It’s a classic scenario: A dynamic young man takes charge of his parents’ modest business and grows it substantially. He promotes himself in company ads, becomes a personality, and attracts customers due to his compelling image alone. With subsequent good work he earns their trust. Clients stick with him for years and prosper.
Then one day the man announces his daughter is becoming president. He’s not leaving, but clearly she’s being set up to eventually take over. She’s only 31. She’s been with the 70-year-old company for just seven years. Senior clients, mostly men, recoil: “Who is this kid? And…a woman?” Competitors prepare to pounce.
How does a family business handle this situation? Head on. Exploits it, even. That’s the view Jim Lebenthal, 67, and his daughter Alexandra are taking at Lebenthal & Co., New York City’s well known seller of municipal bonds. Their careful yet aggressive strategy is already generating more accounts. And it contains several lessons for any family business trying to secure new customers while retaining the old.
Managing the public face of succession is difficult for any family business. But it becomes even harder when the successor is young, and a woman in a traditionally male-dominated field.
Lebenthal announced last June that Alexandra had been promoted to president. Anticipating reaction, the company had planned a straightforward explanation to clients, employees, and the public: Jim Lebenthal would remain CEO and chairman, and continue to star in the company’s effective ad campaigns. He would provide continuity. Alexandra would appeal to a new client base—the many working couples and younger parents in their 20s, 30s, and 40s. At the same time, Lebenthal would promote the major role of Jim Gammon, a revered Wall Street veteran whom Jim had hired away from The CNA Insurance Cos. in 1994. Gammon, 54, was leading a new Lebenthal division that managed individual portfolios of $1 million or more, and managed the firm’s high-performance bond funds.
Putting the plan into effect, though, would be the tough part: How would Lebenthal approach clients who had grown up with Jim, trusted only him, and expected personal attention? How would the company prevent clients from jumping ship, and ward off raiding by other investment firms? How would Alexandra break down old male resistance to a young female successor? How would she appeal to new clients? How could she, her father, and Jim Gammon be portrayed as a team that works well together, that can invigorate an investor’s portfolio?
Answers to these questions, now unfolding, are crucial for Lebenthal’s success. So far, the plan seems to be working.
Lebenthal was started in 1925 by Jim’s parents, Sayra and Louis Lebenthal. But the company grew tremendously in the 1970s and 1980s because Jim popularized the municipal bond market by starring in numerous company ads. The ads helped the entire market grow, as well as Lebenthal’s business. Jim portrayed himself as a street-smart yet likably eccentric municipal bond salesman. He captured the public’s fancy by striding alongside subway yards and bridges unabashedly proclaiming the good work municipal bonds do for cities, and the “triple-tax-free” benefits they bring to investors. As a result, the company now sells $900 million of bonds a year, largely in New York City and the Northeast, and employs 100. Clients have come to equate success in “munis” with Jim Lebenthal.
It was Jim’s decision to promote Alexandra in June, following the March departure of a nonfamily president. Alexandra had only taken over the sales department in October 1994. The company’s board, composed of Jim, Alexandra, her uncle, and five employees approved the move. Rather than worry about reaction, the group agreed to take the offensive. On June 28 the company ran a full page ad in the New York Times announcing Alexandra’s promotion. Employees found the ad and a press release on their desks. Soon after, clients—major and minor—received the ad with their next copy of Lebenthal’s biweekly newsletter.
“We felt we needed to make a formal announcement to the public and our clients at the same time,” Alexandra told Family Business during a recent interview at the firm’s Wall Street offices. She and Jim also wanted to use the occasion of Alexandra’s promotion to spark interest in municipal bonds. The summer had been a difficult time for their market. Congress was making noise about a flat tax, which would make other types of investment income tax free, eliminating the special advantage offered by tax-free municipal bonds. The financial collapse of Orange County, California, was in the news, and every major municipality is funded to some extent by municipal bonds. Lebenthal’s media stunt was well-timed. Alexandra says, “We wanted to tell the world, ‘Hey, municipal bonds are not falling off the planet. In fact, here’s a 31-year-old who’s committing to them.’”
Finding new clients, and fighting to buoy up the municipal bond industry, are critical to Lebenthal; 80 percent of its business is selling municipal bonds (the rest consists of Treasury bills, corporate bonds, IRAs, and a few stocks). If the public sours on munis, larger and more diversified investment houses such as Merrill Lynch, which also sell the bonds, can easily drop them and promote other financial vehicles to their clients. Lebenthal can’t. It must take the lead in protecting the market, and Alexandra will tackle the matter head-on, just as her grand mother, Sayra, would have (see, “Daughters with the Right Stuff,” Winter 1994).
Since the company has had such great success with it, personality advertising remains the cornerstone of its effort. But Jim is no longer the sole focus. Alexandra is being promoted, and so is Gammon. Other notable family firms built on the cachet of one person have made similar transitions. Frank Perdue did it with his son, Jim. Henry Bloch of H&R Block did it with his son, Tom (who, however, has since left the firm). Sy Syms did it with his daughter, Marcy (whom Alexandra says is a mentor and friend). Lebenthal has chosen to keep Jim in the limelight, but has also added a high-ranking nonfamily member to the mix. “It shows continuity, but it also shows the company isn’t just Jim,” Alexandra explains. Ads portraying Alexandra “show there are other aspects to this company,” she says. “Jim will still be the image person. My role is what we’re doing the next quarter, the next year.”
To counteract potential skittishness about municipal bonds, Alexandra says, “All our advertising in the foreseeable future will be to current municipal bond investors. We want to convey that we are the people to talk to about the issues: Orange County, the flat tax, political contributions, yield-burning.” Showing the trusted Jim, a young, aggressive Alexandra, and the veteran Gammon helps the cause, she says. “Instead of adding new markets, we want to increase our share of the existing market. We want to steal customers from other bond sellers by saying, ‘We’re the experts. We know how to handle this.’”
Exploiting her personality
That’s the present advertising strategy. The future business strategy, however, is just the opposite. Lebenthal needs new customers. “Young investors are extremely important to us,” Alexandra says. “If we don’t get their interest now, we won’t have them when they are older and have lots of money to invest.”
Alexandra thinks the company can make a particular killing with women, because they are not usually targeted by investment advertising. Lebenthal’s secret weapon for attracting both the young and the female investor is Alexandra. She embodies the ideal customer in both groups. Her husband, Jeremy Jay Diamond, has a professional career, and they have a two-year-old son, Benjamin. She notes that 250 young or female first-time callers contacted Lebenthal after her splash in the New York Times.
Just like her father, Alexandra is not bashful about exploiting her personal situation to reach a desired audience. Last year she corralled five of Lebenthal’s saleswomen who, like Alexandra, had had children in the last three years. She drafted a letter about how giving birth made her keenly aware of life and how it passes. She gave the letter to each saleswoman, told them to sign it and send it to their clients. Alexandra’s signature did not appear, although there was a paragraph that conveyed that Alexandra and other Lebenthal saleswomen had had similar life experiences.
The tone of the letter was that of a woman who now has an enlightened view on the value of life and family—and the need to safeguard it with sound investing. The letter asks clients with younger children to teach them about municipal bonds. It asks clients with adult children to talk to them about considering municipal bonds. It also asks clients if the saleswoman has talked to them about the rest of their investment portfolio, and Lebenthal’s other products such as IRAs.
Another tactic of Alexandra’s is to host a site on the Internet’s World Wide Web, visited frequently by professional men and women with young families (see below). After a reflective discussion about succession in the interview, she suddenly becomes animated when talking about the Web. “It’s an important tool for us,” she says with obvious excitement. “And it’s completely my project.”
Adding new clients and expanding the purse from the typical investor isn’t enough, however. The average Lebenthal investor has an account of less than $125,000. New clients often start much smaller. So Lebenthal is also trying to secure its oldest, richest clients in the wake of Alexandra’s arrival on the scene, and diversify its holdings. That’s where Jim Gammon comes in.
Lebenthal promoted Gammon heavily in ads before and after Alexandra’s coming out last summer. They pictured him as the wise guru, stressing a proven Wall Street background that could only come from age and experience. Functionally, the ads touted the fact that Gammon heads both of Lebenthal’s products that appeal to the aging, rich client—a portfolio management service called Lebenthal Asset Management for people with $1 million or more to invest, and Lebenthal’s highly ranked bond funds.
The ads convey to Lebenthal’s older (and mostly male) clients that they, too, have a compatriot working for them. In blatant terms, the young families can resonate with Alexandra, the old establishment can revel in Gammon. And Jim’s intimately involved with both of them.
Leadership backup
This client strategy is a good one for a family business going through succession. It also constitutes a sound leadership plan. Jim still has control. But should something happen to him, Gammon could easily step into the CEO role. He is positioned as a likely successor himself, and could assume that role publicly since he is being portrayed as an integral part of Lebenthal’s executive team.
That’s not how Jim Lebenthal says his sudden demise would play out, however. “Alexandra would get on with it,” he says. “The whole ball of wax would be in her hands. Jim [Gammon] would not want to have my job.” Gammon, it seems, does not want to spend his time managing a firm, but managing individual portfolios with large amounts of money.
Nonetheless, Gammon could make a strong interim chief, who could position Lebenthal while Alexandra prepared to take full control; she acknowledges she could benefit from more training. That won’t come from Gammon specifically, though. Gammon “doesn’t have a mentor’s role,” CEO Jim says, “but a role more like that of Socrates in ancient Athens. He is brilliant, and his presence here is inspirational to all our young people—and our seasoned employees. He dispenses experience and wisdom.”
Gammon could also assume the chief position should Alexandra fail. Jim doesn’t see that happening. “She has excellent business sense and demeanor,” he says of his daughter. “I’ve let her have her lead. If I thought she were doing something asinine I would stop her. But I don’t. I admire her.”
Alexandra doesn’t intend to loosen her grip on the reins either; yet she is prepared to wait to take over until Jim is ready to really retire. “I can’t see anybody else running the company,” Alexandra says. “My dad will be here for a long time. Someday the CEO slot will need to be filled. For now, I’m thrilled that my dad thinks I’m great, that he felt it was the right move at the right time to make me president.”
Selling an Old Product to a New Generation
“The Web,” as it’s called, is the graphics-oriented lane on the Internet information superhighway. It is growing at a phenomenal rate. Thousands of people who access it each day are ages 20 to 40, including a large number of professional men and women who have young families. This is a prime target audience for investment brokers seeking new clients they can serve for years to come.
Because Alexandra herself falls into the target category, she thinks her personal presence on the Web will resonate with the group.
After some snazzy graphics, the site begins with a personal letter from Alexandra, obviously scripted to create a sense of partnership. She writes: “As President of Lebenthal & Company, I am quite excited to welcome you to our website…. I want this to be a way of reaching out to a new generation of investors, especially those like me—young, fairly comfortable with this technology, and interested in saving and investing for our retirement and for the rapidly increasing costs of educating our young families.”
However, the site also indicates that Alexandra has the necessary experience to invest a Web surfer’s hard-earned money. It backstops her youthful exuberance by carefully conveying that she is the latest in a line of family members to lead the business. The site is also designed, fairly transparently, to appeal to middle-aged investors who now surf the Web as part of their job. The very next line in Alexandra’s on-line letter reads: “But this site is also designed to appeal to all types of investors, new and old, looking for good information—and plenty of it—about Municipal Bonds.”
Playing up the family business is an integral part of the strategy to intrigue the new while reassuring the old. A big photo-montage runs across the top of the site’s opening page. It shows photos of Alexandra’s grandmother and company co-founder Sayra Lebenthal, Jim as a toddler, and Jim today. A detailed timeline of major events in the company’s history is included, which is punctuated with family photos.
The site also emphasizes that the company is no longer led by family alone, just as Lebenthal’s advertising does. It contains hard-core financial commentary and practical advice, all of it from Jim Gammon. Gammon is president of Lebenthal’s division that manages portfolios for investors with $1 million or more. He also manages the company’s bond funds. He writes the on-line newsletter portion of the site, and has his own column called “Gammon’s Economic Outlook.” He is portrayed as the aggressive nonfamily senior executive—suited to appeal to Lebenthal’s power clients.
Ironically, the Web site contains nothing written by Jim Lebenthal, the company’s original media personality. His photo, however, occurs frequently and is the most prominent image. The subliminal point to readers seems clear: Jim’s face is why you might know the company, but daughter Alexandra is the trendsetter now, and the family’s also got a power hitter who handles the hardball action.
— M.F.