It’s a family affair

Hostile
takeover bids, multi-million deals, boardroom rows – and all among members of
the same family. Jane Lewis looks at the unique challenges for HR in dealing
with the dynasties

Family
firms are often seen as anachronistic in the faceless, corporate world we think
we inhabit. Yet they are the building blocks of the modern economy, accounting
for 75 per cent of the UK’s small businesses and the largest chunk of the
country’s GDP.

But
it would be wrong to assume that family businesses are small-time Joe Bloggs
& Son outfits, whose links with a particular family will evaporate as the
firm matures and takes on an identity of its own. This does happen in lots of
cases. Some of the world’s largest and most powerful organisations are run,
almost feudally, by their founding families – from the Murdochs, to the
Wallenbergs (a Swedish dynasty with a finger in most of Europe’s largest
companies). In the US, companies such as Johnson & Johnson, Marriott and
Motorola are family determined, as are a high proportion of South East Asia’s
electronic powerhouses.

From
a human standpoint, family companies are more interesting than any other kind
as they offer a glimpse into the kind of tensions that would normally be
rehearsed behind closed doors. The emotional squalls of family life are played
out on the public business stage and the stakes are high. Family firms make
natural soap operas, whether played up in Only Fools and Horses or glitzy in
Dallas.

But
even the most fanciful fictional scenarios look tame when compared to the real
thing. Peter Leach, chairman of the Stoy Centre for Family Business, says:  "When a family business I worked for
decided to liquidate part of the firm, the person in charge of that division
came to a meeting with an axe and buried it in the desk of his uncle, the
chairman."

The
strong passions that family businesses inspire add a new dimension to the role
of HR within them. And when there are disputes life can get very difficult indeed,
says Chris Pierce, deputy director of the Institute of Directors’ professional
standards department; particularly given the danger that these disputes may
trickle down into the rest of the firm.

Sparring
and jostling for position is common in any company, but because senior
management figures in family firms are frequently larger-than-life figures, the
impact of their actions on the workforce is often stronger. Even when family
members are no longer in control, their influence can affect the workforce and
undermining management. A case in point is Hewlett-Packard, where chief
executive Carly Fiorina is at loggerheads with the founders’ descendants, who
retain a major shareholding. The issue at stake is the US$24bn (£17bn) merger
with Compaq on which Fiorina had staked her career.

Given
the scale of layoffs it necessitated, the deal was unpopular at HP. The
downsizing programme was going to be tough, but with careful handling from HR
there is no reason why it could not have been managed successfully – until the
Hewletts and the Packards stepped in.

Aghast
at the scale of the cuts, they attacked the merger – and were deluged with
letters from HP staff attacking Fiorina’s high-handed management. The result
was immediate internal schism – the stuff of nightmares for any HR department.

"It
is difficult for people to challenge the family," says Rob Yeung,
consultant with business psychologists Kiddy & Partners. Because continuity
is often a byword in these firms, it can be frustrating for those seeking to
push through reform.

Even
when everything is running smoothly, the chief problem in many firms is that
formalised lines of management are easily blurred. "It can get confusing
for people outside the family circle," says Pierce. "Managers can get
different messages from different family members."

This
is one reason why HR managers in many smaller family-run firms can experience
problems when recruiting: many able candidates steer clear of these firms as
they fear their progress – and the ultimate rewards they could get – will be
impeded by the dominance of the family.

Although
the peculiarly strong passions that family businesses inspire can be
destructive if left to run amok, they can lend an advantage if channelled
positively. One of the chief strengths of such firms is often the personal
drive of individual members. This makes these companies great stayers.
Archetypal family firms are much more interested in safeguarding the goose that
lays the golden egg than they are in the eggs themselves. "There is a need
for profits to be made, but the overriding objective is long-term
survival," says Pierce.

Family
firms play a long game. "They’re not in it for the short-term quick
buck," he  – an ethos that suddenly
looks very attractive in the today’s climate of short-term boardroom
enrichment. Every business leader wants to hand on a more successful operation
than the one he or she inherited, but in family firms this can become obsessive
as each generation strives to better the one before.

This
may explain the huge number of tycoons – from US media mogul and CNN founder
Ted Turner to Dixon’s chairman Stanley Kalms – who began by taking a firm
inherited from their parents and driving it to new heights. In Turner’s case,
much of the drive sprang from a need to prove himself to his father, an austere
man who disapproved of his son’s youthful excesses and was driven to suicide.
It is impossible to assess the impact this had on Turner’s subsequent meteoric
rise through corporate America. But it illustrates how family trauma can
dramatically shape the fortunes of a company.

Another
reason why family firms frequently out-perform other companies, says Leach, is
that succeeding generations of management arrive "imbued with the history
of the business". If you have spent your childhood surrounded by talk of
the business, you inherit a feel for the firm and its practices that any newly
recruited external employee would find difficult to replicate. Thus Steve
Forbes, chief executive of the eponymous US business publishing giant founded
by his grandfather, has been effectively working for the firm since he was 10,
when his father Malcolm put him in a kilt to play the bagpipes at corporate
dinners.

Although
a leading problem of these companies is the perception that family members,
unlike professional managers, have not been properly trained in the world of
business, by any other definition they are experts in their companies with an
unparalleled knowledge of internal workings and market space. "Family
firms often have close ties with the business community they operate in,"
says Pierce. As such they are inclined to behave responsibly, both to employees
and the wider community.

Many
possess the built-in power to inspire the kind of loyalty in workforces that
most HR professionals can only dream about. A notable case in point is the
Scottish soup and jam maker Baxters of Speyside, a fourth-generation company
that has doggedly maintained its independence in the face of 200 takeover
offers in its 100-year history. Despite the Baxter family’s grip on the
business ("the family involvement is crucial to the quality of the
product," says managing director Audrey Baxter) many members of its
management team, and its workforce, boast links with the company going back
decades.

The
power of a company’s founding family to inspire employees was demonstrated last
year at Ford, when chief executive Jacques Nasser (dubbed Jack the Knife for
his aggressive downsizing strategy) was replaced by Henry Ford’s great
grandson,  William Ford. The reaction to
this appointment among much of the workforce was that things were looking up:
as a member of the founding dynasty, Bill Ford had every reason to seek more
imaginative, sustainable solutions than his predecessor.

But
the Ford example highlights one of the main problems that family-owned or run
firms can encounter: namely, the ease that sentimentality can cloud judgement.
The bottom line at Ford was that the return of the founding family offered no
instant panacea. The predicament the company faced remained the same, and the
downsizing programme started by Nasser continued unabated. "My honeymoon
period lasted about a week," said Bill Ford.

Many
argue that the problems thrown up by the involvement of families in modern
firms far outweigh the benefits outlined above and can lead to headaches for
managers. The main issue, says Leach, is the way in which two different
cultures and structures are forced to mingle. "Although there is a
hierarchy in a family, the model is based on sharing and equality. That is not true
in a business."

The
question of succession is perhaps the most glaring anomaly between family-run
businesses and mainstream opinion, which now insists that the accident of birth
has no place in the modern corporate world. Yet it is amazing how the most incisive
and ruthless business brains can turn mushy on this point. The upshot, says
Yeung, is that there is no proper succession management. "Rather than have
the best people in the right jobs, you often end up with the wrong people in
the best jobs."

This
is not surprising, given the considerable pressure both parties may feel to
continue the family link. "The business may be so successful, so
cash-generative and with so much status and power associated with it that the
children feel trapped into it, when their interests and skills point them in
the opposite direction," says Yeung. Stanley Kalms has spoken of his
sadness that none of his three sons showed an interest in the Dixons brand. To
Kalms’ credit, he did nothing to force them, but many parents lack his
forbearance. And one of the chief problems facing the Swiss watch manufacturer
Swatch is the question mark hanging over the ability of the founder’s son,
Nicolas Hayek – a man wrenched from his career as a film-maker – to run the
firm effectively. So far, according to the Financial Times, "he has hardly
been a stellar performer".

The
way round the problem, says Yeung, is to enact "a really rigorous
succession plan" – and it is the responsibility of HR to manage it. You
need to look at the strengths and weaknesses of all potential candidates,
whether family members or not, and review findings on a quarterly basis. That
way you’ll end up with a good map of who may be suitable. The strongest family
firms claim they do this as a matter of course. Although the Baxter family
occupy all the top roles in their company "that was not necessarily going
to be the case," says Audrey Baxter, who abandoned a career in merchant
banking to join the firm. "We each had to earn our position."

The
situation for any HR professional looking to bring in new practices is
difficult when more than one generation is involved. "A lot of
professional managers are hired by the incoming generation of a family and
often make the mistake of underestimating the power of the older generation. Some
of these older members want to be autocratic," says Baxter.

Swatch
is a case in point. While nominally in charge of the brand, observers note that
Hayek is "all of a tremble" when his septogenerian father is on the
phone.

This
has important ramifications for the decision-making process, which in many
family-run companies is muddy at the best of times, leaving those outside the
circle confused. "There’s a tendency to set strategy informally over
dinner so there are fewer meetings than there should be," says Pierce. If
many members of the family are involved "it may take longer to reach a
consensus". Another problem, he adds, is the confusion of roles. While the
distinction between shareholders, directors and managers is clear-cut in other
firms, individuals in family-owned businesses often have difficulty
distinguishing between their roles and their sense of ownership means they are
frequently freer with money than they should be.

The
solution to all these issues is greater discipline. Family firms have a greater
need to establish rigid management structures, unequivocal reporting systems
and clear statements of the reserved powers of boards than other organisation.
Non-executive directors also have a key role to play in diffusing the
complicated emotional issues that can derail a healthy corporate strategy in
many family-owned firms.

That’s
the theory anyway. Now who’s got the balls to tell the chairman?

The
trouble with widows

One
of the uncelebrated heroines of last month’s New Year’s Honours List was Margaret
Barbour, who was made a Dame for her work in transforming her family’s
eponymous wax jacket company following the death of her husband John. But
evidence suggests that grieving widows and happy family firms do not generally
go together.

The
New York bond dealing firm Cantor Fitzgerald was recently the subject of
intense sympathy after losing more than 600 of its staff in the 11 September
attacks. Before this, the firm was at the centre of one of the dirtiest family
feuds on Wall Street. The trouble began in 1996 when the firm’s founder Bernie
Cantor died and his protege Howard Lutnick assumed control. Although the two
had enjoyed a father-son type relationship, Cantor’s widow Iris accused Lutnick
of betraying the memory of her husband and began waging a battle to oust him.
When this proved unsuccessful, she joined forces with a rival firm. Both sides
continued to sue and counter-sue. Although a judge ruled Iris had
"wilfully, recklessly and intentionally" violated her partnership
agreement with Cantor Fitzgerald, she was allowed to retain a US$100m stake in
it.

But
the business world’s most notorious widow is probably Asia’s richest woman,
Nina Wang – chairwoman and 90 per cent shareholder of Hong Kong conglomerate
Chinachem. She took control of the firm in 1990, following the kidnapping and
presumed murder of her husband Teddy Wang. Nina is renowned for her autocratic
management style and hidden reserves of inner steel. She needs them to deal
with her father-in-law, the octogenarian Wang Din-shin, who is bent on
regaining control of the family company he founded.

The
dispute rests on a will. Wang senior’s claim is based on a 1968 will made by
his son. At first, Nina insisted the will could not be executed because her
husband may not be dead as a body was never found. But when the old man won a
protracted legal battle to declare his son dead, a second will appeared, this
time in Nina’s favour. The charge levelled against her by the family is that
she forged the will to grab the firm. Others hint at worse. Either way, the
acrimonious case continues.

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