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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.

Family Business Magazine looks back

Family Business Magazine made its debut in the autumn of 1989, and our September/October 2014 edition celebrates our 25th anniversary. In this issue, we revisit some of the family businesses we’ve profiled in the past to see how they’ve fared over the years and how they envision their future.

Some of these family firms have weathered hard times, including a tough economy, deaths in the family and natural disasters. A few of the families sold their legacy companies and are now pursuing other interests. But for the most part, the folks we interviewed confirmed what researchers in the field have found in study after study: Family business owners are optimistic.

Here are some common themes that emerged from our follow-up profiles:

• Several families whose companies were hit hard by the recession opted to hang in there rather than sell out. The “family factor” likely was at play in these decisions. It’s questionable whether a non-family ownership group would be as committed as these families to riding out a rough patch.

• The companies we revisited exemplify family businesses’ innovation and adaptability. Five of the profiled companies significantly changed their product offerings, moving out of a declining market and into a more promising one. Several others added new products or services or made major acquisitions. One business even changed its name; the healthcare resource management company known as Coalition America when we featured its founders, twin brothers Scott and Sean Smith, in 2002 is now Stratose Inc.

• The business owners we interviewed who are thinking about succession are taking a systematic approach to educating the next generation and eventually selecting the future leader. Susan Gravely, for example, the CEO of tableware importer Vietri Inc., is grooming a team of executives, include her nephew and non-family employees. “We did a lot of consulting with board members and outside experts,” Gravely told reporter Deanne Stone, who originally wrote about Vietri in 1996 and revisited the company for our 25th anniversary issue.

Unpacking the Market Basket saga

The Boston.com website dubbed the summer of 2014 “The Summer of Market Basket” -- and, indeed, every day seemed to bring new headlines in the saga of the ousted company leader, his rivalry with his similarly named cousin, the employees who staged a walkout to support their fired boss, the lost business and eroding company value as a result of the work stoppage, and the protracted intrafamily negotiations. In the end, the family of the ousted CEO, Arthur T. Demoulas, bought the 50.5% of the company they didn’t already own from the branch led by Arthur S. Demoulas, returning Arthur T. to the helm.

Amid the flurry of news reports describing picketing workers and depleted store shelves, some important points might have been missed:

• Media reports that portrayed Arthur T. as the hero and Arthur S. as the villain were misleading; the real family story is much more nuanced. A court judgment in the 1990s found that Arthur T.’s side of the family fraudulently transferred shares belonging to Arthur S.’s side to entities Arthur T.’s side controlled. The court awarded 50.5% ownership in the company to Arthur S.’s family “as repayment for bad-faith dealings,” a Boston Globe report pointed out. This background makes it easier to understand why Arthur S.’s side advocated so strongly for using profits to pay higher dividends to family members.

• Arthur T., so beloved by Market Basket employees that they risked their jobs to support him, has “a tougher side” and “appears to be at his worst in interactions with relatives,” the Globe report noted. Transcripts of Market Basket board meetings published by the Globe revealed a toxic boardroom environment, with both Arthurs, and the directors who supported them, often using disrespectful language when speaking to each other.

• Rafaela Evans, widow of Arthur S.’s late brother Evan Demoulas, played a pivotal role in the family saga, though she owned only a little more than 4% of the shares on her own and was a shared trustee of just another 1.5%. Although she was related by marriage to Arthur S., for years Evans had voted with Arthur T.’s family. In June 2013, however, Evans -- who lives in London and has not granted interviews -- switched sides, resulting in a realignment of the board in favor of Arthur S. This chain of events shows the power that one family member can have.

• Each day that the sale negotiations dragged on, the company racked up more losses; some estimates put the figure at up to $10 million per day. Arthur S. wasn’t opposed to selling his stake; in fact, a Globe report said he had discussed a sale with private equity firm Cerberus Capital Management in 2011. Kevin Griffin, publisher of the Griffin Report on Food Marketing, told the Globe, “It just seems like [Arthur S.] wants to sell to anyone but Arthur T.” The holdup late in the talks reportedly concerned the Arthur S. faction’s refusal to agree to seller financing. Arthur T. ended up funding the $1.5 billion deal through a mortgage loan secured by the company’s real estate and private equity financing.

• Arthur T. has a long road ahead of him. A Boston.com article noted that Market Basket’s traditional ability to generate higher profits than its competitors despite low prices and generous employee benefits was partially attributable to the company’s lack of debt. “With Arthur T. and family now taking on debt to make the deal work, all eyes will be on whether it is possible for the company to operate as it has and still satisfy the terms of a financing plan,” the article said.

• Arthur T. won his CEO position back, and seems to have won the P.R. war. Arthur S., for his part, walked away with a big pile of money. But Boston Globe columnist Tom Keane suggested that the real winners were Market Basket’s employees who staged the walkout and the customers who stayed away from stores during the standoff. “Their argument was that if they did return, if things went back to normal, then the pressure to resolve the family feud would be off,” Keane wrote.

Whatever happens with the stores, it’s tough to imagine the family branches reconciling after the explosive summer that culminated 30 years of toxic relations. 

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