A marriage snags the Pritzkers
Flawless synergy at the office, but at home...
“What else matters if you’re lucky in love?” went a song in the 1927 Broadway college musical Good News. Some CEOs these days must be asking the opposite question: What else matters if you’re unlucky in love?
Certainly Jack Welch’s disastrous failure to manage an amicable end to his marriage has undermined the glowing assessments of his management skills at General Electric (see this column, Winter 2003). Now an entire business family’s invincible reputation has been dashed on the rocks of a marriage gone sour.
Over some 40 years, the Pritzker brothers of Chicago multiplied their father’s real estate and manufacturing holdings many times through shrewd acquisitions and equally astute management (Hyatt Hotels, Marmon Group, Royal Caribbean Cruises, etc.). To the rest of the world the deal-making Jay Pritzker and his engineer/manager brother Robert projected a model of intuitive synergy. They and their children and cousins collectively constituted not only Chicago’s wealthiest family but also (in the words of Town & Country magazine) “one of the brightest, most prolific, most admired and least pretentious.”
Such effectiveness, of course, depends heavily on a family’s ability to keep its mistakes and squabbles private. After Jay Pritzker’s death in 1999, a quarrel among the dozen surviving adult Pritzkers led to a secret plan to carve up the family’s $15 billion empire over the next decade and go their separate ways. Such a dissolution is nothing to be ashamed of—it happens sooner or later in all business families—and the Pritzkers were determined to carry it off with minimal friction. Secrecy was critical to this strategy, because any appearance of family disarray or ineptitude could undermine the value of the family’s assets, not to mention its gracious image.
But that cover was blown this year when one cousin who was left out of the pact (apparently because she’s much younger than the others) sued the family for an equal share. She is 18-year-old Liesel Pritzker, one of Bob Pritzker’s two children by his second wife, Irene. That marriage ended in an acrimonious divorce in 1991 that apparently left Liesel estranged from her father.
Eight years ago, after Irene remarried, Bob filed suit to prevent Liesel and her brother from using their stepfather’s surname: Bagley. Then Bob read a newspaper article that said Liesel had signed a contract to appear in the Hollywood film The Little Princess, using the hyphenated name “Liesel Pritzker-Bagley.” This time he sued to prevent her from appearing in the film altogether unless she used the Pritzker name. (The court, in its Solomonic wisdom, devised an entirely new stage name: Liesel Matthews.)
Liesel has now retaliated with a lawsuit that casts a harsh spotlight on the entire Pritzker family. To his brother and the world, Bob Pritzker was a wise and effective partner; to his second wife and their children he was something else, and now that secret is out in the open and tarnishing the entire family’s business image.
By the time Bob Pritzker retired earlier this year as head of the Marmon Group, his effectiveness had largely been undermined by a non-business flaw: his inability to handle his wife and family as smoothly as he worked with his brother. The moral, I suppose, is that a family business CEO must carry the ball for his family as well as his business. But you already knew that. Didn’t you?
Footnote to the above
The late, lamented Spy magazine once published a brilliant essay titled, “A child’s guide to socio-economic status.” The entire essay consisted of five sentences, as follows:
• If your father comes home from work at 4:30, you’re lower-middle-class.
• If he comes home at 5:30, you’re middle-class.
• If he comes home at 6:30, you’re upper-middle-class.
• If he stays home all day, you’re poor.
• If he never comes home at all, you’re rich.
In light of the recent Pritzker family quarrel (see above), permit me to suggest a few additional guidelines:
It’s a safe bet that you’re rich if
• Your father files a court motion to require you to obtain his approval before becoming a movie actress.
• You’ve sued your father, uncle, cousins and half-siblings for keeping you in the dark about your trust fund.
• The legal stipulations in your parents’ divorce agreement include what name you should use in school and in your movie credits, and whether you should be permitted to keep a pet ferret.
• At age 18, you have your own attorney and spokeswoman.
A tale of two companies
Is “market dominance” a blessing or a curse? Consider these two contradictory stories:
Since the early 1990s Time Inc. built a seemingly entrenched media/entertainment juggernaut through successive mergers with Warner Brothers, Turner Broadcasting and America On Line. As the respected Columbia Journalism Review protested in 2001, “What chance does a genuinely maverick voice or a risky political thought or investigation have to be heard?….Who’s going to buy AOL/Time Warner?”
You know how things turned out. Since AOL merged with Time Warner in 2000, the combined AOL Time Warner has lost 80% of its stock value. Its chairman and vice chairman, Steve Case and Ted Turner, were forced out early this year. Its Cable News Network, once the envy of TV journalists, is being trounced in the ratings by the upstart Fox News Channel, not to mention suffering a serious challenge from Microsoft’s MSNBC channel as well. Its AOL unit has become such a drag on earnings that the company’s executives now talk of spinning off AOL altogether.
By contrast, Cabela’s Inc., a retailer of outdoor clothing and hunting and fishing gear based in the Nebraska panhandle, owns no market whatever—just a very good idea. Since 1991 this 40-year-old catalog company has opened eight stores in small towns to showcase its stock of guns, tents, fishing lures and other outdoor sports equipment. The brothers Dick and Jim Cabela, who own 80% of the chain, reasoned that their stores—which function as the public face of their catalog business—needed to dazzle consumers. So they spent like crazy on these arena-sized emporiums, devoting as much as 45% of their floor space to museum-quality wildlife displays, giant stuffed animals and 8,000-gallon aquariums stocked with trophy-sized fish.
The result: Cabela’s store in Sidney, Neb., draws 1.2 million visitors a year to an isolated town of 6,272 residents. Its Michigan store is that state’s largest tourist attraction, drawing 6 million people a year—that is, 35% as many visiting shoppers as New York City attracted in 2000. In Minnesota, Cabela’s is the state’s second-largest tourist attraction, trailing only the Mall of America. And at a time when the number of U.S. hunters is declining, Cabela’s plans to expand to 25 or 30 stores or more.
The apparent moral: Don’t be intimidated by giant competitors. The ants outlasted the dinosaurs. Vision, commitment and synergy—the very commodities that abound at family firms—will trump size most days of the week.
The playboy who saved Fiat
In his long career at the helm of Fiat, Giovanni Agnelli took many bold steps, some successful and some not. Because Fiat was in desperate financial straits when he died of cancer in January at the age of 81, some observers forgot that Agnelli had previously rescued Fiat (and Italy as well) from similar financial crises not once but several times in the past.
The first rescue occurred in 1945, when Agnelli’s grandfather (who founded Fiat) died and World War II ended in defeat for Italy. There was a real danger that Fiat would be expropriated by the victorious Allied powers. But Agnelli, then a 24-year-old playboy, used his combination of charm and fluent English to persuade the Americans that keeping Fiat in private hands was vital to the stability of postwar Italy.
The second occurred when Agnelli—reluctant to assume heavy responsibility—handed Fiat’s top job to Vittorio Valletta, a talented manager who had effectively run Fiat since the death of Agnelli’s father in a plane crash in 1935. Under Valletta, Fiat became the engine that drove the rise of the mass car market as well as Italy’s economic rebirth in the 1950s.
The third occurred in 1966 when Agnelli, eager to emulate U.S. management methods, fired many old Fiat managers and brought in assembly-line production ideas that were well ahead of their time. In the process he expanded Fiat beyond the Italian market and made it the world’s third-largest car producer (behind General Motors and Ford).
Agnelli’s fourth rescue came in 1980. In response to labor strikes, terrorism and some ill-advised diversification moves, Agnelli painfully removed his younger brother Umberto and gave free rein to two professional managers. Cesare Romiti, a former Alitalia manager, fired 23,000 workers and broke a nasty labor strike, while Vittorio Ghidella provided a brilliant eye for popular car models and introduced the famous Fiat Uno in 1983. By the mid-1980s Fiat was again hugely profitable.
Agnelli once described his company as “an inheritance to be protected and handed on”—a definition that, he said, implied “a determination that may at times border on the reckless—not to give up when the going gets tough.” His family ownership liberated him to take unconventional actions to shepherd his company through the normal ups and downs of the business cycle. He happened to die at one of those low points on the company’s 104-year roller coaster ride.
Now there’s talk of spinning Fiat Auto off to General Motors or even of making it a ward of the Italian state. Is the company likely to flourish or even survive for another 104 years under such faceless institutions? To ask the question is to answer it. And if an Internet innovator like Steve Case had fashioned America On Line as a family business like Fiat instead of merging his company with Time Warner, don’t you suppose he’d still be in charge to fight his company’s battles another day, instead of out on the street at age 44?
The Times family vs. the Post family
For 35 years the Paris-based International Herald-Tribune was owned by an unlikely partnership of two U.S. journalistic dynasties—the Sulzbergers of the New York Times and the Grahams of the Washington Post. Although the Times and Post are vigorous competitors in most respects, both tended to view the financially frail IHT as more of a joint philanthropy than a business. After the demise of the parent New York Herald-Tribune in 1966, the two families joined hands the following year to keep the IHT alive.
The Post was content with the global prestige it derived from this arrangement. But Arthur O. Sulzberger Jr., the Times’ fourth-generation publisher since 1992, was not. He wanted to expand the Times into a global paper capable of competing with, say, the Wall Street Journal or the Financial Times. And he perceived the IHT as the ideal vehicle for his strategy.
What to do? Last fall the Times offered to dissolve the partnership and buy out the Post‘s 50% share. When the Post balked, the Times threatened to launch its own separate international edition in competition with the IHT. The Post saw no choice but to sell its stake in the IHT for a price reported as less than $75 million.
This exercise in hardball negotiating reminds us that, unlike democracies (which supposedly never wage war against each other), family businesses can and do stick it to each other without remorse. At this writing, shopping mall developer Taubman Centers Inc. is fighting off a hostile takeover bid by a rival family real estate developer, the Indianapolis-based Simon Property Group. Wal-Mart and the British grocery chain Sainsbury’s are competing to acquire the British supermarket chain Safeway PLC. These contests between family businesses at least enjoy some rational business justification. But others—like the long rivalry between Chicago’s Crown and Pritzker clans, not to mention the Hatfields and the McCoys—seem driven mostly by family pride, ego and jealousy.
“We were all very surprised when the Times proposed this course of action,” said the Post‘s executive editor, Leonard Downie Jr. “Why? Because we thought they were our partners.” Memo to Leonard Downie: As Don Vito Corleone could have taught you, partnerships are all well and good—but blood is thicker.