The Bouchayers of Grenoble and French Industrial Enterprise, 1850 -1970

Published by EH.Net (September 2002)

Smith, Robert J., The Bouchayers of Grenoble and French Industrial

Enterprise, 1850 -1970. Baltimore, Maryland: The Johns Hopkins University

Press, 2001, xix + 247p., $42.50 (Hardcover), ISBN:0-8018-6683-9.

Reviewed for EH.Net by Esther Redmount, Department of Economics and Business,

Colorado College.

In his new book from Johns Hopkins University Press, The Bouchayers of

Grenoble and French Industrial Enterprise, 1850-1970, Robert J. Smith,

emeritus Professor of History from SUNY College at Brockport, offers us a

fascinating portrait of the evolution of the partnership of Bouchayer et

Viallet, a family-owned firm for four generations, influential in the

development of the hydroelectric power in the northern French Alps. Professor

Smith offers this careful and extensive research as a case study in the perils

and strengths of the family form of organization. The book adds to our growing

understanding of how the organization of industry affects economic development.

It also complements an economic literature on how family firms operate.

Economists and economic historians have long been interested in whether the

family firm promotes or impedes economic development. The energy, foresight and

drive of the founder seem to dissipate in subsequent generations of the family.

Economic development would thus be synonymous with a transition from

family-owned and operated enterprise to a public and corporate form for

business. There has been extensive debate as to why family-owned enterprises

ultimately fail and whether failure is inevitable.

Much recent economic work takes as given the passing of the entrepreneurial

spirit and focuses on why a family might retain control even when it cannot

offer its own enterprise the best managerial talent from among its own ranks.

Answers center on the problems associated with separation of ownership and

control, especially when owners are not well protected in law from the

opportunistic behaviors of non-family managers. Where legal protections for

shareholders are weak, families may cling to the business in order to protect

their shares of managerial rents and business assets. In fairness, Professor

Smith’s book does not focus on the legal environment of French business during

the period 1850-1970, but his history of the Bouchayers does document the

unwillingness of family from the 1930s onward to delegate the running of the

business to outsiders, even very talented ones.

The first two generations had no need to delegate. Father and son were both

gifted manager-entrepreneurs and both lived in periods fortuitous for the

development of their hydroelectric business in France. Their foresight, hard

work and good luck catapulted Bouchayer et Viallet into wealth and prominence.

Moreover, and this is central to Professor Smith’s thesis: both lived in a

relatively modest style that allowed them to plow back into the business the

surpluses it was then generating. There was little debt to outsiders and assets

were accumulated (especially land) that saw the business through some very

tough times after their passing. Furthermore, the business was their primary

interest. They neither had expensive hobbies nor were they pronounced social

climbers, though they may have harbored desires in those directions for their

sons.

The Bouchayers’ growing wealth made it possible for the third and fourth

generations to find fulfillment away from the family enterprise. Smith explores

the forces — economic, social or political — which caused the entrepreneurial

energies of an otherwise talented family to dissipate, and he locates the loss

of focus squarely in the family ascent into the haute bourgeoisie. Grandson and

great grandson were more liberally educated and developed often expensive

interests far beyond those of the shop floor that made them remote to the

concerns of the business.

At the same time, their identities were tied up in being the patron, which made

them unwilling to relinquish managerial controls. These later generations of

Bouchayer sons wished to exercise iron control over their work forces and the

disposition of firm resources as by right. They could be generous to workers,

partners and other shareholders, but it was an almost feudal generosity, one

that did not accord well with the mor?s of a new industrial order.

It was not a benign confluence of forces. Once the owners no longer had the

human capital necessary to running a hydroelectric firm (Bouchayer et Viallet

provided pipelines, boilers and the like) in parlous times, the family’s

unwillingness to cede control doomed the enterprise. Had there existed an

efficient way to take the firm public and cede management to more able

outsiders, Bouchayer et Viallet might have survived. Instead the enterprise

became another example of the exhaustion and ultimate demise of an initially

successful family firm.

The Bouchayers of Grenoble and French Industrial Enterprise is a

skillfully researched work and makes excellent use of the business and family

archives to which Robert J. Smith had access. Professor Smith also provides

sufficient background in the economic and political history of France, in

general, and this area of France, in particular, to help the reader make sense

of the forces at play. The reader is also allowed to see something of the

firm’s balance sheets to see how the issues of ownership and control were

playing out. All in all, the book makes an interesting addition to the

literature on family firms. That the social aspirations of the founding family

should have been responsible for the ultimate demise of their business adds an

interesting dimension to the economic analysis of this form of enterprise.

Esther Redmount teaches Economics in the Department of Economics and Business

at Colorado College. Her primary research interests are in the Economics of

Organization and Labor Supply. She also teaches for CC’s Women’s Studies

Program.

Notes: For a recent and interesting treatment of the importance of legal

regimes in the longevity of family firms, see Mike Burkart, Fausto Panunzi and

Andrei Schleifer, “Family Firms,” NBER working paper 8776, Cambridge, MA,

February 2002.