Why America needs family-owned newspapers
The Record, the Bergen County, N.J., newspaper that was first to report a connection between New Jersey Gov. Chris Christie's staff and the closure of lanes leading onto the George Washington Bridge, "is an increasingly endangered and valuable species," New York Times media columnist David Carr wrote last month. Carr noted:
As chain owners have denuded local newspapers of muscle, The Record, a family-owned business, has managed to avoid the wholesale cuts that have decimated other newspapers. It helps to have dedicated ownership: Started in 1895, The Record has been owned since 1930 by the Borg family, which has called all the shots.
The family has made sure that the newspaper is a source of accountability and high-quality information.
Carr noted that the Record's editor, Martin Gottlieb, received a tip about unusually high traffic on the bridge from none other than Stephen Borg, a fourth-generation family member who is the newspaper's publisher.
Whatever your opinion on Gov. Christie or Bridgegate, it seems clear that the Borg family's long-term commitment to their newspaper, their community and their staff made it possible for the Record's staff to uncover who was behind the lane closures. John Cicowski, a columnist who writes on commuter issues, has been with the Record for more than a decade, and Shawn Boburg, who reports on the Port Authority of New York and New Jersey, has been on the staff for three years, Carr noted.
The Record's editor, Martin Gottlieb, told Carr that Cicowski and Boburg's sources know and trust them because of relationships forged over the years. "These are reporters who know their beats, who know their sources, who get their goods," Gottlieb said.
"[F]amily ownership allows continuity of purpose and personnel," observed Carr -- who is in a position to know, given that he works for the family-controlled New York Times.
In the January/February issue of Family Business, Frank Blethen -- fourth-generation publisher and CEO of The Seattle Times Co. -- lamented the changes in his industry. Blethen wrote:
Since I first spoke out against newspaper and media consolidations in 1988, there has been a steady erosion of diverse and local ownership. With ever-increasing consolidation and decreased emphasis on journalism, we have a less informed and less engaged society.
Blethen wrote that he is optimistic that the purchase of the Washington Post by Jeff Bezos and the acquisition of the Boston Globe by John Henry signal "that public interest stewardship may be returning, and with it a renewal of local family newspaper ownership."
Yet Blethen -- whose newspaper is one of only five locally owned family newspapers remaining in the top 50 markets -- urged American citizens to be vigilant. "The lack of quality, accessible education and the loss of a once diverse and robust system of independent newspapers," Blethen wrote in Family Business, "are the key drivers of our wealth and opportunity gaps."
Where are the women directors?
The Wall Street Journal recently reported that the U.S. trails a number of other countries in the percentage of women serving as directors on the boards of large public companies.
A study last year by Catalyst, a non-profit research group, found that 16.9% of board seats at Fortune 500 companies in the U.S. were held by women, the Journal report noted. That compares with 36% in Norway, 26.8% in Finland and 20% in the U.K., the article said.
How do family business boards compare? A U.K. study by researchers from the business schools at Imperial College, Leeds University and Durham University, cited last May in Real Business, found that 80% of the private family companies examined had at least one female director.
But U.S. family firms lag behind their British counterparts. In March and April 2013, Deloitte Growth Enterprise Services conducted an online survey of U.S. family businesses (see Openers, FB, July/August 2013). Two-thirds of Deloitte's respondents said women constituted less than 30% of their board membership, and 28% said their companies had no female board members at all. Among companies with revenues between $200 million and $500 million, 48% had no women directors.
One reason for the lack of diversity in U.S. family firms may be the inability to remove sitting directors from family business boards. The Deloitte study found that 82% of respondents' boards had no term limits, and a whopping 89% had no age limits. Small wonder that more than three-quarters (78%) of those queried by Deloitte reported 0 to 5% turnover in any given year.
All-male boards may be hurting a company's bottom line. Real Business, referring to findings from the U.K. study, noted that a board with diverse membership is better able to address potential threats to business survival and is more likely to closely examine a company's spending and risk taking.
Altering the composition of your board -- to include not only women, but also people of color, younger people and more non-family members -- can provide fresh new perspectives, lessen the likelihood of groupthink and increase your company's survival odds in today's global marketplace. The world's companies are diversifying their boards. It's time for American family firms to catch up
Home sweet home
Last week, the newly merged boards of Fiat and Chrysler voted to move the company's main share listing from Milan to New York, its nation of incorporation to the Netherlands and its tax residence to the U.K.
A Financial Times article, noting that Fiat -- controlled by the Agnelli family -- is Italy's largest employer, said that in Turin, home of Fiat's Maserati factory, "the long feared move has been met by hysteria in the local media."
Fiat has 18,000 employees in the Turin area (5,000 of whom are currently laid off). The company estimates that about 10,000 citizens of Turin work for Fiat suppliers, the FT reported. "Among locals it is accepted wisdom that for every Fiat job there are seven more that depend on the carmaker," the report said.
While Turin residents worry what will happen to the city if Fiat continues to move operations elsewhere, Giuseppe Berta of Bocconi University told the FT that the automaker needs to step up globalization in order to survive.
Though they might not be as huge as Fiat Chrysler, many family businesses around the world are also closely connected to the municipalities where they operate.
A 2011 New York Times report, for example, noted that the Marvin family and their company, Warroad, Minn.-based Marvin Windows and Doors, have financed the town library, senior center, high school swimming pool and hockey arena, as well as a scholarship fund for the town's college-bound students. "We could be anywhere," CEO Jake Marvin told the Times. "But we are in Warroad."
When a business and its community are intertwined, the business owners often consider the welfare of the community when making decisions. President Obama lauded the Marvins in several speeches for finding alternatives to layoffs during the financial crisis. (Those alternatives included pay cuts for family members.) In December 2012, the Times reported that Marvin was able to distribute small profit-sharing checks to employees.
Of course, as Bocconi University's Berta indicated to the Financial Times, a business won't be able to serve the community for very long if the owners don't keep the company's long-term health in their sights. Consider the often-cited case of Malden Mills, the family company that made Polartec fleece. When a fire destroyed the company's Lawrence, Mass., factory in 1995, CEO Aaron Feuerstein continued to pay the full salaries of his idled workers while he built a new, state-of-the art facility. But the company struggled because of debt from the rebuilt factory and a downturn in the industry. Malden Mills filed for bankruptcy in 2001, and Feuerstein was replaced as CEO. The reorganized company declared bankruptcy in 2007 and was sold. As David W. Gill wrote on Seattle Pacific University's Ethix.org blog, "Carrying big debt at Malden Mills was significantly related to Feuerstein's choice to invest so heavily in his employees and this made the company more vulnerable."
The forest vs. the trees
Earlier this month I traveled to Burlington, Vt., to serve as a judge for the final round of the second annual Family Enterprise Case Competition. Nineteen student teams from around the world participated in this event, the brainchild of Pramodita Sharma of the University of Vermont School of Business Administration and editor of Family Business Review.
The case that the finalists analyzed described a choice facing the third-generation president of a family company. Most of the student teams focused their presentations on how the company president should approach the choice. Some teams advocated one of the two alternatives; other teams recommended the opposite. All presented an impressive amount of evidence to support their conclusions.
When we judges -- professors, editors, business leaders and family business advisers -- discussed the case among ourselves, we noticed right away that the company faced an array of problems broader in scope than the either/or decision. Performance had declined. Ownership was very diluted, with numerous family members owning small stakes. The family seemed confused about differences in the roles and responsibilities of owners, managers, and family members. Governance structures appeared to be lacking. Family members seemed to take an entitlement attitude toward the business, instead of considering themselves to be stewards entrusted with preserving the family enterprise for future generations.
Only one of the teams in the competition -- the graduate student team from Jönköping International Business School in Sweden -- recognized that it was more important that the company leaders address the larger issues than make the either/or decision.
The student teams' focus on the small-picture issue mirrors many real-world family business situations. Decisions that seem urgent may be symptoms of larger problems that can be resolved most effectively by establishing family and/or business governance structures. An effective board of directors can keep a company president focused on performance. A strong family council can help family members understand their responsibilities as stewards of the family legacy.
The maple trees in Vermont yield delicious syrup. But it's also important to pay attention to the forest.
The value of values education
A recent article in the Financial Times demonstrates that a single member of an extended family who does not share the family's values can wield tremendous power.
The FT report describes a legal battle over a house and artifacts that once belonged to Field Marshal Lord Raglan (1788-1855), the first British commander in chief during the Crimean War best known for his role in the Charge of the Light Brigade military disaster.
Raglan's family have been stewards of Cefntilla Court, a 19th-century manor house in Monmouthshire, in southeast Wales. According to anz inscription over its front door, Cefntilla was "purchased by 1,623 of [Raglan's] friends, admirers and comrades in arms" and presented to his family after his death "in a lasting memorial of affectionate regard and respect." The house was full of items that included a gold ring taken by the Duke of Wellington from Indian ruler Tipu Sultan (Raglan was married to Wellington's niece), a miniature gold sword engraved with the date of Waterloo and the badge of Portugal's Military Order of the Tower and the Sword, the FT article noted.
Raglan's direct descendant FitzRoy Somerset, the fifth Lord Raglan, was a collector who sought to buy back family memorabilia such as his ancestor's Crimean War field canteen. Somerset, who died in January 2010 and had no children, "was immensely proud of the collection," a neighbor told the FT.
The FT report said that FitzRoy Somerset's nephew Arthur Somerset, an entrepreneur who had his own event-management business in London, was regarded as the obvious heir to the property and its contents. But Arthur Somerset irked his uncle when he bought a house near the estate in order to get to know the area. An acquaintance told the FT, "FitzRoy once accused Arthur of just sitting at the end of his drive waiting for him to die."
In a move that surprised the family, according to the FT, FitzRoy left the house and all its contents not to Arthur Somerset but to Henry van Moyland, a recruitment executive in California and a nephew from another branch of FitzRoy's family.
Van Moyland put the property up for sale and made plans for Christie's to auction all the contents. The auction reserve was set at £750,000, a low figure according to an expert quoted by the FT.
In April 2012, Arthur Somerset filed suit to contest the inheritance and obtained an injunction that has prevented van Moyland from selling the house or auctioning off the contents. Arthur Somerset himself died of a heart attack at age 52 shortly after he obtained the injunction; his widow is continuing the legal fight.
The FT predicted that "much of the estate might eventually be sold either by van Moyland or the Somersets, who will face heavy legal expenses even if they are successful."
Arthur Somerset, assumed by the family to be the one who would be the next steward of Cefntilla, took an interest in it, though he expressed that interest in a manner so inelegant that it caused his uncle to disinherit him. But van Moyland -- the son of FitzRoy Somerset's sister, who lived on a different continent from the estate -- likely did not feel as closely connected to the family history. When Cefntilla fell into his hands, van Moyland chose liquidation over preservation.
This sad situation might have been prevented if FitzRoy Somerset had channeled some of his energy from collecting family artifacts to teaching all of his extended family members about the family values. As a man without children of his own, he might never have considered this to be his responsibility. But as the one entrusted with preserving the home given to the family in perpetuity by his ancestor's admirers, FitzRoy should have at least ensured that educational efforts were somehow being carried out, especially given his intention to name a far-flung relative as the heir.
Lord Raglan's family did not own a business together, but a family business consultant might have been able to help them unite around a common value system and preserve their legacy.