It is late August in southern New Hampshire. The entire extended family—parents, grandparents, uncles, aunts, cousins—has gathered at their lakeside retreat called “Homestead.” Up at the big house on the hill, the adults talk real estate deals around a stone fireplace. Down at the water, or on the sloping lawn, or at night in their bunkhouse, the children run, swim, and plot their futures. It has happened this way every August for decades.
Not all family business owners can look back on such idylls, but for the Ashforth and Harvey clan this was pretty much how summers unfolded every year. And the relationships and loyalties that were formed during these vacations help explain why the Ashforth Co., the family’s Connecticut-based commercial real estate business, has entered its second century healthy and intact.
Founded by Albert B. Ashforth in 1896, the Ashforth Co. began as a Manhattan real estate brokerage. Though never one of the city’s biggest real estate companies, its early clients included the Astors and Rockefellers. It owned the renowned Bonwit Teller building on Fifth Avenue and, by the 1960s, managed some 80 buildings in New York. After World War II it helped spark the southern Connecticut real estate boom, and it now owns or manages about six million square feet of office space in Connecticut’s upscale Fairfield County, in Oregon, and in Washington State.
Any company that has survived for over 100 years and is still owned and run by the same family is deserving of honors, and the Ashforth Company has earned its share. In recognition of its longevity and its close integration of the family with the business, it has won awards from the University of Connecticut and the University of New Haven, and was recently named Family Business of the Year by the Massachusetts Mutual Life Insurance Company.
Now this cousin consortium faces some of its most serious hurdles. The company has been led by a single patriarch in each of three generations.
Three years ago, when CEO Henry A. Ashforth Jr. reached 67, it was clear that the next succession would be more complex. Henry and his sister, Eleanor Harvey, each controlled half of the company’s voting stock and between them had 10 children, including six boys. Several of the heirs could arguably claim the top job. At the same time, the company had outgrown the sole proprietor model. Its changing interests demanded a more decentralized and collaborative style of leadership. Choosing a new leadership structure would be far from easy.
But where other family owners might have cashed out or let nonfamily executives drive the bus, the Ashforths and Harveys insisted that their business would, as Henry Ashforth likes to put it, “stay a family business and not become a trust fund.” To that end, they are making what some might consider a risky move: Starting in January, the company will have an unconventional “co-managing partner” form of leadership in which Henry Ashforth’s second oldest son, Andy, 40, and his eldest nephew, H. Darrell Harvey, 49, will share power. Andy’s older brother, Hank, and Darrell’s younger brother, Robert, cast in supporting roles.
To make their grand coalition work, the new generation will no doubt have to call on the bonds of affection and trust that the families have built over the course of many summers at their vacation retreat in New Hampshire. Having entered their second century, the Ashforths and Harveys have a store of knowledge and wisdom to guide them over the swings in what is an extremely cyclical and volatile industry. The challenge will be to leverage it as they put their new governance structure into effect.
Saved by a milk fortune
In 1896, when 23-year-old Albert Blackhurst Ashforth and a partner founded their real estate brokerage in Manhattan, the New York City real estate market was enjoying a 50-year boom, driven by the arrival of millions of immigrants and by New York’s status as the country’s biggest center for manufacturing and trade. Property in Manhattan was already regarded as a gilt-edged investment as well as a strategic location for industrial and commercial firms.
Young Ashforth quickly recognized that fact and began to assemble development and acquisition deals for wealthy investors. He became a prominent figure in the market, organizing the city’s first residential cooperative and, as president of the city Real Estate Board, helping to lead the “Save New York” movement that forced factories out of midtown and stabilized property values between 34th and 59th Streets.
At his sudden death in 1929 while playing golf, Albert was succeeded by his eldest son, Henry Adams (Ad) Ashforth. The stock market crashed two months later, and New York’s real estate bubble burst along with it. Between 1930 and 1932, Manhattan building starts fell by 90 percent. Foreclosures more than doubled. Upper East Side townhouses—later worth millions—sold for as little at $1,000 each to bottom-feeders like Joseph Kennedy. As it would be in the 1980s, the 1920s started with speculation and overbuilding and ended with bankruptcies and consolidation.
The Ashforths hunkered down during the Depression. They managed buildings and received a steady income from Bonwit Teller, the principal tenant of their building at 37th Street and Fifth Avenue. That building had come into Ad’s possession through his marriage in 1925 to Elizabeth Milbank Anderson II of Greenwich, Connecticut, an heir to the Borden milk fortune.
During the war years, Ad founded the First National Bank of Greenwich, and was a director of the Bank of New York and a trustee of Bowery Savings Bank—whose referrals helped Ashforth’s appraisal business. After the war, the family was in the vanguard of a mass flight of people to the suburbs. In the 1950s and ’60s, thousands of New Yorkers settled in single family homes north of the city and on Long Island. Many Manhattan-based corporations—IBM, GE, Xerox, Chesebrough Ponds, and others—joined the exodus and built sprawling campus headquarters in Westchester County, New York, and Fairfield County, Connecticut.
Known more for the quality than the quantity of its properties and clientele, the Albert B. Ashforth Co. still employed only a handful of brokers when Henry A. Ashforth Jr. arrived in the early 1950s. Bored with the brokerage and management aspects of real estate, he wanted to be a developer and owner. He redirected the company’s focus from Manhattan to southwestern Connecticut, which allowed it to take full advantage of the population migration.
With Henry leading the way, the Ashforths built suburban homes on family acreage in Greenwich and converted Greenwich’s then-dilapidated commuter railroad station into the town’s first multi-use office complex. He added a construction management business, an investment management unit, and an office cleaning unit, and eventually moved the company’s headquarters to nearby Stamford.
In the 1980s, the conservative Ashforths kept their powder dry as Japanese investors paid unheard-of prices for New York area real estate and banks pushed money at developers. Instead, they locked their tenants into long-term leases and sold their Fifth Avenue property at a huge profit. After the property market collapsed in the late 1980s, they built schools and did workouts for banks, finishing construction and making repairs to prepare foreclosed properties for sale.
Transfers of stock
By seizing opportunities, diversifying gradually, and avoiding overly speculative ventures, the Ashforths have weathered many crises. The company now employs more than 200 people at both ends of the United States. According to Henry, its assets are currently valued at $250 million.
Under the principle of primogeniture, the family had been able to select a single, capable leader in each successive generation. But in the fourth generation, the succession loomed as a potential problem. Henry had six children and Eleanor four, with six boys between them. Since Henry and Eleanor would each inherit half of the company’s voting stock, Eleanor’s oldest son, Darrell, born in 1949, had as legitimate a claim to the top job as Henry’s oldest son, Henry “Hank” Ashforth III, born in 1957. Behind them in age were four male baby boomers—Robert and Peter Harvey, and Andy and Tom Ashforth. (Henry’s three daughters and Eleanor’s one daughter are not in the business.)
The postwar expansion of the firm had also created a latent estate tax problem, which the family, in its wisdom, decided to resolve early, before it threatened the business. With Ad Ashforth approaching 80 and Henry and Eleanor in their 50s, the family engineered an estate freeze in 1979 under which the firm’s common stock was divided among the 10 grandchildren, then between the ages of 14 and 30. That removed all future appreciation in the value of the company from the estates of Ad, Henry, and Eleanor. However, the preferred, voting stock remained in the hands of the three seniors.
When Ad Ashforth died in 1991, his share of the assets went into a marital trust, where it continues to produce income for his third wife, Elsie. The voting power of Ad’s stock disappeared, leaving Henry and Eleanor with all of the voting power. Eleanor placed hers in trust for her four children
“My uncle and my mother realized that it made sense for them to cap their estates while they were still in their 50s,” says Darrell Harvey. “It showed a lot of unselfishness on their part and it allowed us to go forward [without the burden of estate taxes]. If they had lived into their 80s still owning the business, we couldn’t have dealt with the taxes without selling off assets.”
Congress limited the benefits of an estate freeze with legislation in 1991, but for the Ashforths, who completed their recapitalization years before, the strategy clearly paid off. “If the owner can move assets out of his estate, then the family doesn’t have to worry about how they will pay his taxes. It removes a huge burden,” says Paul Sessions, director of the Center for Family Business at the University of New Haven, which honored the Ashforth Co. on its centennial two years ago. “It also makes the company more attractive to lenders because they know they won’t have to wait behind Uncle Sam to be paid.”
Successor candidates
The recapitalization had not dealt with the succession issue, however. The lead candidate at the time was Darrell Harvey, the oldest in the fourth generation. Darrell had worked for the Boston law firm of Hill & Barlow after graduating from Harvard and the University of Virginia law school. He was the only member of the next generation whom Henry explicitly recalls asking into the business, where he started as Henry’s assistant. As for Henry’s own sons, “I never asked any of them to come into the business. They asked me.”
But within three years after Darrell joined the firm, two of Henry’s sons arrived: Hank Ashforth, now 41, who joined the asset management side of the business, and Andrew, a year younger, who started in the family’s newly created construction management business as a laborer after graduating from the University of Vermont.
When Henry was sidelined by hip surgery in 1989, he appointed Darrell COO to oversee day-to-day management. By that time, however, it was clear that Andy would also have a claim on the top job. A star goalie on his prep school and college hockey teams, he was competitive. “He has a tremendous amount of energy,” his father says. “He likes to get involved.” As CEO of A.P. Construction, he built the division from virtually nothing to $60 million in sales. He helped the company survive the real estate slump at the end of the 1980s by winning contracts to build or renovate Greenwich schools and do workouts for local banks.
The Ashforths have managed property in downtown Seattle since the early 1950s, and have recently built office towers in Portland, Oregon. As the business in the Northwest grew, Henry wanted someone to represent the family there. Hank was eager to go. He is now president of Ashforth Pacific, which manages about 1.5 million square feet of office space. A third son, Tom, earned a master’s degree in real estate but chose to get “out from under his cousins” by going to work for the Gerald Hines Co., the big Houston-based real estate firm. Robert Harvey, Darrell’s younger brother, joined the Ashforth Company in 1993 when the firm purchased 53 percent of Barrett Associates, a New York investment firm that manages about $1.3 billion in assets.
Darrell is nine years older than Andy. Andy had reported to him in the past, but the younger cousin’s successes in the construction division had raised his standing in the family. “I assumed that they both expected to be the top dog,” says Henry. “You would too.” But promoting either of them over the other was impractical, given the company’s balanced ownership structure.
So three years ago Henry proposed a dual leadership solution, to which the rest of the family, he says, made no objection. “I weighed their personalities to see if they could work together and whether they were competent,” Henry says. He was satisfied they were, and promised to retire at the beginning of 1999 on two conditions: that Andy find a successor at A.P. Construction, and that Andy and Darrell divide their responsibilities in a way that would maximize their talents while minimizing overlaps that might cause conflict. “I did not want to dictate their responsibilities,” Henry says.
It was decided that Andy would handle construction, property management, and the company’s Portland interests, while Darrell would handle the legal department, leasing contracts, and ownership. Finance and administration would be handled by CFO Richard Battista, the highest-ranking nonfamily member. For the foreseeable future, Andy and Darrell’s title would be “co-managing partner” rather than co-CEO.
“When we worked out how the company would be run, titles were largely not relevant,” Darrell says. “Nothing happens unless we both agree on it.” He and Andy believe they have in common a strong work ethic and sense of fair play instilled in them by Henry and Eleanor. “We were brought up in an open and trusting atmosphere,” says Darrell. “There were not a lot of hidden agendas. It was just people with good values.”
Henry intimates that he really had no choice but to make leadership match ownership. “It’s always easier when you have 51 percent, but we settled it at 50-50. We’re 50-50 below and 50-50 at the top. We’re not like the Forbeses, where Malcolm gave Steve the majority of the stock,” he points out. “I didn’t have the majority of the stock to give anybody.” Instead, he thinks the Ashforth Co. will be more like Nordstrom, the department store chain which is owned and led by several cousins.
Making the coalition work
The co-managing partners at the Ashforth Co. have arrived at a rough division of labor. Andy Ashforth, the hockey player and president of the construction company, would be Mr. Outside. Darrell Harvey, the Harvard attorney, was to be Mr. Inside, assisted by Richard Battista, the finance whiz.
The Ashforths expect healthy dividends to flow from their new structure. For one thing, the reorganization allowed Darrell, Henry, and Andy to molt some of their operational responsibilities and dedicate more time to rainmaking. “The idea was to free them up,” Henry says. They will receive strong support from a carefully constructed management team.
Under the new structure, the day-to-day business of the company will be handled by the members of an operating committee, which includes nonfamily executives and managers, some of whom are incentivized by phantom stock, whose value tracks the value of the family’s common stock. The operating committee reports to the executive committee, which will continue to be made up of Henry, Darrell, Andy, and Battista. “Any major decision—buy or sell decisions and policy decisions—will go before the executive committee,” Henry says. The family members think that most purely operational decisions are best made locally, by the managers closest to the issues.
At 70, Henry Ashforth will continue to exert perhaps the most power in the company as chairman, member of the executive committee, owner of half the voting stock, and chairman of UNICO Properties, a consortium that leases and manages a large tract in downtown Seattle. He will no longer be CEO, but his son and nephew have made it a point not to call themselves co-CEOs. In addition to Henry, the board also includes Andy, Hank, and Tom Ashforth, along with Darrell, Robert, and Peter Harvey, and their mother, Eleanor.
The board usually meets twice a year, but Henry says it will meet more often in the future to give him more contact with operations. Every summer there’s a shareholders’ meeting at which officers and executives brief the family members on the performance and direction of the business. “We send an annual report out in advance,” says Andy Ashforth. “We believe in letting people know what’s going on.”
Maintaining family harmony
There’s always the risk that cousins not active in the business may become disruptive if they ever want to sell stock. No such demands have yet been heard. While the company has a history of reinvesting most of its profits in the business, it distributes a fixed percentage of income to shareholders each year. The Ashforths and Harveys claim to live frugally, at least by the standards of Greenwich, which are among the highest in the nation. “We do not need to impress the neighbors,” Andy says. Robert Harvey notes that so far no members of the fourth generation show signs of becoming “the plunderers or parasites” that bedevil some family businesses.
A few years ago, members of the fourth generation led a campaign to create a statement of family principles, which has since evolved into a set of operating principles for the company. Every new hire receives a copy, which articulate the firm’s commitment to customers, superior quality, open communication, and integrity. “It sets the tone for the type of family and type of company that we want to have, and it extends our values through the entire organization,” Robert Harvey says.
In addition to strong principles, the Ashforths and Harveys will have to continue their tradition of flexibility and rapid response to opportunities if they are to succeed against the fierce competition in their Connecticut core market. Two real estate investment trusts, Cali Realty Corp. and Reckson Associates Realty Corp., have snapped up major properties there. These publicly owned entities have access to far more cash than Ashforth Co.
In response, the Ashforths have set up a joint venture, Paradigm Properties, which will seek financing from institutional investors and may eventually go public. “Public ownership of real estate is going to continue to grow,” Darrell Harvey has said. “We want to be in a position to participate.”
Meanwhile, the company continues to ride the trend that it helped start 30 years ago—the migration of businesses from Manhattan to southwest Connecticut. Since 1990, some 200 Wall Street commodities and securities trading firms have relocated to Fairfield County. The influx has been a boon to Ashforth’s construction unit, which has built high-tech trading floors for AIG International, the Austrian bank Creditanstalt, and Weeden & Co. The company’s only remaining interest in Manhattan, where it got its start, is a partial ownership of the residential brokerage division that it recently spun off.
“I’ve had a great ride,” Henry Ashforth said recently. “I’m thrilled that I got us through the first hundred years.” As for the stability of the co-leadership to follow him, he says, “Whether you have co-managers or one, you still need consensus. I’ve always run the business with consensus, and it has worked very well.”
If Henry and Eleanor gambled by giving their children all of the company’s common stock back in 1979, it’s a gamble they don’t regret. Henry thinks it has made them more committed to the health of the family firm, and the company’s performance since then has certainly validated the decision. “I was all for giving the younger members the responsibility of owning shares in their own right. It perks up their interest. They would naturally be interested in the value of the stock, and if they worked in the business, they would have an opportunity to improve its value,” he says. By agreement, none of the stock can be inherited by spouses of the Ashforths and Harveys.
While Henry says he spent only three years thinking seriously about his successor, he and his sister had the luxury of watching how their band of children interacted during their summers together on their 400-acre retreat in New Hampshire, where the cousins water-skied, played tennis and, presumably, learned to handle constructively the competitive feelings that often exist between siblings and first cousins.
Those shared experiences, it is hoped, will help the co-managing partners reach the kinds of consensus decisions to which—for better or worse—they are committed. “If we all don’t agree to go forward with a project or a plan, then we don’t go forward,” says Robert Harvey. “But there’s been a sharing of power between the Ashforths and the Harveys for years. We’re used to it.”
Kerry Pechter is a former Wall Street Journal reporter. He was the author of the Martin Guitar Co. cover story in the Summer issue of Family Business.
Ashforth Company successions
