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<p>Many, but not all, of the richest people in America are self-made. Four of the top 10 are Waltons, heirs to the Wal-Mart empire created by Sam Walton. Another three of the top 20 are named Mars, heirs to the Mars candy empire. That’s more than a third of the 20 wealthiest people who inherited their wealth instead of making it themselves.</p>
<p>These people are mostly in their 60s, 70s, and 80s, however. The next generations of their families likely will not make the top 20 in most cases. Several reasons for that. First, if there are multiple children, the family fortune gets divided. Henry Ford and John D. Rockefeller were among the richest Americans of their day. Four or five generations later, and the family wealth is spread across dozens of family members, most quite wealthy, but few ranking among the wealthiest. (I count only one Rockefeller and no Fords among the Forbes 400).</p>
<p>Compounding that, estate taxes take a substantial bite, either directly or indirectly, e.g., by creating powerful incentives to give away much of the accumulated wealth in charitable contributions. It’s no accident that the Ford Foundation and the Rockefeller Foundation are two of the nation’s wealthiest charitable foundations; you can thank not only the benefactors but also the Internal Revenue Code for that.</p>
<p>Third, inheritors of great wealth tend to be more risk-averse in their investment strategies than the founding generation of entrepreneurs, who often start with nothing more than a visionary idea and sweat equity, and consequently have little to lose by banking everything on a high-risk, high-reward new technology or innovative business model. And that only makes sense. If you inherit, say, $1 billion, your first thought is going to be how to preserve that capital–not what kind of high-risk investment might parlay it into $10 billion. So you’ll probably make more cautious, “safe” investments, and hope to grow your $1 billion slowly, without exposing it to too much downside risk. And you likely will not end up with $10 billion, but if you preserve your $1 billion, you probably won’t mind.</p>
<p>But I’m not persuaded that the children of the wealthy are inherently less likely to have “drive, ambition, talent, and luck” than the children of the lower middle class. They may be less likely to be big risk-takers, because they’ve got more to lose–and being a successful entrepreneur often requires a stomach for risk, a willingness to stake everything on an unproven technology, business model, or contrarian idea, and then the good fortune to be proven right. But I think there are plenty of examples of scions of great fortunes who exhibit just as much “drive, ambition, talent, and luck” as their entrepreneurial forebears. </p>
<p>By all accounts, Henry Ford II, who served as president for Ford Motor Co. from 1945 to 1960 and CEO from 1960 to 1979, was a driven, ambitious, and talented business leader who brought in a team of “whiz kids” to transform Ford into a truly modern car company, took the company public, ushered in innovations in automobile financing that transformed the industry, and on and on. His tenure was not an unbroken string of successes, but then neither was that of his entrepreneurial grandfather; yet both met far more business success than failure. The difference is that the grandfather essentially founded a new industry, revolutionized manufacturing technology, established a wildly successful company which he operated as sole proprietor (and therefore reaped all the profits), and in the process popularized and made accessible a revolutionary new technology that radically changed the way we transport ourselves; he started with nothing but a toolbox and a vision, and parlayed that into one of the greatest fortunes of his time. The grandson was essentially a successful steward of an already-established business of which he was only part owner along with numerous other family members and, once Ford went public, millions of other shareholders. The grandfather had new worlds to conquer; the grandson had a family empire to protect, and to grow prudently under the watchful eyes of other family members, and eventually other shareholders, to whom he was accountable. Very different roles, involving very different risk-reward calculations. But I don’t think you can say the grandson was any less driven, ambitious, talented, or lucky than the grandfather; just less entrepreneurial.</p>