield started with joint CEOs who were very ethical," Hubbard says. "Even in the early days, the company's processes were very open. Today, you can look at the company's website and you'll find the negatives as well as the positives. You'll see them admit their mistakes. That is all part of that family's culture."

Hubbard says the transition from small private company to large, listed corporation would not have been too traumatic for the Lowys because "their processes have always been fairly open" and they "treat shareholder value as critical".

But not all family empires make such a smooth transfer.

Some, like Doug Moran's privately held Moran Health Care Group and the publicly listed behemoth News Corporation, are judged a success for the enormous wealth they have created. But surprisingly, on other measures they fall short.

The Moran family is almost as well known for its bitter courtroom stoushes. One son committed suicide and several siblings have left the family business.

Hubbard says the Murdochs have maintained a tight grip on News Corporation, despite its public listing.

Hubbard says the same is true of entertainment group Village Roadshow, also listed on the Australian Stock Exchange, but controlled by brothers Robert and John Kirby, the sons of founder Roc Kirby.

"When you look at News and Village, in both cases it seems like they are run for the family rather than the shareholders," says Hubbard. "Rupert Murdoch was given [the business] to run and he does it from the top. [Murdoch inherited the Adelaide News in 1952 after the sudden death of his father.]"

Hubbard questions the level of fees paid to the directors of Village Roadshow and points out that the company's preference shareholders are treated very differently to its ordinary shareholders.

Village Roadshow funded its growth through the issue of preference shares, which are devoid of voting rights. It has 250 million preference shares on issue, compared with 235 million ordinary shares, the majority of which are held by the Kirby family.

Sandy Lockhart, the managing director of Macquarie Direct Investment (Macquarie Bank's venture capital division), says usually a company progresses through a number of clear-cut phases before it gets to listing.

"You have to get private equity involved before you get to listing," Lockhart says. "It focuses the company's management on getting cleaned up and getting the corporate structure right before it gets to listing. You have to be ready to deal with a listed environment before you actually get there."

Lockhart says transparency and predictability are key features of listed corporate life. "You have to have financial reporting standards that are professional and regular. These disciplines have to be in place before you hit the market."

He says good managers are not reactive but long-term planners. They move slowly through each growth phase, adjusting to new business requirements. Family-run companies can pretty well do as they please, he says. Public companies have a different set of masters.

Investors Mutual's investment director, Anton Tagliaferro, says how companies serve those stakeholders dictates how well they will perform in the long run.

He adds that some family-run firms, like Reece Australia in Melbourne, which has five members of the Wilson family listed among senior management, are "press-shy" and "not great communicators".

"Reece is a very good company," he says of the plumbing and bathroom products supplier. "But it is guarded in the information it gives out."

Tagliaferro says before investing in such companies you must decide whether you want "to go along for the ride".

"It all boils down to why a company seeks out external shareholders. You have your stock listed so that you can access capital and liquidity and grow," he says, as opposed to using a listing as a quick exit strategy for the family. Tagliaferro says firms can access bank debt more easily today than they could two decades ago. But, he says:

"It would be a brave executive who put all their store in the bank manager, because when credit cycles turn, the banks get nervous.

"When family companies list with the intention of using equity capital to grow their business, that's a good thing and it should be encouraged."

Graham Hubbard's book The First XI: Winning Organisations in Australia is published by John Wiley and Sons Australia.

The recommended retail price is $34.95.

A tale of two listed companies

"That gives you the capacity to build more relationships, enhanced by the family's commitment, with employees, suppliers, financiers, distributors - everyone," he says. "If they see passion, commitment and dedication among the leaders of a company that they are part of or work with, they get a great deal of confidence as to its permanence."

McGuigan is a third-generation winemaker. His grandfather grew grapes; his father worked for Penfolds for 30 years, before joining Brian and his wife Fay at Wyndham Estate. Wyndham was floated in 1985 and later taken over by international corporation Pernod Ricard.

McGuigan says the decision to list Wyndham Estate was made because the family needed access to capital to expand. "Public company status can be restraining, but it gave us the capital we needed to develop the company and the marketplace.

"We had a lot of goodwill with shareholders [in] Wyndham Estate," he adds. "Even though people saw it as a family-run company, we treated the money we got from shareholders with the utmost respect. I was always very careful and cautious on behalf of all shareholders."

McGuigan says this helped him list his second company, McGuigan Wines, in 1992.

"We had no brand and few assets when we listed the second time," he says. "We built the company over 10 years into a firm with $100 million in sales, and at that point we merged with Simeon Wines.

"But when I started, I made a commitment to shareholders that within 10 years we would be selling a million cases of wine, have turnover of $100 million and a profit of $10 million. That's what we were shooting for. We were able to do it.

"Now I love standing up at the annual general meeting and telling shareholders that I have delivered for them."

McGuigan says family involvement in the business means more ambassadors are building stronger relationships with employees, customers and suppliers.

He adds: "Blood is thicker than water but you must also respect your board and your directors. You must ask: Should I spend this dollar? Is it working hard enough for shareholders?

"If you have aspirations about building a sizeable company, you can't do it from personal resources. You need a lot of money.

"When I go to the AGM I look at every one of those shareholders as my superior officer. They have given me their money. If you have that ethos, you won't get off track."

Bridging three generations

Jock's grandfather, John Oswald Clough, established the Perth engineering company in 1919. His son William Harold Clough (known as Harold) completed studies in the US, returning to Australia fired with enthusiasm for the family firm. Clough went on to build some of Perth's great landmarks, including, in 1959, the Narrows Bridge, which links south Perth foreshore with central Perth.

It seems Jock, an executive director, has had the greatest struggle with the business, its growth and direction.

Jock says the company listed in 1998 to provide liquidity for shares held by senior staff and family members. Those shares could not easily be traded prior to listing.

"We also recognised that the company was growing very quickly and taking on some very big projects, and we needed more funds to compete and carry out that work," he says. "Going to the market was the obvious choice."

The company has had a number of managing directors, appointed from outside the family. The latest, David Singleton, takes up the post on August 18.

"We took a rigorous view that the best person for that role might not be from within the company or the family," Jock says. "It is unlikely, in my view, that the best person would be the grandson or son of the founder."

One analyst, who asked not to be named, says Clough has struggled with its external appointments, a matter that has marred the company's record. "The family has not had a great sway on the company," the analyst says.

Jock Clough says: "Overall we have been pleased with the fact we are listed, although there have been disappointments along the way.

"Operational issues mean we have not performed as well as we might have. But we always thought it would take a few years to get through this transition period. We thought it would take two to three years to move from a tightly held family operation to a publicly listed company.

"It is a more robust and more accountable [environment]."

Ooutside in

But McWilliam's Wines' chief executive officer is an outsider, Kevin McLintock (above), who was appointed in 1993.

McLintock, also a shareholder, says when he started work, the company's culture of winemaking was so strong that senior family members had worked through on average 30 vintages.

"With that sort of experience, you get a passion for perfection," McLintock says. "And perfection drives a family business like this.

"We don't focus as much on the cost of capital as we might if we were listed. We want to make the best possible wine in the best possible region. I don't believe a non-family company could produce a wine like that."

But, McLintock adds, the family struggled with the company's direction and growth in the 1970s. At that point, they asked a strategist to come into the firm and help set the course for the next decade's growth.

"The 'outsider' was able to work on the business and where it was going while the family worked inside the business," he says. "From that, the company has grown organically. We have a 10-year plan.

Our balance sheet is loaded with assets, we have significant holdings around the country and we are happy with that.

"There is no exit strategy in this family business."

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