All in the Family: Cornerstones of Successful Family-owned Businesses
By Linda Myers
What is it about family-owned businesses that endlessly fascinate us?
Lurid newspaper tales about high-profile, large, family-owned businesses crashing and burning give a distorted picture. But so do profiles of Fortune-500 family-owned companies that claim they do better than their publicly held competitors solely because they are privately held.
The mundane truth is all businesses, including private, family-owned ones, do well if they are well run. What may be less evident, however, is how much of a stake we all have in the success of family-owned businesses, which are at the core of a thriving American economy.
More than 90 percent of all businesses in the United States are family-owned, and almost 35 percent of all Fortune 500 companies are family-controlled, according to a BusinessWeek report by Stacy Perman in 2006 citing statistics from the University of Southern Maine's Institute for Family-Owned Businesses. Such businesses account for half of all U.S. gross domestic product, 60 percent of the country's employment, and 78 percent of all new jobs, she states.
But for every successful, multigenerational, family-owned business, there are two that don't make it from the first to the second generation, Perman also notes.
What characterizes the success stories? Traits common to the family-owned businesses featured here include a spirit of entrepreneurship and creativity, mutual respect and cooperation, clear communication, willingness to change, fair play, and a commitment to good citizenship.
A haven for entrepreneurs
After graduating from the Johnson School, Scott Weaver, MBA '90, president and CEO of APR Supply Company, turned down offers from Procter & Gamble and Silicon Valley firms to join APR Supply, a successful wholesale distributor of plumbing, heating, and air conditioning supplies in central Pennsylvania, because he liked the entrepreneurial opportunity it offered.
The company, headed by his father-in-law, Randy Tice, grew out of one started by Tice's father in 1922. But before he accepted the offer, Weaver told his father-in-law: "If I'm going to come and work for you I want to control my own destiny." What mattered most to him was ensuring his independence while harnessing his entrepreneurial drive to help the company grow.
He managed to accomplish that, as well as solve the knotty problem of succession, by working with Tice to restructure APR into three separate companies that, to the outside world, look like a single entity.
In 1990 Weaver headed up the first of two spin-off companies. "I had 50 percent ownership, and my father-in-law held the other 50 percent," he explains. By 1995 his firm was doing so well that he was able to purchase all its shares. Meanwhile, as part of the plan, his brother-in-law, John Tice, started the second spin-off company in 1994, which also flourished. In 1998 the two smaller companies purchased the larger company, which is now the leader in its region and growing at three times the industry rate. "We had the success and equity base to do that independently," says Weaver proudly. "And because we both still have our own companies John and I have never argued about a decision."
Carefully crafted succession
Weaver gained insight into what can go wrong when a family business passes from one generation to the next after he heard horror stories from fellow members in an industry association who had been through it all. "There's no magic bullet," he says. "You have to be willing to tackle the hard issues to find a path to succession. You can't hire attorneys to do it for you."
The Tice and Weaver families have since put together a constitution of values that spells out what the next generation needs to do to get involved in the business. Some requirements: a college degree, four years of outside work experience, and two more in the company's management trainee program.
A similar version of that innovative approach seems to be working well at S. C. Johnson & Son, Inc., one of the largest and oldest privately held multigenerational family businesses in the world. Headquartered in Racine, Wisc., since its beginnings in 1886, it now consists of four separate companies under the umbrella of the Johnson family name: S. C. Johnson & Son, Inc., headed by H. Fisk Johnson, '79, MEng '80, MS '82, MBA '84, PhD '86; Johnson Outdoors and Johnson Financial Group, both headed by Helen Johnson-Leipold '78; and JohnsonDiversey, headed by Curt Johnson '77. Winnie Johnson Marquart '81 is president of the Johnson Family Foundation, a philanthropic group.
The succession plan was developed with family input by the siblings' father, Johnson School benefactor Sam Johnson '50, who headed up S. C. Johnson & Son, Inc. from 1967 to 2000 and died in 2004. His plan for succession was praised in The New York Times in 1999 for the foresight of its vision.
"There's no tried-and-true formula to success in family businesses, but there is a sense among historians that the best model may be the Johnsons' no model at all, really, just subtlety and nuance," wrote David Barboza in The New York Times.
Scott Weaver, MBA '90, ADR Supply Co.
Sam Johnson began to diversify the company in the 1970s, buying makers of outdoor equipment and starting a local bank, the story noted. He then worked to interest his children in joining the team. They formed a family council, met regularly and eventually each spoke with him privately about what interested them most.
"While we fought like cats and dogs as children, we each found our spot as adults," Johnson-Leipold stated in the article.
Open to outside expertise
What is it like to work for a family-owned company and not be a member of the family?
When Kevin Malchoff '74, MBA '75, left General Foods in 1981, after nearly six years there in marketing, to join Rich Products Corp. at its headquarters in Buffalo, N.Y., the fact that the company was family-owned appealed to him. "They had a true team environment, a passion for the customer and for innovation" that the larger firm didn't seem to have, recalls Malchoff, who is president of Rich Products' International Business Group.
The firm garners $2.6 billion in annual sales as a supplier of a range of products from pizzas to desserts to restaurants, in-store bakeries, university dining services, and other food-service operations. While business-to-business clients know all its brands, the most-well-known to consumers may be Rich's Coffee Rich, the first non-dairy creamer.
Now president of the company's international business group, which counts clients in 73 countries, Malchoff says that the company's motto, "We will treat our customers and associates like family," reflects the values of founder Bob Rich Sr., and his son and daughter-in-law, Bob Rich Jr., now chairman, and Mindy Rich, co-chair. Rich Sr. is a former college football player and wrestler who took time to elope with his sweetheart on his way to a competition at Cornell, company legend has it. He "played to win" but also believed in teamwork, innovation, doing what's right and bettering one's community, all part of the company's set of beliefs, reports Malchoff.
"Our customers and joint-venture partners feel very comfortable working with us because they know that they're dealing with a business with family values that will be there many years from now," he says.
In addition, as a privately held, family-owned company, "We can plan for the long as well as short term." Access to capital often a challenge for private, family-owned businesses has not been a problem. Rather than being hurt during the economic downturn of 1988, the company managed to invest $20 million in research and development that is paying off for Rich's and its customers in new and innovative products, he reports.
Rich Products employs many Cornell graduates, Malchoff notes, and the company's support for community involvement has led to its hosting the Cornell Club of Buffalo's annual fundraiser in the soaring glass atrium at its headquarters. In addition, Malchoff, who comes from a Cornell family (his father, Godfrey "Doc" Malchoff '43, as well as his brother, son, and daughter-in-law are also graduates), has also been able to fit his volunteer efforts for the university into his busy schedule. They include serving on the Cornell University Council and on the advisory council for Cornell's undergraduate business program.
Not surprisingly, APR and S. C. Johnson & Son, Inc. also see community involvement as a family-company value and champion it among their employees.
And Schnuck Markets Inc., another family-owned business with Johnson School links, recently won the Right Arm Award for its commitment to community leadership and service, from the Regional Chamber and Growth Association of Saint Louis, where it has its headquarters. The company owns 103 supermarkets in seven Midwest states, from Mississippi to Wisconsin, employs more than 15,000 people, and has annual revenues of $2.5 billion.
"Community involvement is one of our core values in our mission statement," says Craig Schnuck, MBA '71, former chairman and CEO, who now serves as chairman of Schnuck's executive committee.
"It was instilled in us through example by our father, mother, and uncle," adds Todd Schnuck, MBA '83, now president of the company. "We could see how important it was to our business and what it meant to our employees and customers."
Begun as a single meat market in 1939 by Craig and Todd Schnuck's grandparents, Schnucks stores today have their own pharmacies, florists, and in-store bakeries. Pricing is competitive, customers can shop online, and the company Web site offers up-to-date information on product recalls and other news related to consumer health and safety.
Schnucks also is the largest contributor to Operation Food Search, a food bank that works to feed the St. Louis community's poor and disadvantaged. Schnucks supermarkets in St. Louis and their associates have given more than $1 million dollars annually to the city's United Way Campaign for many years. And Craig and Todd Schnuck and their four siblings involved in the business today have served on the boards of most of the city's civic and non-profit groups, working at such tasks as increasing diversity within area companies and improving city schools.
Clear expectations and Common Goals
Staying ahead of the competition continues to be Schnucks Markets' top goal. Todd Schnuck still refers to Professor Harold Bierman's lease-versus-buy calculation when property decisions are made. And Craig Schnuck still grocery shops every week for his family to ensure that the quality of the company's stores is maintained. "We are able to differentiate ourselves from the Wal-Marts and other big competitors because we live in the communities where our markets are and we understand what our customers want," he says. "We believe that our people offer a high level of service and the variety and quality of our products set us apart."
One practice that may distinguish Schnucks from other successful family-owned businesses: The firm requires family members in the business to meet monthly and grade one another annually on how much each has contributed to family harmony, which it places above business success. "It's something you have to work at," says Todd Schnuck. "We've all heard the war stories and are dedicated to making sure they don't happen here." For him, the best thing about being in a family-owned business is, "It's great to be successful and work toward common goals with siblings."
The best interests of the company remains the guiding principle at Bissell Inc., a maker of vacuum cleaners, cleaning, home, allergen, and pet care products in Grand Rapids, Mich., that employs 3,000 people and has annual worldwide sales of $850 million.
The company had its beginnings in 1876, when the great-grandfather of Mark Bissell, MBA '82, patented an improved carpet sweeper that became a commercial success. And it made history in 1889 when Bissell's great-grandmother became CEO, after her husband's untimely death that year.
But by the time Bissell's father, John Bissell '52, MBA '54, took over the reins of the company, recalls Mark Bissell, "he thought there were too many family members in the business." So he put a policy in place, similar to the constitution of values at APR, which "specifies that anyone interested in entering the business needed an MBA and a minimum of five years relevant work experience elsewhere."
With no pressure to join Bissell but a requirement to prepare himself if he was interested in the business, Mark Bissell worked in credit, lending, and leveraged buyouts at several banks in New York City after earning his MBA, before deciding to return to Grand Rapids to learn the business in detail. "I went through every department – sales, manufacturing, marketing – before I knew enough and had earned enough credibility to become president of a division," he says. He eventually rose to his current post of president and CEO.
"Family dynamics can be divisive or the glue that holds the family together," he explains. "One reason that Bissell has stayed private is our family is supportive of the business and recognizes that if it does well, the family does well. The challenge is to [get] the strengths of the family and the business to work in parallel and keep the business strong. Fortunately, we continue to do well in a competitive global environment."
Mark Bissell credits several executive education courses with helping him to better understand the family-business dynamic. "Although all family-owned businesses are different, they are also about 70 percent the same when it comes to issues involving rules, boundaries, and transitions," he says.
Praising his father for communicating his plan for succession to family shareholders and employees over time and for eventually turning over the reins, Mark Bissell says, "I give my dad a lot of credit. It's not easy to give up power."
His advice to others: "Always communicate everything. It's not a popularity contest. You've got to make tough decisions in the company's best interests."
Like Malchoff, he sees the biggest advantage of remaining a private, family-owned business as "allowing you to focus on long-term issues." But a less-tangible benefit also stands out. When a vice president who had risen through the ranks at Bissell was honored at a retirement party recently, he praised the company, which had put him through college, for its role in his success.
"It gave us a chance to reflect on what a great company this is and what that individual contributed," Mark Bissell concludes. "You get less of that at a publicly held company with thousands of shareholders."
6 Habits of Highly Effective Family-Owned Businesses
Successful family-owned businesses have many traits in common. The companies profiled here share the following practices:
1) Engage staff and family in defining the company's core values.
2) Pick the best people for each job based on ability as well as interest, and support relevant training and constructive feedback.
3) Develop a way to resolve business-related disagreements among family members.
4) Engage the next generation early, nurture managerial talent, and create reasonable requirements for entering the business.
5) Develop a long-range plan for succession and communicate it clearly and frequently to staff and family members.
6) Be a good corporate citizen through community involvement and encourage your employees to get involved as well.
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