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Entitlement gone nuts

Accomplished, talented next-generation members must battle the stereotype that all family business successors are good-for-nothings who owe their jobs to nepotism. Heather Cho’s recent tantrum has made their lives more difficult.

Cho, also known as Cho Hyun-ah, is the daughter of Cho Yang-ho, chairman of the conglomerate that owns Korean Air. Until recently, she was a vice president in charge of cabin service at the airline. On December 5, she reportedly became irate when a flight attendant on a Korean Air jet headed from New York to Incheon, South Korea, served her macadamia nuts in a way she found substandard. She demanded information from a purser about the policy on serving nuts; his answer didn’t suit her, and she ordered the plane, which had started to taxi to the runway, to return to the gate so she could boot him off the flight.

Cho threw her hissy fit with no thought given to the roughly 250 passengers who would be inconvenienced. This insensitivity was compounded by the initial, tone-deaf official explanation of her behavior given by the company. According to the Financial Times, Korean Air said “it was ‘natural’ for the executive responsible for cabin services to inspect operations and point out problems, adding that the chief flight attendant neglected procedure and regulations.”

Not surprisingly, the incident drew howls from the press and the public. In South Korea, the criticism took a political tone because of growing resentment of the conglomerates -- known as chaebol -- whose controlling families wield great political influence, allegedly commit fraud and other crimes with impunity and run their businesses like fiefdoms. A New York Times article noted that Cho Yang-ho’s three children all held executive positions in the Hanjin Group, the conglomerate that includes Korean Air. The Times report said the Cho family owns only about 10% of the airline but controls its operations through a network of cross-shareholdings.

The FT article quoted Oh Byung-yoon of the country’s Progressive party, who said, “Ms. Cho’s order of a forceful return could be a threat to passengers’ safety by disabling the pilot.” According to Bloomberg, an editorial in South Korea’s Dong-A Ilbo newspaper said her actions exemplified the “sense of privilege” felt by chaebol families.

Heather Cho is no brash young upstart -- she is 40 and had been with the company for 15 years. She was experienced enough to understand the difference between appropriate and inappropriate ways to criticize an employee (and that one shouldn’t inconvenience hundreds of customers). On December 9, Korean Air announced that she had resigned her post in the company after a board meeting was called to discuss the incident.

Cho’s behavior was so obnoxious that she would have been mocked even if she were not a family executive. But because she is the boss’s daughter, the reaction was more personal. Senior-generation members can use her story to teach their children about the perils of entitlement and the dangers of going nuts while on the job.

A parent by any other name …

I was interested to read recently in the Wall Street Journal about a parenting trend. According to the Journal report, children in an increasing number of families have stopped using “Mom” and “Dad” and are instead calling parents by their first names.

Psychologists interviewed by the Journal don’t think this is a good idea. Madeline Levine, a Marin County, Calif., therapist, “views the shift as fallout from an era of overly permissive parenting,” the article said. John Duffy, a clinical psychologist from the Chicago suburbs, said children use a parent’s first name to test the balance of power and control in the family, as they might try out a swear word at the dinner table.

In family businesses, children who call parents by their first names aren’t testing their limits; they’re usually adhering to a company rule. Many family companies require next-generation employees to call the senior generation by the same name that the employees do to signal the separation of family and business roles during working hours, and to demonstrate to the rest of the staff that family members aren’t receiving special treatment. (These policies also work in reverse; parents vow not to use pet names for their children in the office.)

What’s in a name? In both cases above, the main issue isn’t what the younger generation calls its elders; it’s the quality of the relationship. Some teenagers call their parents “Ray” and “Debra” not out of disrespect, but because that’s what the parents prefer to be called. Some next-generation family business members who are judicious about avoiding “Mom,” “Dad,” “Grandpa” and “Uncle Joe” in the office nonetheless may act as if other company policies don’t apply to them.

I never worked in my family’s business -- my parents sold it while I was in college -- and I never considered calling my folks anything but “Mom” and “Dad.” But when my mother’s faculties started to decline and my brother and I began making decisions on her behalf, I started referring to her by her first name (though I continued to address her directly as “Mom”). To me, the shift was profound.

As is true in so many cases when it comes to families and family businesses, the main points to consider are: (1) What is the family culture? and (2) Is the family culture promoting healthy relationships and a thriving business? 

Letting go

In September, Dan Nosowitz -- great-grandson of the founder of the Madewell clothing company -- wrote an article for BuzzFeed describing his reaction upon seeing a sign for the long-dormant family business on a clothing store in New York’s SoHo neighborhood.

“It was, I thought, forgotten family history, the factories having shut down shortly after I was born in the ’80s,” Nosowitz wrote.

Nosowitz would learn that Millard “Mickey” Drexler, J. Crew’s CEO, had acquired Madewell’s logo and trademark in 2004. Although the revived brand features the date of the company’s inception -- 1937 -- in its marketing materials, “Madewell as it stands today has almost nothing at all to do with the company founded by my great-grandfather almost 80 years ago,” Nosowitz proclaimed. The original Madewell sold workwear and later expanded into children’s and women’s clothes, all designed and manufactured in the U.S. The relaunched brand’s clothes are made in China and are geared toward young female fashionistas. The new Madewell has 77 stores in the U.S.

During the course of his reporting, Nosowitz found that clothing designer David Mullen bought the Madewell logo and trademark for $125,000 in January 2003 from a relative of Nosowitz’s who was by then the sole owner. In April 2004, Mullen transferred the trademark to Drexler, who leased it to J. Crew for $1 a year.

No matter what Nosowitz and his family think about what Madewell is doing today, they can’t do much to change it. Business owners who plan to sell their companies must understand that they will no longer control what the new owners do with the company’s brand, employees, products and reputation.

There’s only one way the former owners can reclaim the right make a course correction: by buying the company back. That’s what Laurence “Laurie” Eiseman and his late brother, Robert, did in 1999, when they teamed up with two executives and some other investors to repurchase the Florence Eiseman Company, the legendary maker of children’s wear founded by their mother. The family had sold the business in 1989, only to see quality decline and the company approach bankruptcy under its new owners. As Family Business Magazine reported in 2003, the Eiseman brothers and their partners rescued the brand. Recently, the company launched new lines that, while updated, retain the spirit of the classic styles.

Nosowitz’s family does not seem to be contemplating such a step. Although the new Madewell’s claims of authenticity and connection to the past are dishonest, Dan Nosowitz writes, he doubts his ancestors would care. “They manufactured in the U.S. because at the time it was cheaper to do so, and because it was easier,” the author notes. “They weren’t noble; companies back then didn’t construct a façade of nobility and purpose….. We look at the past through glasses that bring into focus only what we want, and need, to see; they distort everything else.”

The risks and rewards of co-CEO arrangements

In September, Oracle Corp.’s co-founder Larry Ellison announced that he would step down from his post as CEO to become chairman and chief technology officer. He turned over the reins not to a single successor, but to a pair of co-CEOs, Safra Catz and Mark Hurd.

Morningstar analyst Rick Summer told the Wall Street Journal he doubted this arrangement would work: “Rarely is this a good idea,” Summer said, according to the Journal report. “… In five years’ time, I would be surprised if Safra and Mark are still co-CEOs.”

The co-CEO arrangement didn’t work at Research In Motion, the maker of the BlackBerry mobile phone. In February 2012, upon the departure of RIM co-CEOs Jim Balsillie and Mike Lazaridis, I cited an article in the Toronto Globe and Mail in which RIM employees said they thought “the unusual two-headed structure of the company … slowed things down.”

In family businesses, however, the co-CEO structure often functions quite smoothly, as I noted in 2012. Many family business leaders share the driver’s seat. For example, at Just Born Inc., maker of Peeps, Mike and Ike, Hot Tamales and other candy brands, cousins Ross Born and David Shaffer have been co-leaders since 1992. David and Ben Grossman, fourth-generation brothers, became co-presidents of Grossman Marketing Group in 2010 when their father, Steve, left to run for election as Massachusetts’ state treasurer. At grocery chain Meijer Inc., Hank Meijer serves as co-CEO along with a non-family member, Mark Murray.

The high degree of trust in family companies might be the reason that co-leadership is attempted -- and succeeds -- more often in family firms than in non-family companies. But family ownership doesn’t guarantee high trust. Consider the Mondavi family. Robert Mondavi feuded with his brother Peter at their father’s Charles Krug Winery before leaving in 1965 to establish his own wine business, Robert Mondavi Corp. The pattern was repeated in the next generation with the unsuccessful partnership of Timothy and Michael Mondavi at Robert’s eponymous company.

Back in 2003, consultant Jim Barrett provided some advice on co-leadership in Family Business Magazine. One of his suggestions was “Stake out territories carefully, working to the strengths of each person involved.”

Catz and Hurd apparently have this covered at Oracle. The Wall Street Journal article noted that “Ms. Catz is brilliant with numbers and operations but shuns public roles, said a former Oracle executive. Mr. Hurd is more comfortable spreading the company message and nurturing customer relationships, the former executive said.”

As is true of so much in business -- especially in family business -- there is more than one route to success.

Taking the pulse of the next generation

In Family Business Magazine’s 25th anniversary issue, in addition to revisiting some of the family companies we profiled in the past, we also look forward by profiling next-generation members who are making a difference in their family enterprises. In a special feature entitled “25 Under 35,” reporter Ilene Schneider asked these up-and-coming young people how they view their roles, and what they enjoy most about their connection to their family businesses.

If these interviews are any indication, the future looks bright for these family firms.

• The next-generation members are aware that as stewards of the family legacy, they must pay equal attention to family and business matters. In their comments about their current and potential future roles, they stressed the importance of open family communication as well as solid business training.

• The young people recognize that family members can play a meaningful role in the family enterprise without a position on the staff. Some of the young people we profiled are focusing on their development as owners or family leaders with no plans to enter the family business. Others who are currently working in the company recognize the importance of engaging the family members who don’t.

• They are confident that their experience with technology, educational background and innovative spirit bring a valuable perspective to their family companies. Their comments indicate a great respect for the legacy they are inheriting, but at the same time they’re aware that they themselves have a lot to offer. “I truly love putting in all of my effort to see the outcomes that move our company in a positive direction,” Mike Hiller, the 33-year-old director of marketing and new business development at Laboratory Testing Inc., told Schneider.

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