While innovation and new business ideas gain central stage today, the decline of one of Europe's greatest Renaissance banking families offers useful, cautious wisdom.
By Christian Stadler, contributor
(ManagementInnovationeXchange) -- As the global economy slowly turns around, we have embarked on a new era of growth. While innovation and new business ideas gain central stage, we should remember that some old-fashioned management practices are worth preserving.
By "old-fashioned" I mean that companies should build a solid capital and reserve base, only grow if they can do so profitably, and avoid overleveraging at all costs. In simple terms, corporations should have some spare cash on hand for unexpected threats and opportunities, and never engage in activities that put their entire future at risk.
A trip back to the Renaissance illustrates the point.
Unless you're a European history scholar, you've probably never heard of (or have forgotten) the Fuggers, a German merchant and banking family. In the 16th century, though, they were the reigning masters of the universe. The Fuggers bankrolled Europe's greatest empires; their political influence was comparable to the Medici in Italy, and their wealth was matched only by the Rothschilds' a century later. Originally merchants of fine clothing, they diversified into banking in the 15th century. Their closest dealings were with the Habsburg family, which provided mining rights as securities against loans from the merchants. As the Habsburgs repeatedly defaulted on those loans, the Fuggers gained a virtual monopoly in mining and the trading of silver, copper, and mercury across Europe.
The eventual decline of the Fuggers traces back to a decision the family made during its golden era. In 1546, Anton Fugger and sons had a working capital of 5 million guilders -- the highest in the firm's history. Anton Fugger came to the conclusion that none of his successors had the necessary qualities to lead the business empire in the future, so he started to withdraw substantial amounts of the capital to distribute among his heirs, with the intention of winding down the firm's activities over time. Yet his intention was only reflected in the reduction of capital. More
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