Working for Family Businesses - Part 1
November 12, 2009
It is the dominant form of business structure worldwide From farmers to small mom-and-pop shops to one-third of Fortune 500 businesses, estimates are that over 80% of businesses are family-owned or controlled,. These include global icons such as Michelin, IKEA, Tata, Ford, Roche, Henkel, Heineken, Cargill, Mars, Bacardi’s, Wal-Mart, Samsung, Bosch, and countless others.
Family business leaders are often the best and brightest executives in their industries. They run professional, innovative, aggressive companies that expand the horizons of innovation, productivity and efficiency. Some observers believe that family firms, with their lower leverage, long-term approach and loyalty to employees point the way to a more stable kind of capitalism in the future.
Family businesses are also some of the most dysfunctional organizations imaginable, rife with mind-boggling greed, rivalry, incompetence, irrationality and drama. According to a recent PWC Family Business Survey, some 70% of those attending last year’s annual meeting of the Family Firm Institute were not family business owners but rather family therapists. Such a revelation would not surprise the biographer of the fashion Gucci family who titled her book, The House of Gucci: A Sensational Story of Murder, Madness, Glamour and Greed.
Whether outstanding or outrageous, family businesses are a special category of organization and executives considering working for one should be aware of their characteristics and how these influence who will thrive or fail in them. Similarly, family businesses should be aware that certain executives are better suited than others to succeed in their organizations and hire with those attributes in mind.
This two-part series will explore the characteristics and challenges of family businesses, the difficulties around succession and the attributes needed for non-family executives to thrive in them.
Family Businesses in Canada
Among the wealthiest families in the world is Canada’s business aristocracy, the Thomsons, Desmarais, Westons, and Irvings. Each empire was founded by an entrepreneurial patriarch whose seeds of business genius have blossomed under subsequent generations. It is a script so commonplace that entire industries are dominated by such enterprises.
In food, Loblaw Companies and Sobeys, as well as smaller regional players such as Longos, Garden Basket and Farm Boy control large swaths of the national retail sector. Food producers include an array of family controlled businesses such as George Weston Ltd, McCains, Cavendish Farms, Saputos, Burnbrae Farms, Mother Parkers, Bragg Group, Maple Lodge Farms, Maple Leaf Foods, Dare Foods, Ganong, Voortmans, and on and on and on. And the food service industry features prominent families such as the Fullers, the Phelans and the Bitoves.
In the construction sector, the Reichmann family has left an indelible mark around the world while other well-known names such as Del Zotto, Greenberg, Azrieli, Libfeld, Menkes, DeGasperis, Muzzo, Gewurz, Adams, Fidani and others dominate the low rise, condominium, commercial and industrial property sectors across Canada. Families such as the Koschitzkys (IKO roofing and waterproofing products) have become global concerns producing the materials that go into these buildings. And the Feldbergs (Teknion, Global to name but two of their many companies) along with countless others produce the chairs, desks, sofas, and other furnishings which adorn them.
The media and communications sector have their share of family empires including the Rogers, Aspers, Peladeaus and Braggs to name but a few. The Shaw brothers remarkably built two very different businesses, one the Calgary-based Shaw Communications powerhouse and the other, no less impressive, energy services company ShawCor based in Toronto.
Other sectors feature prominent families such as the Bombardiers, Bronfmans, Mannix’s and Southerns. The sixth generation Molsons recently restored the family’s rightful place as owners, not of another beer company, but of the storied Montreal Canadiens hockey club which previous generations had proudly owned. And this year Leon’s Furniture celebrated its one-hundred year anniversary under the leadership of fourth generation CEO Terry Leon.
But while they dominate large segments of the business landscape, family businesses are neither infallible nor forever and many have stumbled becoming mere footnotes in the annals Canadian business. The Massey family were well-known, highly respected industrialists, politicians, actors and philanthropists. The Eaton family was long considered Canada’s finest retailer employing at its peak over 40,000 employees in its stores, factories and catalogue operations across the country. The family also co-founded firms such as Baton Broadcasting and bequeathed properties that are now campuses of colleges and universities in Ontario. The Steinberg family dominated the grocery sector much in the same way that the Birks family defined the jewellery business. Other notable families of yesteryear include the eyewear Hermants, the newspaper Southams, and the investment banking Richardsons. While the names of some of these families remain alive atop the businesses they no longer own, others are now known only for the museums, buildings, hospitals and shopping malls whose fading facades their surnames still adorn.
The Characteristics of Family Businesses
Approximately seventy-percent of family enterprises are started by a single founder-owner or founder-couple whose business takes shape as relatives enter to help or are in search of a job. A further twenty-percent are started as sibling partnerships; and five-percent are “cousin consortia”.
Family businesses bring the collective power of familial trust, loyalty, passion, and determination to the arduous task of enterprise creation, survival and success. It can be a powerful force. Though four McCain brothers shared ownership of their namesake manufacturer it was Harrison and Wallace who are most associated with its success. The two were likened to a sailboat with Harrison the sail, catching the wind, and driving the ship onward while Wallace acted as the rudder, keeping the speeding sailboat on course. Without Wallace the McCain ship would go nowhere fast. Together they were an unstoppable family force.
Founders set the tone for the family business with an entrepreneurial repertoire that invariably includes confidence, drive, energy, strong personalities and a need for control. Ted Rogers was described in fairly classic fashion, “He ran his multi-billion dollar operation as though it were a small family business. No decision was made without his approval. He devoured every report, delved into the minutia and micromanaged everything. He was an insensitive autocrat who would not tolerate the questioning of his orders”. Similarly, Sam Steinberg was characterized as, “a benevolent dictator, a man loved and feared by those who worked for him. He ran his company like a small business. Formal management systems counted for little and his whim was the order of the day. As the company grew, Sam continued to keep track of every aspect, often taking decisions that circumvented those executives nominally responsible for a given part of the business. Sometimes it seemed as though the whole company reported directly to him”.
When family members enter the business responsibilities are distributed or shared on the basis of mutual respect, birth order, cultural tradition or trust rather than predetermined organizational policies or structures. In many instances the family relationships determine the design of the organization. The transitions are unique to the entrepreneur and the family and range from apprenticeships to ‘baptisms by fire’. In the case of Robert Mondavi, one biographer stated, “He was obsessed with work, and was a perfectionist who held his family to what they saw as impossibly high standards. Very sparing in his compliments he would focus not on the accomplishments but the need to improve. His three kids suffered through this as well, ‘he was picking on you; he was measuring everything against the image of perfection that he carried in his mind – but had never experienced’. In his mind, he was just driving the business to higher levels…to his family he was driving them to drink”.
Notwithstanding the transitional challenges, family business structures tend to be far less formal, more flexible and the businesses themselves more agile. In addition, because families think in generations rather than quarters, their firms generally take a longer-term view of planning and decision-making than do their publicly traded counterparts. Such timelines support value creation. And finally, because reputation, legacy, heritage and community matter to families, their businesses tend to be more risk averse and stable over time.
The Conflicts between Family and Business
Families and business are uncomfortable, some may say strange bedfellows. This is in part due to the question of which serves which. Peter Drucker argued that ‘the family must serve the business. Neither will do well if the business is run to serve the family”. Many family businesses heed such advice and take steps to ensure that the needs of the business drive the role played by the family. A rigorous merit system is implemented and family members are evaluated as vigorously as non-family employees before taking them on, as well as afterwards. They also add key non-family executives, assemble boards with independent, non-family members and constantly evaluate their roles as owners and managers. Such families proactively embrace the contradictions of the family business and embrace the needs of the business as the best means by which to serve the interests of the family.
But countless family businesses are openly ‘family-first’. They exist, in effect, to provide work and security for family members. This drives the strategy and culture of the business and trumps all considerations of expansion or increased profits. In 1917, the recently immigrated Ida Steinberg opened a small grocery store in Montreal, Quebec. Her extended family resided above the store and all six of her children stocked shelves, worked cash and made deliveries. Ida’s son Sam quit school at 14, joined the business fulltime and began to expand, first the one store and then the company. By 1960 ‘Mr. Sam’, as he came to be known, had built 92 stores while pioneering the development of integrated shopping complexes anchored by his supermarkets. His entire family worked in the businesses and the nepotism was such that high performers would leave ‘Steinberg University’ knowing that sooner or later a family member would get the jobs they coveted. To her death Ida badgered Sam to ensure that no single initiative would ever jeopardize family employment prospects or tear the family apart. Ironically, it was the bickering between Sam’s four daughters, after his death, that ultimately tore the business apart, removing it from family hands and the Canadian retailing landscape altogether.
Growth invariably presents challenges to all family-first businesses. Business decisions and strategies continue to be made on the basis of what is best for the family, or simply on what they want, rather than the requirements of a growing enterprise. And as more family members enter the business, peace is bought, sold or rented with money, titles, perquisites or business opportunities. Financial systems often become obtuse enabling family members to reap rewards beyond what would be deemed reasonable under standard human resource, compensation, and benefit policies. Unless careful, over time the family-first business becomes part of the lifestyle that it made possible.
Family-first businesses can also become insular and overly inward looking. Long term perspectives dull the sense of urgency and entrench paternalistic leadership. The desire to keep the business a ‘family matter’ and shield its peccadilloes from outside eyes makes the family distrustful of outsiders. A focus on tradition hardens the business to change, reducing innovation and triggering a slow process of decay. The Eaton family was the royal family of Canadian retailing, a veritable powerhouse across the land. From the beginning they were committed to the notion that only ‘Eaton’ family members could lead the firm. But over successive generations the family depleted what leadership royal jelly it once possessed. Enjoying their cashmere-lined life, there was little to drive family members forward and running the company became a generational burden, a yoke around whoever drew the short straw of responsibility for protecting the family heirloom. And with only a vision of past glories, the business failed to adapt as demographics changed, the catalogue business waned, and competitors such as Simpsons teamed with more formidable foreign competitors such as Sears. The business slowly eroded until it disappeared altogether just over one century after its founding by Timothy Eaton.
The polar nature of business and families also contributes to their uneasy cohabitation. Businesses are rational, capitalistic, and competitive. They have timelines, and membership is conditional on performance. Decisions are unemotional and driven by the needs of the enterprise. Families, on the other hand, are emotional, cooperative, and more socialistic with no family member better or more important than any other. Families have no timelines and they accept members unconditionally. Much family behavior is aimed at maximizing intimacy, accumulating resources, raising children to independence and interacting with others. Families develop scripts and roles with which members interact and behave. Power, decision-making, communication, conflict resolution and autonomy are all negotiated within the family structure, value system and beliefs. Space and independence constantly wrestles with the desire for family cohesiveness. Taken together, the intersection where the strains of business life meet the tensions of family is fraught with challenges.
Many of the challenges are easy to anticipate. Boundaries between family and business become blurred. Nepotism competes with merit as key roles are filled in the company. Many times there is no competition at all and unqualified family members assume key roles. Similarly, because families view members as equal, compensation is often equalized regardless of responsibility or results and benefits become rights of birth rather than rewards. If not careful, jealousies between siblings over favoritism, birth order or self-image spill over into the workplace, making management more difficult and increasing tension and anxiety among employees and family members alike. Over time, spouses enter the picture affecting family dynamics and equilibrium. To the outsider, the successful family business impresses while appearing oddly sub-optimized. At other times, it simply appears odd.
Cesare Mondavi built a small grape exporting and wine operation in California. His two sons grew up in the business and from the time they could walk were expected to contribute to its success. The oldest son Robert was brash, outgoing, visionary, charismatic and ambitious while Peter, the youngest Mondavi offspring, was conservative, analytic, introverted and operationally focused. Under the watchful eye of their father, Robert eventually became General Manager while Peter ran production. The brothers conflicted on most matters especially those related to growth with Robert’s great dreams for California winemaking creating anxiety in the risk-averse Peter. When Cesare died in 1959, day-to-day management of the business remained in Robert’s hands though ownership passed to the matriarch, Cesare’s wife Rosa, a woman with little experience in the business itself. The business began to grow quickly.
In 1965, the two brothers reached a crossroads in a disagreement over a fur coat which Robert bought for his wife in order to attend a presidential gala. Peter, egged on by his spouse, resented Robert’s limelight and argued that the coat was extravagant and should not have been expensed by the company. Both words and blows were exchanged and Rosa was forced to intervene. Upon the counsel of family and friends, McKinsey and Co. was hired to assess the company’s optimal structure going forward. When she was ready, Rosa assembled the entire family and announced that she was removing Robert from the head of the business in favour of Peter. She also announced that Robert’s son Michael would not be invited to join the business on graduation from University. The family was split forever afterwards. Asked how she selected Peter over Robert (who went on to become a pioneer in the California wine industry) Rosa indicated that in the end she made the decision not on the basis of which of her sons would be the best steward of the business, but rather which one needed more of her protection. Rather than mediate, she mothered and decided to protect the baby of the family rather than the interests of the business.
Family businesses are wondrous engines of economic growth that many argue outperform all other business forms. And given their prevalence across many sectors family businesses present tremendous employment opportunities for executives in every functional area. But by their very nature, family businesses have unique characteristics that make them intriguing yet dangerous potential employers.
In Part II we will turn to succession and the specific issues around hiring and working for family businesses.
About The AuthorRobert Hebert, Ph.D., is the Managing Partner of Toronto-based StoneWood Group Inc, a leading human resources consulting firm. He has spent the past 25 years assisting firms in the technology sector address their senior recruiting, assessment and leadership development requirements. Dr. Hebert holds a Masters Degree in Industrial Relations as well as a Doctorate in Adult Education, both from the University of Toronto.