Business groups may never die peacefully (People and Society)
Investigação | 20 abril 2015 Business groups may never die peacefully (People and Society)

The recent debacle of the Espírito Santo Group (GES) has raised public awareness of diversified, pyramidal, and family-owned business groups.

Researcher: Álvaro Ferreira da Silva

Business groups in Portugal: notes from an investigation

The recent debacle of the Espírito Santo Group (GES) has raised public awareness of diversified, pyramidal, and family-owned business groups. Criticism is raised against their excessive economic and political power. In a more emphatic way, it is argued that the end of GES represents the most important structural reform in Portugal.

The rise and fall of Portuguese business groups (1926 – 1974)

In recent years, the Foundation for Science and Technology has funded a research project lead by Álvaro Ferreira da Silva (Nova SBE), with Luciano Amaral (Nova SBE) and Pedro Neves (ISEG-ULisboa), studying the largest Portuguese business groups during the Estado Novo period (1926-1974), when they attained an unprecedented scale and scope. The analysis involves a comprehensive reconstruction of the groups’ equity participations and evolution, using new sets of data.

The results point to some main conclusions (see references 1 and 3):
- Origins: The groups clustered around banking and manufacturing firms, and when the core activities diversified, manufacturing groups internalized financial functions, thereby creating an “internal capital market”.
- Ownership, size, and diversification: Family ownership prevailed, in spite of different levels of scale and scope.
- Dynamics of growth and internal configuration: Different patterns emerged, and identifying these is a major contribution to the current literature on business groups. Salient here is the plasticity of this organizational form, explaining the groups’ resilience, adaptability to different contexts, and ultimately their ubiquitous nature.
- Economic and institutional environment: They flourished in a protected domestic economy, largely influenced after the 1950s by developmental industrial policies. They prospered with the 1960s and early 1970s economic boost, but were always based on domestic and colonial markets.

The Portuguese revolution in 1974 and the subsequent nationalizations annihilated these groups. A lesser institutional disruption, but in a climate of financial and economic turbulence led similar groups in Spain to disappear in the late 1970s and early 1980s. Paradoxically, nationalization saved Portuguese groups to face the test of time in a transition to a mature economic and institutional context.

The reappearance of business groups in the 1980’s

A major international research project has been developed in the last two years to understand the evolutionary paths and contemporary roles of business groups, not in emerging economies (as Portugal before the 1970s), but in advanced economies (reference 4). Portugal is an especially interesting case to this comparative effort. Business groups reappeared after the late 1980s, following the emergence of a new institutional script, opening previously-closed business activities to private investment and privatizing state-owned firms. Only two of these groups had their origins in the earlier era (the cases of GES and Mello).

Understanding the GES cataclysm

The new groups have some formal similarities with their predecessors, but the differences have prevailed. For the sake of brevity, only one is mentioned here, and it is particularly interesting to understand the GES cataclysm. Before 1975 every business group had their own bank and insurance company, used largely to leverage internal investment capabilities. After the late 20th century, only GES was structured around a bank. Other groups sought at different moments to acquire a bank or gain a controlling position in one. All of them abandoned these ventures.

GES followed a very different path when comparing the family group nationalized in 1975 with its new configuration in the 2010s. In the Estado Novo period, it was one of the smallest and least diversified groups, centered around the family bank, with controlling positions in a few colonial firms and minority participations in industrial ventures favored by the policies of the time (e.g. oil, electricity, heavy industry). In the early 2010s, GES was the top group in scale and scope, and the only one depending on the family bank.

The consequences of financial crises to similar business structures are widely recognized, mostly following the Asian financial crises in the late 1990s. Academic literature as well as IMF publications pointed to the importance of intra-group debt in South Korean chaebols to deepening the impact of the crisis. 

Past examples forewarned of increasing potential risks

Before the disclosure of GES’ financial difficulties, the researchers presented a paper at the 2014 ABH conference (Newcastle), titled “In the making: Portuguese business groups and the financial crisis”, examining the differences between the pre-1975 business groups and the ones facing the current financial crisis. At the same time comparisons were drawn with the fate of groups in major crises as South Korea in 1997. Two risks faced some Portuguese groups: survival as a group (or as a family group due to external recapitalization) and dependence on public investment initiatives (construction, PPPs, concessions). The case of GES was singled out due to additional potential risks associated with intra-group debt, as it was the only one internalizing financial activities.

Stories of death and suicide

Business groups may never die peacefully. The state plays a central role in their sudden death, as in the case of the 1975 Portuguese nationalizations or the resolution plan to Espírito Santo bank. Generational devolution may lead them to commit suicide, as other cases would illustrate.

Corporate networks in Portugal  




1. Silva, A. F. and Neves, P. (2014), “Business coalitions and segmentation: dynamics of the Portuguese corporate network” in T. David and G. Westerhuis (eds.), The Power of Corporate Networks. N. York: Routledge.

2. Silva, A. F. and Neves, P. (2014), “In the making: Portuguese business groups and the financial crisis”. Paper presented to the Association of Business Historians Conference. Newcastle.

3. Silva, A. F., Neves, P. and Amaral, L. (2015), “Business groups in Portugal in the Estado Novo period (1930-1974): family, power and structural change”, Business History.

4. Silva, A. F. and Neves, P. (forthcoming), “Business groups in Portugal”, in A. Colpan and T. Hikino (eds.), Business Groups in the West: The Evolutionary Dynamics of Big Business. Oxford: Oxford University Press.

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