The family of Wal-Mart founder Sam Walton continue to be a powerful force in that business. Son Robson Walton continues as board chairman of the $190,000,000,000 annual sales company. When Sam Walton died nearly 20 years ago, the family retained about 38% ownership of the company. Since 2003, the company has used spare cash for a series of significant stock buybacks. Family shareholders continue to hold their positions which public shareholders have opted for the money. As a result, the family’s holdings have grown to 49%. Recently, a new $15 billion buyback was announced. At current share prices, assuming the family neither sells nor buys additional shares and that the offer is fully subscribed, the family’s share will climb to 53%.
When a family owns a majority of a listed company’s shares, New York Stock Exchange rules no longer require that the majority of the board be independent. Some investors and pundits are complaining that the family will in effect be saying “trust us,” preferring a larger dividend rather than making funds available to repurchase shares. Of course, those who are unhappy with the situation can be among those who accept the offer.
In growing the largest company in the world (barring fluctuations in oil prices that impact energy company revenues), the Waltons have shown themselves to be outstanding stewards. Investing along side of them have made lots of folks lots of money. Betting on this family company’s success has given investors a ride from an Arkansas variety store, to the biggest business (and the biggest family business) there is.
I just finished reading a delightful family business biography: Half Luck and Half Brains: The Kemmons Wilson Holiday Inn Story. A classic “rags-to-riches” saga, Kemmons’ father died when he was nine months old leaving his mother to raise him by wit, hard work and unstinting love. Young Kemmons entrepreneurial streak was evident even as a child in his ability to see and act on opportunities. Involved in literally hundreds of businesses in his lifetime, he reinvented the lodging industry after a frustrating 1951 family vacation with a vision of a national chain of reasonably priced, consistently high quality places to stay along the highways of America (and eventually, the world) called Holiday Inn. In every way, he was a giant of international business who walked with the world’s mightiest leaders in business and government.
Holiday Inn became a public corporation and was sold to Bass LLC in 1979. Wilson’s on going opportunistic ventures and numerous enterprises comprised a vibrant family enterprise under the leadership his three sons and involving three of his grandchildren. The family’s continued success depends not on replicating the patriarch’s business practices, but by applying the family’s values and reinventing and rationalizing the family’s business operations.
Wilson maintained that the most important blessing in his life were the women in it: his mother, Doll, and his wife, Dorothy. When the book was completed, all five of the second generation siblings lived in the vicinity of their hometown of Memphis, TN, as did the grandchildren. There had been no divorces in three generations. A large, close and loving family was a greater accomplishment for Kemmons Wilson than his mighty financial accomplishments.
Kemmons and Dorothy Wilson have passed on now and left a marvelous legacy of family, business and good works. The family celebrates their heritage and recognizes their founder as an unique phenomenon, never to be duplicated. They follow in his footsteps as a family, and as a business, they honor him by constantly seeking new and better ways to serve their customers, their associates, and their partners.
I’ve recently been dealing with a number of family businesses where the “next generation” is already in their 40s and even 50s and whose parents are “protecting” their children. Protection comes in several forms: providing lots of money; bailing them out of trouble; giving them jobs in the family business with little or no accountability for behavior or performance, and the like. As one family business business leader put it: “I want my children to be accountable — I just don’t want their feelings hurt.” Paradox aside, the result can be a next generation full of entitlement, unprepared to rise to the responsibilities of management and/or ownership, and oblivious to their own shortcomings.
New York Times columnist David Brooks recent column aimed at new college grads sound a similar note. He describes current graduates as “members of the most supervised generation in American history,,,they have been monitored, tutored, coached and honed to an unprecedented degree.” Brooks points out the mismatch between the mindsets and skills learned under such circumstances and those required for success in an environment “requiring a different set of skills which they have figure out on their own.”
Self reliance is the key and it is difficult enough to develop in affluent young people even when the conditions are right. The ability and confidence to figure out which problems need solutions and how to go about developing and applying solutions are essential to successful family business leadership. Such skills and attitudes can be developed only with the opportunity to make and implement decisions, to get rigorous and unvarnished feedback, and to be explicitly held accountable for behavior and results. Young people held to high standards won’t always feel “happy” with such discipline. They may even decide (or have it decided for them) that a career outside the family business is a wiser choice. In the long run, such decisions are usually best for all involved — the young person, the parents, the family and the business.
Paul Spiegelman started a business in 1985 with his two brothers. Called Beryl, the business is a call center that caters to hospitals. The company now has 350 employees and $35 million in revenues. One brother passed away and the other went on the other entrepreneurial ventures. Unlike most players in his industry, Paul told the New York Times that his business had developed a “great internal culture” with client retention and employee retention rates unheard of in the industry. This culture allowed the company to provide greater value to clients, build profitability to six times industry averages, and thus, invest in further improving the business.
Spiegelman, now 53 and financially secure, first decided to accept an investment from a private equity firm, and then walked away from the deal. He realized that the investors expected to get a return on their investment in four to six years and that going down that road would have a negative impact on the company’s culture. He realized that he could continue to grow the business using cash flow, and for the first time, some bank debt.
Many entrepreneurs dream of starting a business, growing a business and realizing a big pay day by selling the business. Others dream of creating a unique organizational culture that provides on-going growth and value into a indefinite future. Spiegelman now has new dreams. He is looking at the possibility of a employee stock ownership plan, but also told the Times, “I never thought this was a company my children, who are 5 and 9, could run. But now sometimes I think, maybe they could.”
The three questions that JoAnne Norton asks in this month’s Family Business Advisor brings to mind three questions that I often ask next generation principals of family business clients. As they struggle with questions of mission and strategy for their businesses in the course of generational transitions, I ask three questions: “What do you want to do?” “What do your current customers want you to do?” And “What will the market allow you to do?” Thinking through those three questions, especially in terms of determining where they intersect, can open a door through which to view potential futures.
To read the March issue of the Family Business Advisor click here.
A visit to Chick-fil-A reveals much about the organization. The facilities, usually crowded, are pristine. The employees, a rainbow of young (but during this recession not always so young) faces, inevitably are welcoming, smiling, helpful, polite and quick. The food is hot, tasty, reasonably priced, and healthy options are available. The menu is displayed attractively but there is no “value menu” with cut-price items (the patrons seem to find value in the restaurant’s regular offerings).
While locations are not on every corner, they are convenient and easy to locate in the areas where the company operates. A tasteful poster on the wall (there are several) talks about opportunities with the company and reveals that outlets are operated with carefully selected partner/managers, a very different model than that commonly seen at other fast-food franchises. The poster also talks about college scholarships provided to employees, one of the factors that allows the company to be highly selective in who it employs and gives it perhaps the lowest employee turnover rate in a high turnover industry.
Another tasteful poster shows the company’s philanthropic thrust (without calling it that) – aimed at providing life sustaining and building programs for challenged youth and families. One program is aimed at building stronger marriages.
If you visit Chick-fil-A on a Sunday, however, you won’t see any of these things. You won’t be able to get in. The place will be closed. The entire operation is closed on the Christian Sabbath at a cost that Forbes Magazine estimates to be in the neighborhood of $500 million in annual sales.
The Cathy family, owners of Chick-fil-A, is strongly Christian, but no religious icons decorate restaurant walls. No Christian tracts are handed out with the waffle fries. While an employee walks among the diners at their tables offering to refill drinks, no one encourages saying grace before their meals.
The recent protest over a local Chick-fil-A providing lunch to a group that promotes the traditional view of marriage focused a national media spotlight on the company. Dan Cathy, second-generation owner/executive, said that Chick-fil-A values everyone and isn’t “anti” anyone. He said that the company’s goal is to create “raving fans.”
I’ve run into some of those fans. Like my client in Cleveland, Ohio – third generation in a very large family business who could afford any restaurant but had his 30th birthday bash at Chick-fil-A. Or the porter at the Honolulu airport who saw my Georgia driver’s license (Chick-fil-A is headquartered in Atlanta) and told me to tell those Chick-fil-A people to open some locations in Hawaii (being acquainted with Dan Cathy, I passed on the message).
As a family business consultant for nearly thirty years, I have been fascinated with Chick-fil-A as a family business. I think the recent attention to the company obscures important lessons that it exemplifies. It has perhaps the strongest culture of any company that I am familiar with. It is a culture built on very clear values, reinforced by the company’s every action and decision. The culture is observable in the products, prices, promotion, and especially the people of the organization. The culture and values are visible, but other than the Sunday closing, not their Christian source.
That Chick-fil-A is a wholly-owned family business allows them the freedom to operate as they see fit within law and regulation. That Chick-fil-A’s and the Cathy family’s values are based in their religion gives them the means to more readily and easily formulate and communicate their values. Of course, actually practicing and living one’s values is always the hard part. Implementing their culture and values in a way that supports the on-going success of a business that has grown as large as Chick-fil-A ($3.5 billion in sales in more than 1500 locations) and that welcomes a large and diverse base of loyal customers is no small feat. Focus on politics or religion, in my view, can lead to loss of the opportunity to learn from Chic-fil-A’s success in building and sustaining its organizational culture as a way of building and sustaining its business – or the opportunity to enjoy a really good chicken sandwich and the best freshly-squeezed diet lemonade you’ve ever tasted.
Newsweek (12/20/10) cites a recent Harvard study of 4000 firms that finds “companies in which families hold control ‘outperformed their counterparts by 6 percent in market returns and 10 percent in profits.” Says Newsweek: “The study refutes the long-held notion that family firms are plagued by infighting, failure to innovate and a tendency to mix personal and professional bank accounts.” This certainly isn’t news to readers of The Family Business Advisor, but its nice to see that Newsweek (until recently owned by the Graham-family-controlled Washington Post Company) has finally gotten the news.