While some families create--as an exercise by the entire family--a family constitution for the purpose of enshrining the heritage that will guide future generations in the family-controlled enterprise, others come to power in such enterprises having found that the founder or entrepreneur has taken on a second identity, that of creator or "settlor" of a trust which controls the enterprise. On some occasions the settlor has stated the legacy with a clarion call which echoes clearly across the years. While it must be said that virtually all trust vehicles under modern estate plans are created primarily to establish the mechanics of control by the settlor's family and/or to minimize estate taxation on such holdings, some business owners also utilize the trust instrument to set forth their personal values and endeavor thereby to provide a heritage as well as control of a pool of assets to future generations. Perhaps no trust exemplifies this reality more than the 1997 trust created by the descendents of Adolph Ochs to preserve control by his family of the New York Times. This trust, which came into effect after a series of transactions following upon the death of his daughter, Iphigene, in 1990, which terminated the trust originally created by Adolph Ochs, expresses not only the clear intent of the family to continue control of the New York Times through ownership of Class B stock in the company, but also the journalistic heritage commenced by Ochs and preserved and protected for more than a century by his children, grandchildren, and great grandchildren. As disclosed in the New York Times Company's April 24, 2000, proxy statement:
The trustees of the 1997 trust...are directed to retain the Class B stock held in the 1997 trust and not to sell, distribute or convert such shares into Class A stock and to vote such Class B stock against any merger, sale of assets or other transaction pursuant to which control of the NEW YORK TIMES passes from the trustees unless they unanimously determine that the primary objective of the 1997 trust, which is to maintain the editorial independence and integrity of the NEW YORK TIMES and to continue it as an independent newspaper, entirely fearless, free of ulterior influence and unselfishly devoted to the public welfare, can be achieved better by the sale, distribution, or conversion of such stock or by the implementation of such transaction [Emphasis supplied] (www.nytimes.com ).
While at least one trenchant commentator has observed that transferring a family business from an entrepreneurial family to a fiduciary can promote profound cultural changes adverse to continuity of the family''s culture [Marcus 1991], for over a century the Ochs/Sulzburger family has preserved a family which controls an enterprise of global importance, in no small part because the controlling family''s values, formalized in a trust instrument, continue to ensure the competitive vitality of the enterprise they control.
The culture of the family is the wellspring of corporate culture in family-controlled enterprises, and choices of management succession are most successful when they are grounded in the continuity of the family's culture as well as responsive to the needs of the business.
One of the most pernicious myths burdening even the most successful family-controlled enterprises is that "succession planning" requires selection of one owner/manager from the family to replace the incumbent CEO of the family firm, and, thereby, to assume simultaneously leadership of both the enterprise and the family that controls it. This misunderstanding about "succession" in family firms is rooted in two unrealistic and often unspoken assumptions: (1) that family firm "succession" mirrors the watch change on board ship or the American presidential succession, i.e., in one magic moment all power and authority shifts from one person to another; and (2) that serving as CEO of the family firm constitutes ipso facto leadership of the family. Some rebuttal of this misunderstanding is required to appreciate fully how heritage and tradition in a family business enhance the promise of the future beyond the four walls of the family-controlled business enterprise.
Founders of family firms exercise a singular kind of plenary authority with five concurrent roots: They are the founders--literally the creators of the firm. They are usually the sole stockholders, exercising solely the full control of ownership. They are the board of directors, which usually does not meet, and if it does, usually has only one member. They most often are the manufacturing, merchandising, or operating genius behind the operating business' success. And they are the head or co-head of the family. This five-fold grounding of authority is never replicated in full by the next generation, and successors rarely exercise any approximation of this authority for obvious reasons: They are not founders. Except in the case of only children, they share ownership control under estate plans with siblings or co-trustees. If the board of directors exists and meets, they share governance power with other directors, often including non-family directors. They may not be expert in the arenas the founder dominated and may have to rely on non-family managers for equivalent management success. And they are either siblings or cousins, not parents to others in the system with whom they share power. Thus, the notion of "succession" as a one-for-one intergenerational substitution is a myth. There can almost never be a successor who exercises authority akin to that of the founder. While in some instances a successor may drive the business much farther than the founder, his or her greater success and consequent authority represents more of a reinvention of the firm, not a succession to the founder's authority.
What then really happens in family-controlled enterprises that endure is a process more accurately denominated "continuity planning" than succession planning, when one generation transfers power and control to the next generation (Ayers, 1990) 2000). What the family seeks and what the business needs are continuity of leadership, continued adherence to core values, combined with continuous reinvention of strategies and tactics (as noted earlier in the excerpt from Built to Last). When a family is focused on continuity of its legacy and its core values, the prism through which the family/control group of stockholders looks at the future fractures the unitary projection of a sole "successor" into a concurrent set of leadership roles, all of which are grounded in the heritage and values of the family. Thus, control of the family's enterprise requires owners, either in their own name or as trustees, who can act as stewards of family wealth, relying upon the guidance provided by the constituent documents of family-controlled enterprises to preserve their long-term viability. This role would include, first of all, the prudent exercise of judgment in selecting directors [or the equivalent in non-corporate governance structures] to supervise management. The directors, similarly, would be skilled in policy review and collaborative decision, and, therefore, able to choose the best executive available to serve as CEO, whether family or non-family. While one hopes that CEO's understand and internalize a family-controlled enterprise's core values, sometimes they do not. CEO's are hired by directors, and sometimes, for cause, fired as well. Thus, family control groups ultimately must select family members best suited by temperament and skill to serve as stewards of the ownership group, as directors to debate and guide the enterprise's strategies grounded on core values, and as management to implement strategies and tactics. These are three different roles requiring three different kinds of skills. Not all earnest, dedicated individuals can fulfill all three roles.
Having separated continuity of the business into three separate functions, two concurrent leadership roles remain, neither of which is addressed by the term "succession," but which are key to successful "continuity planning:" The first is family. The second is community. Leadership of the family is addressed at the end of this article. Family leadership in the community is the focus here.
Between the family and the business, the larger reality is the family. The business controlled by the family supports its livelihood. Other entities, focused on community, rather than profit, express the balance of a familyıs core values and offer leadership roles to family members not attracted by business management.
As Sally Kleberg writes elsewhere in this volume, "In generations past, when the family farm was the largest single segment of the economy, agrarian values shaped, defined, and passed on the cultural values in this country., . . . Sharing the load, everyone having a useful purpose no matter how big or small, no matter what their ethnicity or gender; frugality; a reverence for nature; neighborliness; stoicism; strong work ethics; and more characterize what farming and ranching families were and are about" (p._ in this volume). While the family farm is now on the endangered species list, it does have a more numerous contemporary sibling and successor as the locus for unifying work and values: the family-controlled enterprise. And in the predominantly urban and suburban culture of 21st century America, it is this enterprise that remains the bulwark of most communities large and small. Family-controlled companies such as Fel-Pro [described below] themselves can affect communities and issues profoundly. But families have other endeavors they control that can simultaneously think globally and act locally. Foremost among them is the family philanthropy.
Sally Kleberg paints a superb portrait of how the heritage of a family connects the experience of its past to the promise of its future in her chapter of this book when she writes about the King Ranch family and the enterprises, for-profit and charitable, they control. Leadership in the King Ranch familyıs philanthropy is spread across many family members and is separate from and concurrent with the management suite of the operating companies the family controls. Family philanthropy requires sensitivities and skills which may differ from those successful management requirements. Family members who may choose not to become managers or whose superb skills are not congruent with an operating company's needs (the emergency medical technician or the trombonist) can nonetheless find vehicles for their personal passion for particular issues or societal needs. However, what differentiates expression of such passions and commitments through family philanthropy is the potential scale family foundations and other family philanthropic endeavors can have. Leadership in family philanthropy can provide a legitimate vehicle for a family member disinclined or unsuited to business management to express leadership of and for the family. Family members who are superb performers in the private, for-profit sector may see the very different venue of public policy and the culture of political institutions as arenas fraught with failure. They may even welcome the contributions of others who can be successful in and on behalf of family on public policy issues and on behalf of their community. They can bask in the efforts of relatives whose philanthropic work expresses the heritage of their family, thereby both augmenting and burnishing the legacy of the family and enhancing the promise of the their community's and family's future.
Great principles are seen in the smallest details. An enterprise's human resources policies speak volumes about its core values
Among the writings of the Rabbinic sage, Maimonides, is a table of eight levels of charity (www.torah.org ). The bottom rung on the ladder consists simply of giving alms to the poor when asked. Intermediate levels of charity include giving without being asked, and giving anonymously. However, the highest level of charity, according to Maimonides, consists of providing a person with the dignity and independence of employment. Few modern companies have celebrated this value with the gusto of Fel-Pro, Inc. Not only did the company enjoy eight decades of success as a family-controlled enterprise, but...
Few companies matched its dazzling array of benefits--vacations of up to 12 weeks. A summer day camp for employees' kids, a government bond for every newborn, $3500 a year for college scholarships...Fel-Pro, a manufacturer of automobile gaskets, sealants and adhesives...was on everybody's list of the best companies to work for in America... (Family Business, 2000).
until it was sold by the family that had controlled it since 1918. In an interview, Richard Morris, one of the fourth-generation family members employed at Fel-Pro when it was sold, was asked, "Where did this philosophy--this commitment to employees--come from in your family? How did you become a model?" After disclaiming any intention by the family to become a model, Mr. Morris answered the interviewer as follows:
Our feeling was that treating your employees well was good for business...We also found that if people come to work every day concerned about whether their child is flunking school, or who is taking care of their elderly parents...they can't focus on their jobs. By offering benefits...you get more productive employees and improve the company's bottom line (p.22).
During negotiations for the sale of Fel-Pro, the family that controlled the company negotiated with the purchaser to retain the company's generous benefits as a way to retain employees. The family even agreed to fund some of these retained benefits, reportedly leaving "$50 million on the table." A family's core values can surely be communicated accurately through the various documents enumerated earlier in this article, but there may be no better example of how family-controlled enterprises connect the experience of their past to the promise of their future than the employee benefit policies of Fel-Pro, Inc.
Occasionally the media does capture with unintended irony the truth about family business, as in the case of two business stories on the front page of the New York Times "Money & Business" section on Sunday, May 12, 1996. One story, "In Sweden, a Shy Dynasty Steps Out," described the Wallenberg family-controlled business empire of Sweden, which, since its founding in 1846, has "expanded to control some 40% of the Swedish stock market." As of the end of 1995 according to the Times, the family's empire had a market value of $6.4 billion. On the same page is the "Market Watch" column by Floyd Norris under the lead, "Nasdaq's Billion-Dollar Absurdity." This piece detailed the meteoric rise in the price of a penny stock, Comparator Systems Corporation. Fueled by rumors, the lepidopterous flight of this Company's shares ended predictably in a crash. Mr. Norris concluded, "Insiders sold and suckers got left holding the bag."
Two things interest me about the juxtaposition of these two articles. First is the absence of any public recognition--in the media, in business schools and law schools, or in government--of the significance of family-controlled enterprise in our economy, even as the media regularly trashes family business feuds and excuses excess in technology company management. Rarely does one encounter any treatment of the importance of family-controlled enterprise to the communities and nations of which they are citizens or to the global competitiveness of the United States or its present and emerging competitors. Quite the contrary, in America family business is viewed as either an atavistic curiosity or as an irrelevant footnote to the development of America's economic might. Family business constitutes a larger economy than all others except Japan and the overall American economy. While there is some movement in academia to create credit and non-credit teaching programs on family business and to begin research on the subject, fewer than one hundred of the twelve hundred business schools in America have any kind of family business program, and virtually all of these are less than eight years old.
Moving beyond the borders of the United States, one finds even more businesses controlled by families. In the same Sunday New York Times "Money and Business" section cited above, one could find out just how powerful family business is throughout Asia, particularly the ethnic Chinese family business dynasties known as the "Bamboo Network" (p.13). Professor Murray Weidenbaum asserted in a recent book that the key to business in the booming markets of the Asian economies (other than Japan) is the network of Chinese business families spread across the continent. According to Professor Weidenbaum, these families conduct their affairs in a way that is more directly related to their family structures and culture than to doctrines of management taught in American business schools. (Weidenbaum, 1996) Mr. Weidenbaum estimates that "the total assets of the public companies in Asia controlled by overseas Chinese exceed $500 billion." One can only fantasize about the size of the privately owned asset pool controlled by these same families.
Family business may be the greatest secret never told, or at least never reported. As the evenly split Congress struggles to maintain bi-partisanship in the first months of the presidency of George Bush, the younger, while also endeavoring to address both America's global competitiveness and its family values, one could hope for a substantive policy debate on how the federal government should deal with family-controlled enterprise: Starting with reducing estate taxes would be helpful. But a full public discussion of how a family can focus the power of its heritage through the enterprises it controls to do well and do good at the same time is what is really needed. If it occurs, then instead of train wrecks or sycophantic elegies of the rich and famous, perhaps the media will report on the fact that a company can, in the words of William Clay Ford III, "have a soul... an old soul..." and compete globally at the same time.