Today's FT profiles one of my role models, Geoff Beattie, consigliere to the Thomson family of Canada. The Thomson family is itself a model for families seeking to grow wealth across generations. It started with Roy Thomson, the son of a Toronto barber who amassed a media empire (I remember a quote in which he described his method a simply "buying newspapers to make money to buy more newspapers to make more money . . .") worth about $300 million at the time of his death in 1976. Even more impressive is what happened in the second generation, led by Roy's son Kenneth: By 2005 the family fortune had grown another 100-fold, to $30 billion. Now in its third generation, led by David Thomson and Beattie, the company recently acquired media giant Reuters.
Here's what stands out to me about how the family did it:
- First and foremost, it recognized the benefit of bringing in a consigliere, someone outside the family to help manage the family's wealth. I know, I flatter myself and my consiglieri brethren, but it's true.
- The family are true principal investors. When they invest, they take an active role, and for the long term.
- Responsibility for long-term strategy and capital allocation rests with the family investment company and not with the operators of the business. This has allowed the family to act as open-minded "unsentimental traders of assets," exiting old industries and entering new ones when the circumstances called for it.
Let me expand on this last point. Capital allocation decisions, over time, determine the rate of growth of your wealth more than anything else. Capital allocation doesn't just mean buying and selling businesses or parts of businesses (i.e. stocks), it also covers dividend policy and capital expenditure decisions. You have a business that makes money--what do you do now? Do you give it to yourself to spend? Do you reinvest it in the existing business? Do you buy a new business? Do you sell the existing business, which effectively brings its future profits into the present? These decisions over time make the difference. Compare the behavior of a capital allocation exemplar like the Thomson family to that of two other newspaper families:
- The Bancroft family of Dow Jones and Wall Street Journal fame. By the early 1980s this company bestrode of the world of financial information like a colossus. It literally had a hammerlock on delivering information to consumers of information about US business and finance. But its founding family was large and scattered and rich and comfortable and loved its dividends, which allowed a young upstart with a funny name to start a company dedicated to a new kind of financial information delivery. That company became Bloomberg.
- The Sulzberger family of the New York Times. In 1993, when the newspaper business was still good but not as good as it once was, it purchased the Boston Globe, essentially doubling down on an industry about to go into decline. Its decision to build a shiny new headquarters building was another capital allocation decision that likely won't look so good in a few years.
The Washington Post, on the other hand, was smarter, more in the Thomson mold. Its founding Graham family, Katherine then her son Donald, it never overpaid for hot cable and other media properties, and diversified away from newspapers into the Kaplan Education company.
Then again, the Grahams benefited from the consigliere of all consiglieri: Warren Buffett himself.