Magazine

In Praise Of The Family Business


It is not surprising that superior performance occurs when the founding families remain involved ("Family Inc.," Cover Story, Nov. 10). Some of the most spectacular episodes of business growth have occurred not only with owners and founders at the helm but also under the reign of descendants such as Thomas Watson Jr. of IBM (IBM) or Ted Turner, both of whom took over and vastly expanded their fathers' businesses. Such growth is more unusual in companies completely run by professional management.

Because of its very nature, professional management emphasizes administrative processes that can work to the detriment of successful growth. This is why many founders have trouble bringing in professional managers. Their difficulty is not just a stubborn unwillingness to let go. It often reflects a realization that the business may be stifled if entirely turned over to professional management.

Phyllis Ezop

La Grange Park, Ill.

You mention Nordstrom (JWN) as an example of a company that perhaps has grown too large for its own good, where the current generation of family management has lost the "fire in the belly." From 1991 to mid-2000, the board turned the reins over to the only nonfamily leadership team in the company's 100-year history. During that time, the company struggled on several of the performance metrics you identified in evaluating these companies.

In late 2000, the board put back in place a family-led management team, and performance has rebounded dramatically. More important, since the new team has been in place, annual shareholder returns have averaged 25%. I would say the Nordstrom family's fourth generation of leadership is showing plenty of "fire in the belly."

Paul F. Favaro

Marakon Associates

Chicago

Editor's note: The writer is an adviser to Nordstrom.

It may be worthwhile to look at the differences between original founders and founders' families. Our study (with D. Palia at Rutgers University), which considered these issues, found that whereas the founders added value to companies (consistent with your report and with American University's Ronald C. Anderson and Temple University's David M. Reeb), businesses that were led by family members actually underperformed the average company. Our sample includes hundreds of large companies over a 13-year period.

We also find that founders of a business tend to respond less to pay incentives: They work hard and need no further push. We call this trait "benevolent entrenchment." However, according to our work and that of some other research, "...later generations lose the fire in their belly" and then some.

S. Abraham Ravid

Visiting Professor

Yale University School of Management

New Haven As for the idea of the Airbus A380 ("Mega Plane," The Corporation, Nov. 10): I am a frequent flier on long-haul routes -- and I don't want to clear boarding security with 500 people on one flight. I don't want to have to travel via hubs, wait for transfers and have luggage lost and get off a plane at 5:30 a.m. somewhere with 500-plus other tired people who all have to get luggage off the same racks and pass through ever longer and more stringent passport control and customs inspections.

The Boeing (BA) vision of having more direct flights to more and smaller airports is the right answer for the traveler. Given the choice, I will always cast a pocketbook vote for the Boeing vision.

David Farnsworth

Lindon, Utah As someone who has worked in the electronic media for close to 30 years, I tell my clients that if you want instant gratification, go digital ("You don't own a digital camera yet?" Tech Buying Guide, Nov. 10). If you want to try to create a family heirloom, stick with film. Electronic storage media deteriorate in a surprisingly short time. I fear that in our rush for instant history, we'll leave no visual legacy for our future generations.

Tom Frank

Twin Falls, Idaho


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