From riches to more riches in three generations


Abigail Johnson has been appointed chief executive of Fidelity, one of the world’s biggest asset managers. She takes over from her father Ned and is the third generation of Johnsons to run the business founded by Abigail’s grandfather Edward in 1946.

From a family business perspective, here’s what we can learn from her appointment.

Firstly, she is no nepotistic third generation appointment to a family business dynasty. Nepotism isn’t likely to be tolerated in a business that managers nearly $2 trillion of assets and employees more than 40,000 staff — governance structures wouldn’t allow it, nor would the staff who own around 50% of shares in the business.

Secondly, most headhunters would say the new chief executive is more than up for the job regardless of her family connections. She had immersed herself in the business for a very long time, has an MBA from Harvard and has worked in various positions at Fidelity since she joined as an analyst in 1988. In an interview with Forbes some years ago, she displayed other qualities too — qualities useful in running a business the size of Fidelity, like empathy and openness. Entitlement isn’t something that springs to mind when hearing her speak.

Of course, when you’re sitting on a fortune worth a few billion dollars and overseeing one of the most recognizable brands in asset management, humility is relatively easy to muster. Nevertheless, money doesn’t necessarily give you the qualities to run businesses that the new CEO clearly has.  

Third, Abigail is an example of an owner that negates the idea that dynasties burn themselves out in three generations. The saying “from shirtsleeves to shirtsleeves in three generations” exists in various versions around the world, but looks to have less resonance in the 21st century — a fact that is underlined by this appointment.

Here’s some reasons why the third generation argument is less relevant today:

Size. Family businesses are bigger than ever. Not all of them, but a sizeable chunk of them today, have revenues of more than $100m. If the family owns a sizable amount of the wealth, it means that its easier for businesses to be sustainable these days. Even if one generation screws things up, the business might be big enough to sustain itself through a rough patch, or at least it has a better chance than if it wasn’t so big.

Governance. Increasingly, family businesses are adopting more robust governance structures that stop, or at least ameliorate, the chances of a rogue member of the next generation having too much power and destroying the business. The culture of bringing in professional managers from outside to run the business is also today much more acceptable.

Flexibility. Families are more likely to allow flexible arrangements for the next generation coming into the business, or otherwise. Many of the controlling generation no longer have expectation that the next generation have to work in the business. This flexible attitude, working in tandem with better governance helps to sustain family businesses.

That said, Abigail Johnson isn’t without challenges at Fidelity. The Boston asset manager is facing huge competition from rivals selling cheap index tracker funds. And it’s unlikely that during her time as chief executive she will witness the huge growth in the asset management industry that her father witnessed. Fidelity rode the boom in mutual funds during the 1960s and 1970s under Ned’s leadership.

Nevertheless, Abigail should have the skills and attributes to meet the challenges ahead. She has also learnt the skills of good family business stewardship that should see Fidelity thrive under family control for years to come.