Family Business Success: What’s the Real Inheritance

Years ago, I wrote Entrepreneurs Are Made Not Born, a best-selling book now in eight languages. There I found that nurture was a far greater factor than nature. My new book, Invent Reinvent Thrive (McGraw-Hill, 2014), deals with both entrepreneurs and family businesses. Most people would say successful family businesses, those that make it successfully into the third generation, beating 9:1 odds, should thank their gene pool. After all, they’d say, they wouldn’t have inherited the business if they hadn’t had the right genes. I agree that inheritance is inherently different than starting your own business. So clearly, succession to family businesses are due to nature, but successors to leadership of successful family businesses may owe as much to nurture as to nature. Most entrepreneurs must search the world for role models, that search in itself being an entrepreneurial quest. Family business successors are dealt their business role models at birth, but how the family deck is shuffled and re-dealt has an extraordinary effect. For most, the deck they inherit is tempered or leveraged by lifetime, or even daily influences by parents, grandparents, etc. Here I’d like to explore how and where ancestors transfer their most important legacy, the values and principles that make up the infrastructure of their family’s enterprise. The common allegories tell us that such principles are obtained: by visiting the office or factory on vacations or weekends; at the dinner table (every day or on holidays); and attending business dinners or events. What really happens in each of those places and experiences? Is it formal lessons, observing the ancestors, or experiencing under the ancestor’s wing? How important are stories, and does it matter when (e.g. when the next generation is young and impressionable) or where (office, dinner table, etc.) the stories are passed along?

The point of this blog post is that when it comes to ancestral family business stories, what matters most is how they are communicated. Many different times and places can work, but the nature of the transmission often is what has the greatest impact—positive or negative. Moreover, how stories are communicated depends heavily on the nature of the family, its business, and specific circumstances. That’s what’s suggested by the examples below, taken from by book Invent Reinvent Thrive.

Col. Henry Crown founded the vastly successful Material Service Corp. with his brothers after World War I. His son, Lester, used to bring his two sons, Steve and James, with him to the office on Saturday mornings. Usually he sent them down the hall to the colonel’s office to spend time with their grandpa. Henry was a great storyteller, with extraordinary stories to share, including how he came to secure the Empire State building for his portfolio and why he failed to acquire the land where the U.N. now sits. The principles inherent in those stories, including those relating to strategy, philanthropy, and Judaism-based values, are still part of the company’s compass. James, the firm’s current leader, remembers the stories well, as does his brother, Steve, and they continue to share them with the next generation.

Tom Pritzker – of the Chicago family that owns Hyatt hotels and many other assets – heard stories from his father, Jay, and his grandfather, A.N. The most impactful may well have been those told after Tom had come to work at the company. He and others in his generation learned about business, investment, and structure at home but Tom’s most important lessons were those experienced at the office. He watched how Jay and A.N. treated non-family founders and CEOs of the businesses the Pritzkers invested in and controlled, with an emphasis on A.N.’s legacy of integrity, reputation, and fairness. Such observations were reinforced by explanations and concrete lessons from Dad and Grandpa. This on-the-job learning became an important way to transmit the Pritzker family values and culture.

Unfortunately, fellow third-generation member and successful venture capitalist, J.B. Pritzker lost his father, Don, before the elder Pritzker could communicate many stories. Grandfather A.N. and uncles Jay and Bob tried to help, but they were in Chicago, over 2000 miles from J.B.’s California home. So when J.B was old enough, he talked with his parents’ friends and pieced together what he could, suggesting that it’s usually not too late to learn from family lore and that family lore can be transmitted by non-family.

From an early age, Linda Johnson Rice sat at the dinner table with her parents —John Johnson and his wife Eunice, who in the 1940s founded Ebony and Jet, the first magazines targeted at African Americans. The magazines and subsequent Johnson holdings, including cosmetics and travel products, were highly successful, and among the Johnsons’ dinner guests were high-profile people from the business, political, social, and entertainment worlds. That meant Linda learned, at the table, how to deal with people of fame and power, as well as the importance of diversity and collaboration. She also worked, first part-time and later full-time, and observed how her father handled complicated and sensitive business matters. He was also a communicative father/manager. She gained insight into why he wanted things done, and he was able to watch her and gain comfort that she understood and could accede to her father’s wishes. He also knew that she had the wisdom and judgment to do things differently than he would, in ways more consistent with and necessary in the “new world.” He made clear to her, in his own way, that she was authorized to do so, and he paved the way with key employees to better enable Linda to lead the company. His style was nurturing to the nth degree.

Marilyn Carlson Nelson, like Linda Johnson Rice, learned from both the dinner table and her time at her family’s business, which often intersected, such as the lessons she learned from father (founder Curt) at Sunday dinner at Carlson’s hotel restaurants. He regaled family with stories of his autocratic style, but seemingly contradicted those with his urging his family to vote on particular family expenditures. He clearly communicated to Marilyn that his goal of creating a business that would last 100 years would and should take precedence over his style choices. What Marilyn learned was especially important when she took over leadership of the family’s business’s —including Radisson hotels, TGI Friday’s restaurants, and Carlson Wagonlit Travel —in 1998, one year before Curt’s death.

The second-generation Bronfmans, Charles and Edgar, became co-chairmen of Seagrams— producer of spirits and other consumer products—after their father Samuel’s death because those were Sam’s orders. But the non-communicative relationships among Samuel, Edgar, and Charles, left little space for the transmission of stories and values, and the second generation was particularly resistant to their father’s style, as they had seen it lead to multiple outbursts and estrangement from others. This history contributed to a particular absence of lesson-teaching on Edgar’s side, with disastrous results. His son Edgar Jr. incurred a multibillion-dollar loss for the family when he sold Seagram to Vivendi, an act that is directly related to Sam’s failure to communicate properly with his sons, as I explain in Invent Reinvent Thrive.

As the examples here suggest, ancestral family business stories are important vehicles for communicating principles, values, and practices across generations. But where and when they are transmitted—whether at the dinner table or in the conference room, whether during childhood or much later—is much less important than how it is done: with a priority on communicating them in the first place and, ideally, doing so in a supportive, constructive manner. Lastly, the use of stories- – from earlier days or even as lessons from concurrent events- – can be powerful.

The “Ghost on the Wall” Theory of Family Control (2 of 3 Part Blog Series for E&Y)

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‘The “ghost on the wall” theory of family control,’ is Lloyd Shefsky’s 2nd installment of a 3-part author inspired series, published on the Ernst & Young Family Business Center blog, Aug. 25, 2014.

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