Nepotism

A garbage company that collects relatives

Many business families have trouble finding the proper balance between home and work concerns when just two or three family members work together in the company. So imagine the challenges facing the Rumpke family at Rumpke Consolidated Companies. The Cincinnati-based waste management business employs dozens of relatives, including all five children of 66-year-old CEO William J. Rumpke. “A few years ago, I tried to count the exact number of relatives in the business, and I gave up when I got to 75,” says Rumpke, a son of the company founder. “We have relatives and in-laws spread throughout the company.”

Current employees include 20 grandsons of the two brothers who founded the company in the 1930s. Eight granddaughters have husbands who work at Rumpke. Another four female relatives are employed themselves. How were the Rumpkes so successful at recruiting the younger generation? No one is pressured to join, but many young people begin in the business as children, says Jennifer Schnee, a 42-year-old granddaughter of a founder who now works as a customer service manager. “I rode the trucks with my dad from the time I was young,” says Schnee. “I started working in the office when I was 16, and I continued working while I went to college. It was in my blood.”

Another reason the younger generation joins the company is simple pride, says Bill Rumpke Jr., the 42-year-old chief operating officer who is a son of the current CEO. “We understand that landfills are not always looked on kindly,” he says. “But as children we saw that the older generation took a lot of pride in doing a job right. In Cincinnati you see the Rumpke name everywhere, and it stands for high-quality service.”

To provide so many paychecks, the business has had to grow steadily. But growth has rarely posed a challenge. Once a tiny operation, Rumpke Consolidated now has 2,000 employees and 1,000 garbage trucks and generates $340 million in annual revenues. “My kids want to stay with the business because they feel that there are opportunities for them to learn and move up,” says CEO William Rumpke.

The company got its start in 1932 when William F. Rumpke began selling coal and raising hogs on a farm in Ohio’s Colerain Township, near Cincinnati. Bernard Rumpke soon joined his brother. To feed the hogs, the brothers recruited an unemployed nephew who began collecting garbage. The young man separated the trash, feeding edible items to the animals and recycling the rest. By the 1940s, the family was charging residential and municipal customers to haul away the garbage. Seeking to attract more drivers, founder William came up with a commission system that the family still uses today. “Pop would give a young relative a truck,” recalls current CEO William Rumpke. “He would point to a town and tell the fellow to start picking up. The driver would come back with his pockets full of money, and they would split the cash 50:50.”

By the 1950s, the Rumpkes had 2,000 hogs on a 230-acre farm and a thriving garbage hauling business. Then the Food and Drug Administration issued rules requiring farmers to process garbage before feeding it to animals. Faced with extra costs imposed by the new regulation, the Rumpkes abandoned farming and began focusing on their garbage business.

In the 1970s, William F. sold his half interest in the company to his eldest son, William J. Rumpke. Bernard sold his half share to his son Tom. The two cousins were co-owners and co-presidents until Tom’s death in 2004. His interest passed to a trust that is controlled by his four sons. All of Tom’s four children are working in the business and planning to stay.

While corporate headquarters are in Cincinnati, the company is divided into five districts with substantial operations spread throughout Ohio, Kentucky and Indiana. Besides garbage hauling, the company also operates in other related areas, including landfills, recycling, portable toilets and manufacturing parts for garbage trucks and dumpsters. Many of the operations are run by Rumpkes. COO Bill Rumpke Jr.’s brother Jeff, 38, is vice president for the Cincinnati region, the company’s largest district, which accounts for half of sales. Matt Rumpke, 41, who is Tom’s son, oversees Louisville, while his twin brother, Mark, heads up the operation in Columbus, Ohio.

By all accounts, the Rumpkes’ ability to retain relatives is unusual. “Some old family businesses have lots of relatives who own shares and come to a meeting once a year,” says Ellen Frankenberg, a family business adviser in Cincinnati. “But it is exceedingly rare to see a company where dozens of family members actually work in the business on a day-to-day basis.”

Each route is a business

Though COO Bill Rumpke Jr. insists that young people are not pressured to join the family business, Rumpke fathers typically introduce their sons and daughters to the company at a young age. Bill began sweeping floors when he was in the seventh grade. After college he joined the recycling business and eventually became head of the unit. Bill says that much of what attracted him and his young relatives to the business was a strong sense of family heritage. “We are proud of this great business that our fathers built up,” he says.

From the early days, the Rumpke founders emphasized to their children and grandchildren the need for treating customers politely and delivering unmatched service at a low price. The efforts succeeded. Today the company dominates its markets. “In our territories, people don’t say that the garbage truck has been by,” says Bill Jr. “They say that Rumpke has been here.”

The Rumpke system is set up to encourage entrepreneurship among family members. At the heart of the system are garbage truck routes that have been developed over the years. Today the company has 30 routes, including 28 owned by relatives. (The two non-relatives are the sons of top employees who gained the routes in the 1950s.) Each route is a substantial business, and routes are typically passed from father to son.

To get a route, a nephew or cousin initially paid the owner—one of the founders or their sons (all owners are men)—a fee. In return, the company supplied the young man with a truck and the right to represent Rumpke in a certain area. Because the route owner shared in the profits, he had an incentive to build his business.

A route owner starts by driving one truck and hauling garbage himself. As he drives along, he tries to pick up new customers, seeking to persuade businesses and homeowners to leave their old garbage hauler and sign up with Rumpke. As an entrepreneur, the route owner is free to lower a price in order to gain a new customer. After getting enough new customers, the route owner can get a second truck and hire a driver to take over the first vehicle. Rumpke Consolidated owns the trucks and supplies gas, but the route owner is responsible for his labor costs.

Moving through the ranks

Though most top corporate jobs are held by descendants of the founders, other employees have a shot at substantial positions. Relatives and non-relatives typically start as garbage haulers or in low-level corporate jobs. “Relatives are not sheltered,” says CEO William Rumpke. “We have fired family members. When relatives do something wrong, they get the boot, just like any other employee.” He says he can’t recall the number of relatives who have been fired, but there have been several.

Family business adviser Ellen Frankenberg cautions that businesses should be careful to hire and promote relatives based on merit. Operations run by unqualified relatives will suffer, fostering resentment among employees, she notes. “You can’t just hire family members because they are family,” Frankenberg says. “The downfall of many businesses comes when family members have felt entitled to a position whether or not they have something to offer.”

To help all employees advance, Rumpke Consolidated runs a variety of training programs. Truck drivers attend classes in first aid and environmental rules. They are drilled about how to treat customers courteously. Rumpke hired a consultant to develop a sales training program that is offered to many employees.

The training programs have helped many unrelated employees advance through the ranks. One non-family member who started as a garbage hauler now oversees one of the company’s districts. Many top headquarters jobs are filled by outsiders, including the human resources director, sales director and general counsel.

Many Rumpke employees have been with the company more than 20 years. The CEO speculates that part of the reason for the loyalty is that the company tries to pay slightly higher wages than competitors do. But the main reason people want to stay, William Rumpke says, is that they are treated fairly and given a chance to rise through the ranks. “We go out of our way to treat employees like family,” he says, “and people appreciate that.”

Environmental controversies

The Rumpke family has received media attention for its handling of environmental controversies, an inevitable occurrence in the garbage hauling business. The company owns nine landfills, which are generally opposed by neighbors. Communications director Amanda Pratt notes that the company has taken polls to see how environmental issues affect the Rumpke image. In most areas, 90% of respondents have a favorable image of the company, she says. But in areas next to landfills, the favorability rating drops; residents complain of odors and being subjected to a steady stream of giant trucks.

In recent months, the company has been forced to defend plans for expanding Rumpke Sanitary Landfill, the site of the original hog farm. The spot, which is the largest landfill in the state, is often called “Mount Rumpke.” The mountain grows by 8,000 tons a day as garbage trucks steadily bring waste from Cincinnati and surrounding towns. The family proposes to spend $145 million in order to enlarge the 509-acre site by 206 acres. The aim is to increase the life of the landfill by another 30 years, ensuring that the next generation will still be in the business.

Before the giant project can be built, zoning commissions will ask tough questions. Community members have already spoken out against the expansion. Some residents worry that enlarging the landfill will hurt property values. To satisfy opponents over the years, Bill Rumpke Jr. and other family members have patiently testified at zoning meetings, arguing that the community needs more landfill capacity. Rumpke financed a study by the University of Cincinnati showing that landfills and other waste management facilities create jobs and help stimulate a town’s economy.

As part of the public relations efforts, Rumpke employees speak at schools and public meetings about the environmental issues surrounding waste management and stressing that good environmental controls can limit hazards. Every year, Rumpke takes 300 groups—more than 10,000 people—on expeditions to the top of Mount Rumpke. “Waste management is a complicated business,” says CEO William Rumpke, “and we try to be open with people about the issues.”

The company makes an effort to participate actively in communities. For example, it sponsors Little League teams and donates to school athletic programs.

Growth through expansion

Over the years, the company has grown through internal expansion and acquisitions. In some cases the family started new businesses from scratch. In the 1960s, the company found it difficult to find reliable shops that could repair trucks and build garbage dumpsters. So the family started Rumpke Iron Works to handle the tasks. When the need became apparent, Rumpke became a large renter of portable toilets.

In 1989, the company opened Rumpke Recycling in Circleville, Ohio. Today Rumpke operates five recycling centers in Indiana, Ohio and Kentucky that process more than 500 million pounds annually. The company picks up recycling from residential customers as well as industrial clients. Trucks take the waste to Rumpke’s recycling facilities, where the company processes the garbage, bails it and ships the recycled products to manufacturers. Customers use the supplies to make building materials and other goods.

Much of Rumpke’s most dramatic growth has come through acquisitions. In the early days, the company began by buying 20 garbage haulers in the Cincinnati area. More recently, the pace of acquisitions has accelerated. Since 1978, the company has acquired 182 businesses, including many family-owned garbage haulers and recyclers. “We took command of the Cincinnati market, and then we moved on,” says CEO William Rumpke. “Our goal is always to have more than 50% of any market where we operate.”

Integrating most of the acquired companies has not been difficult, says the CEO. In most cases, the acquisitions were small mom-and-pop companies that cost less than $3 million to buy. In a typical purchase, Rumpke keeps on most employees. The new hires, already used to working for a family business, easily adapt to Rumpke management.

As the company has grown, the Rumpkes have worked to maintain a sense of closeness. The CEO, known for his unpretentious manner and white straw hat, reaches out to new employees. At company picnics he greets old and new drivers by name. He says that he and other top executives have a constant open-door policy; any employee can walk in with a question.

Just as he strives for good relations with employees, the CEO aims to avoid squabbles among shareholders. The owners meet once a month. William Rumpke chairs the meeting, which includes his five children along with his cousin Tom’s four children. The group irons out strategy questions. “There is not a lot of bureaucracy,” William Rumpke says. “Decisions are made quickly, and they are made based on facts.”

Since all the shareholders work at the company, there are no disputes about giving dividends to outsiders or buying out relatives who want to depart from the business. Rumpke has not announced his successor, but he predicts that filling the CEO’s chair will not be difficult. “I will be around for a while,” he says, “and after that we have a lot of good young people who are dedicated to maintaining the company and keeping it in family hands.”

Stan Luxenberg is a business writer based in New York City.

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My worst mistake: Hiring the boss's son

I am a human resources professional with 15 years of industry experience. I interview people for a living, and I'm paid by large corporations for my expertise in assessing talent, determining candidates' motivations and uncovering their hidden agendas. Yet when it came to hiring my own stepson, I let a family relationship cloud my professional judgment.

Five years later, my stepson Jeff is no longer my employee; he's my competitor. Had I simply used my own professional knowledge from the start, and applied the interviewing guidelines I routinely follow on behalf of my clients when I interviewed him, the results might have been different.

Of course, that's easier said than done. My business partner is my husband, Dave. It seemed only reasonable to bring his son into our business when he reached the point in his life where he wanted a real career. At 25, Jeff felt the need to establish a more meaningful and financially rewarding future. I convinced myself that I was making the decision to hire him based on all the right criteria. I assessed his desire, his skills and his sales ability. He met the standards. The fact that Jeff was family seemed at the time like icing on the cake.

I neglected to ask the other questions I always ask before anything else is discussed—the ones that help me determine a candidate's motivation. I assumed I knew the answers because I knew Jeff. But I assumed incorrectly.

In the personnel consulting business, we tend to train our own eventual competitors, because a successful consultant is inherently entrepreneurial. I was relieved to have at least one employee I thought I could trust to put the interests of our business ahead of his own. It never occurred to me that my own stepson would take the path of employees before him who used our training and contacts to realize their own dreams.

It stood to reason that if Jeff were as capable and successful as his father, a 25-year human resources veteran, the business would be his some day. In the meantime, he would have the potential to go from earning $30,000 a year in a retail job to a six-figure income, based on revenues at our company. While that seemed like a pretty substantial improvement to me, I failed to uncover one very important aspect of Jeff's personality. He is a child of entitlement and, as such, he felt he deserved more than money. In working for us, he was seeking the prestige, recognition, latitude and influence that he perceived was inherent in his position as the boss's son ... and he expected those benefits almost immediately.

Jeff's own agenda and intentions were always more important to him than the family legacy could ever be, and to us the legacy was what mattered most. As I look back upon my own goals when I was 25, I realize my hopes and aspirations are quite different now from what they were two decades ago. I expected the family relationship to overcome the impatience and eagerness inherent in most 20-somethings. It was a recipe for disaster.

I thought we made our expectations clear when we hired Jeff. Dave and I both went out of our way to explain to him that we would not tolerate any behavior on his part in the office that smacked of privilege. He had to earn his stripes, just like everyone else. He agreed wholeheartedly, but deep down in my businesswoman's soul, I felt he was insincere. In spite of our insistence that Jeff would not be held to a different standard from our other employees, in effect this was what happened from the minute we began discussing his employment.

The warning flags were there, but I chose to ignore them because he was family. Even if working for us meant he had to move to the small town where we live—1,000 miles away from his hometown—he was family. Dave and I had lived in the same city as my stepson until 1990. As midlife approached, other family considerations—including the needs of my aging parents—came into play, and we moved to a small town. The change from the hustle and bustle of big city life turned out to be easy and enjoyable for us, and I foolishly assumed Jeff would make the transition just as easily.

Ordinarily I make it a rule never to refer a candidate to an employer if the geographic location is incompatible for any reason. Jeff's hesitation about small-town living should have been a red flag to me. But again, in his case I ignored my own screening guidelines.

Even if this whole idea of becoming trained by his father was not Jeff's to begin with but that of his fiancée, he was family. Even if it took him a year to finally pull up stakes and make the move—and only after the departure of a seasoned professional in our office who would have been senior to him—it didn't matter, because he was family. Jeff had initially been offended by our insistence that this senior professional be a part of Jeff's screening process. I simply didn't put two and two together.

So we hired Jeff a full year after that initial discussion, following his inquiry as to whether our job offer was “still good.” He performed well at first, but within months, “the boss's son” began to emerge.

Jeff grew impatient for more authority. I explained to him repeatedly that with a staff of just six people (including him and the two of us), there wasn't room for another management layer. But in effect he promoted himself without our knowledge, talking to our employees about what would happen when he took over. Clients thought he was an owner because he told them he was. He demanded that Dave and I give him a say in business decisions, even though we felt he hadn't earned it. The rift between us began, and Jeff's disgruntlement grew. Meanwhile, one of our professionals departed because, I later heard, he couldn't stand Jeff.

His last year with our company was chaotic. Jeff provided everyone in the office with unwanted daily details of his marital separation and his divorce proceedings. Such was his need for attention at this point that our attempts to suppress these conversations fell on deaf ears: Jeff simply continued these discussions outside the office. During those after-hours discussions, I later learned, he constantly undermined our ownership with complaints about our procedures, unwarranted references to himself as part of the “management team” and suggestions to a co-worker that he and that co-worker would eventually take over the business.

Finally, Jeff compromised our firm's reputation by bringing a sordid part of his personal life into the office—he initiated an affair with a co-worker on company time. We called Jeff into the office to request that he use discretion in his romantic choices, keep his affairs out of the office and consider the company's image in the future.

“It's none of your business,” he replied. “You can't tell me what to do. What are you going to do, fire me?”

My husband, who had wanted to shelve the discussion for a day, looked at me after Jeff's final outburst, and I could almost hear his heart breaking as he spoke. “You're wrong, son,” Dave told him. “You're fired.”

At first Jeff was indignant, demanding we reconsider. Then he turned conciliatory, trying to coerce us into opening a branch office for him elsewhere. When it finally sunk in that our association was over, he became consumed with a rage that has never subsided.

Before he left, Jeff vented all of his frustrations. He hadn't been given a management position; we wouldn't let him train people; we didn't give him access to the books; we wouldn't spend money on upgrades he deemed necessary and appropriate; we conducted business as if we were in the dark ages; and we hadn't appreciated his unique gifts.

After that, he arranged to move and open up as our competitor at lightning speed. He moved back to the city he loves and started his own firm. Perhaps that was what he'd wanted all along. Being terminated freed Jeff to leave without the guilt or responsibility of making the decision. It also gave him someone other than himself to blame.

The fallout in the ensuing two years has been devastating for our company. While non-compete agreements are standard in our business, they don't apply across state borders—and even if they did, I had erroneously assumed such an agreement wouldn't be necessary with my husband's son. Our new competitor, now 31, is doing his best to secure business from our clients, crying foul for having been so callously dismissed by his own father—and with some people, this tactic has worked.

As for our family relationship, I have tried to speak to Jeff. But he says he has no interest in a dialogue unless it includes discussions of his “rightful inheritance.” In fact, one of his first questions following his dismissal was, “So, am I out of the will, too?”

To say Dave and I feel like meal tickets understates the case dramatically. My husband cannot speak to Jeff at all. He feels that his son has acted without regard to anyone's feelings but his own and that his present behavior reflects on us negatively. I wouldn't maintain a relationship with any former employee who has acted the way my stepson has. In expecting more from him, I ended up with less.

The feelings of responsibility I have for making such a devastating mistake can be overwhelming at times. Could I have prevented it? I don't know. What I do know is that while you can never be sure how someone will perform once he's hired, you can do your best to avoid making a bad hire, and your best doesn't include assuming you know someone's motivations simply because he's family.

If I had it to do over again, I would have handled Jeff's potential hiring the way I handle any other applicant. At the time, it seemed somehow inappropriate to ask standard impersonal questions of someone I loved. I know now that it is even more important to ask those questions when the emotional undercurrent of a familial relationship is involved.

Many father-son relationships work out beautifully in the business world. But I suspect that the rate of failure is growing as entitlement issues continue to creep into the workplace with family and non-family employees alike. Whether you're assessing the boss's son or a total stranger, the best advice I can offer is: Use your best professional judgment.

“Blanche DuBois” is a pseudonym for a human resources professional based in the Midwestern U.S. All names in this article have been changed.

What to ask

From a human resources professional who's learned the hard way to practice what she preaches, here are some guidelines for interviewing and hiring relatives.

The interview

Set the tone. The interview should be conducted by the person who normally does the hiring at your company, at the place the interviewing is normally done. I “interviewed” my stepson at my dining room table with his fiancée and my husband present. That act alone set him apart.

Follow company procedure. Make your family member do everything you have other applicants do. If he should bring a résumé, dress appropriately or fill out an application, make sure he does it.

Have a list of questions ready. Here are a few:

1. Why do you want to work in this industry? For our company?

2. Have you done any research on the company? What have you learned?

3. What is your understanding of what we do?

4. Why are you looking to make a change from your current employment?

5. What do you like about your current position?

6. What frustrates you about your current position?

7. What is your ideal position?

8. Where do you see yourself in a year? In five years?

9. What do you feel makes you a good candidate for this position?

10. Tell me about a situation in which you've been frustrated by a manager, a coworker or a decision. How did you handle it?

11. Tell me about a problem you encountered recently and how you solved it.

12. Do you have any questions for me?

13. Do you have any concerns that you wish to discuss?

14. Why should I hire you?

15. Describe your ideal boss.

This list is by no means comprehensive, but it may give you a starting point to formulate questions that are important to you and your business.

Provide a job description and a career path outline. This precludes any misunderstandings about responsibilities or promotions.

Sit back and wait. Don't pursue him. Let the applicant follow up with you. We expect candidates to display interest through letters or phone calls reinforcing that they want the job and why and that they can do the job and why.

Set up a “field day.” Have your family member come in and interact with your staff; then get their feedback. You might be surprised what you learn about your existing staff's attitude and your family member's.

Get references. Past performance indicates future success. The tendencies my stepson displayed under our employ probably showed up in his previous position.

“Interview” the spouse or significant other separately. Explaining how this relationship will and won't work to the in-law from the start avoids a lot of problems downstream. It also provides the opportunity to gauge the level of support your new employee receives at home.

Upon hiring

Provide a job description ... again. Prepare a complete job description for the new employee ... in writing. Discuss expectations and how performance will be measured. Discuss and implement a job review schedule.

Keep an employee file. Even if you hire your son, daughter, sister, brother or cousin, you must document the employee's performance. I never thought I'd need proof of my position in regard to a relative's performance, but I did.

Get a non-compete agreement or contract. If his intentions are honorable, signing it won't be an issue.

Set a high standard. Your other employees will expect you to favor a relative. You must let your relative know that your expectations are higher where he is concerned. —B.D.

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Why We Like Nepotism

As a human resources professional, my instinctive reaction to nepotism used to be that it could simply never work. But since I joined Thomas Publishing Co. in New York City 18 years ago, my views have taken a full 180-degree turn.

Thomas Publishing provides product information for industry in both print and electronic media. It produces such buying guides as the Thomas Register of American Manufacturers, the Regional Industrial Buying Guides, and the Thomas Food Industry Register. It also publishes several magazines, such as Managing Automation, and online products such as Solusource, for design engineers. The company was founded 100 years ago in New York by Harvey Mark Thomas. Today it is run and owned by president Tom Knudsen, 57, and chairman José E. Andrade, 56, who are cousins and the grandsons of the founder. These two executives could have a free hand at placing relatives within the company and dictating their salaries. That is not what happens, and it’s an incredible thing to see.

Most employees at Thomas compile, classify, and verify information, support advertising sales, and handle production of our many publications. Like anybody else, Thomas family members who want to work for the company start out at whatever job they are qualified to do. They are paid the same as others doing similar tasks. Various children of Tom and Jos�(c) have worked for us when they were young and inexperienced, doing data entry and proofreading editorial listings. At present, Tom has a son and son-in-law, and Jos�(c) has a son and niece, working in the company, but none is in a senior management position, and each has had to earn responsibility. They have received the same rigorous biannual performance reviews as every other employee, and any promotions they may receive hang on the results. To me, this sense of fair play and equality is a defining quality of the company’s culture.

Nepotism is well regarded by our 550 employees, and it is rampant in our independent contractor sales force of 750, in large part because we practice it across the board for all employees, not just for the Thomas family. Our view is that if an employee wants a brother or daughter or nephew to work here, that’s a great endorsement for the company. It means they’re happy and think Thomas is a good, caring place to work. What better testimonial could we have?

In turn, we have found that the relatives of employees who are hired prove to be motivated, conscientious employees. Over the years, there have been numerous examples of nepotism hires outside the Thomas family. Mothers have referred daughters and daughters have referred mothers. We’ve had fathers and sons, sisters and brothers, aunts and nieces working here. At the moment, there are more than 30 examples of nepotism across the company. We even have several couples who met and married while working with us. A majority of people in our large independent sales force have hired members of their own families; We even have several couples who met and married while working with us. A majority of people in our large independent sales force have hired members of their own families; there are even grandfather-son-grandson-granddaughter combinations and an office with two different brother-sister pairs. Their success shows that nepotism really works!

 

Why it works

 

All in all, what I see here isn’t the complacent stodginess of many nepotistic companies. We have an extraordinary level of dedication among all employees, low employee turnover, and a high level of entrepreneurial energy and innovation. People who join the company can feel a sense of ownership. Every employee, and every one of our outside sales contractors, is considered part of the Thomas family regardless of blood relationships.

While at other companies, a family tie to an existing employee might send up a red flag in the human resources department, my department encourages hiring family members. We make it clear, however, that the idea of nepotism has nothing to do with playing favorites. Nepotism may help get you get a foot in the door, but only performance determines your career opportunities at Thomas.

I can make that statement with credibility because of the performance policies we practice. Family and nonfamily employees who may not be performing well are handled in the same way. At first, the person’s superviser will try to work things out with them. If that fails, both will come to me for assistance. If, after further effort, the situation doesn’t improve, then I’ll suggest it’s time to sever the relationship. If a family employee is fired, any resentment among the remaining family members would tend to be muted because everybody understands there is no preferential treatment at Thomas. Everybody sees that we hold people accountable for their performance. They would not feel as if their family had been under personal attack.

Everybody also sees that employees who perform well enjoy job security, excellent benefits, and opportunities for advancement. An entrepreneurial attitude is encouraged, giving many employees broad scope and independence. These corporate values have helped us attract and retain many highly talented and motivated people, and encourage, rather than stifle, innovative thinking.

Performance is the basis for career advancement throughout the company. Only in succession for the two top spots may family preference become an issue. President Tom Knudsen and chairman Jos�(c) E. Andrade, who have both held their positions for about 25 years, are likely to remain at the helm for some time, although obviously at some point we will have to address succession. None of their children or in-laws in the company are experienced enough to be considered at this time. Tom and Jos�(c) both had to work their way up, and demand that their offspring do the same. Nonetheless, there is a general perception among employees that family members are likely to assume the presidency and chairmanship some day.

This situation might demotivate senior managers at other companies. But Thomas has avoided this pitfall with a deliberate structure and environment that ensures that other top management positions are open to all. We have eight operating units. Each unit president is encouraged to grow his or her division in an entrepreneurial way. Some are expanding the list of titles they publish; all are getting into because the presidents of smaller units have a electronic media. In the last 20 years, not one of the eight top spots has turned since it was created. There is a sense of career opportunity, as well, because the presidents of smaller units have a fair shot at leading a larger one should its present-day leader leave or retire.

 

Practical advantages

 

All this may sound well and good, but what exactly are the advantages of nepotism? There are several.

Shorter learning curve. Family members who join the company already know a lot from relatives about what they’re getting into, as far as the corporate culture and expectations. There’s less of a learning curve. They will also be more likely to be satisfied with what they find, and therefore to stay.

Loyalty. Employees who know that their family members or even friends may be welcome have an extra reason to feel loyal to the company. By the same token, the new hires have an added incentive for loyalty: They know their work affects the fortunes of the company, and thus of the family member or friend who recommended them.

Lower risk. Good people associate with good people. If a valued employee recommends a family member, we believe that that family member is likely to be a good risk as a hire.

Better performance. Even with the sense of fair play, nepotism hires feel an extra scrutiny—a little more performance pressure—to counterbalance any presumption of favoritism.

Fulfills needs at peak times. It’s a tradition to hire students who are family members to work during college vacations in different departments. Far from getting glamorous assignments, these young people fill a real personnel need in peak business seasons.

Lower turnover. All in all, nepotism, successfully practiced, results in lower employee turnover and a high proportion of successful hires.

 

Fair play

 

While the particular corporate culture at Thomas Publishing, developed over a century, may not easily translate to other companies, it provides certain lessons about making nepotism a human resources practice that works.

The first and foremost lesson is: Play fair. Thomas family members and other nepotism hires are treated just like any other employee. They are paid the same salaries as nonfamily members for a given job. They are rated on performance and promoted just like any other employee. They must earn the responsibilities they are given. And when they are interested in exploring growth opportunities, they must look at the internal job postings just like everybody else.

The second lesson is: Be sure personnel practices make sense. Family members should never be in direct reporting relationships, not even Thomas family members. Family members should never be forced on managers, either; all our managers know that they have the same freedom to hire, fire, and promote nepotism hires as others. When I call a manager about a Thomas family member who may be interested in working in that manager’s department, the first reaction is often a joking, “What, me? Say no to the president?” But the reality is that they can say no—without any worry of ill feelings.

Nepotism always carries the risk of negative perception—that what matters is not what you do, but who you are. However, a perception of favoritism will prevail only if family executives push people up the ladder, or ask for preferential treatment because of their name. Ours don’t. I have never had the president or chairman come to my office and tell me that a certain family member is to start a certain job at a certain salary. On the contrary, when they have had sons and daughters who’ve wanted to work for Thomas, they have asked me whether there are any openings that would be appropriate to their children’s skills and knowledge, and what the going rates for those positions are.

Nepotism as we pursue it—fairly, openly, and across the board—is a very successful human resources practice. In a sense, it makes a virtue out of a necessity. A family business is nepotistic by nature, and that can cause major human resources headaches. At Thomas, we’ve redefined nepotism as an opportunity to enhance employee satisfaction, loyalty, productivity, and innovation, to lower turnover, and to attract and retain terrific people.

 

Ivy Molofsky is the director of human resources at Thomas Publishing Co. in Manhattan, where she has worked for 18 years.

 

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Nepotism Revisited

Nepotism: The word continues to stick to family businesses like the proverbial tar baby, stigmatizing them in the view of outsiders as somehow inbred, unprofessional, second-rate. Questions about nepotism often perplex the family business owner, too, who is concerned that the hiring of relatives can affect the company's reputation, its ability to attract top executives, and the morale of its employees.

Almost 30 years ago the Harvard Business Review studied corporate attitudes toward nepotism in one of the most comprehensive, in-depth explorations ever done of the topic. The results were surprising. The nationwide survey of 2,700 business leaders showed that many recognized, and appreciated, the value of having capable, loyal family members working in a business, despite some potentially strong drawbacks.

The 1965 survey covered small and large companies in a variety of industries, and included leaders of public and privately owned firms. Because the results provide a number of practical tips on the hiring and supervision of family members, and how companies can use nepotism to their advantage, Family Business excerpts here the Review's report, which was titled “Is Nepotism So Bad?”

—The Editors


Nepotism has been criticized as being unprofessional. Most writers and critics of business have frowned on the practice. They have claimed that the rise of an intellectual, analytical approach to management spells the decline and ultimate extinction of nepotism. But businessmen seem to see things just the other way around. Judging from their responses to the study, it is because executives take an increasingly professional approach to their work that they can justify nepotism; being professional, they can deal with it objectively—using it when it is of potential benefit to the company, rejecting it when it is not.

Nepotism does not have a good image in the business community. Businessmen have a general feeling that nepotism is undesirable. Executives are impressed by certain disadvantages of nepotism, especially its tendencies to discourage outsiders from seeking employment in the company and to stir up jealousy and resentment among employees.

But this attitude does not hold up when the executives get down to concrete cases and decisions. While over 60 percent of those responding to the study profess an unfavorable attitude toward nepotism in general, 85 percent justify it on specific occasions in the normal course of business. Only a minority elect the hard-boiled “out-with-the-nepot” alternative open to them. This is true in all kinds of companies. Many executives seem to feel that relatives of currently employed managers may be exceptionally well qualified. There is much open-mindedness, too, toward the possibility that a family relationship will stimulate a sense of responsibility in the nepot, encourage him to take a greater-than-average interest in the company, and produce other desirable attitudes. By dealing with nepotism objectively, analytically, and knowledgeably on a case-by-case basis, executives feel that they can draw on its potential advantages while minimizing its disadvantages. They regard as irrelevant generalizations about how “good” or “bad” nepotism is. Using such categorical rules, they believe, can be bad business.

Since so many executives would like to leverage the potential benefits of nepotism, the question arises: What are the best ways to deal with the problems created by employing relatives in management? The advice from respondents can be summarized in the form of dos and don'ts.

 

Deployment for employment

First comes the question of how to decide whether or not to employ a manager's relative. The study has produced a variety of ideas on the subject:

Do have a group of the company's executives not related to him pass on his qualifications. In companies where nepotism occurs very often, fairly often, or occasionally, there is strong agreement with the wisdom of this procedure; nearly seven of every ten respondents consistently favor it.

Do consider the possibility of staying out of the question yourself if you are a senior relative—but don't feel obliged to abstain. “The decision to hire,” say 37 percent of those who have been related to other managers, “should be made by executives who are not related to the candidate.” Many of the respondents emphasized the strength of their convictions with extra written comments.

If the senior relative does decide to participate in the hiring decision, his main problem is how to deal with his bias. Some executives warn him about being too partial. Others warn him against expecting too much of a relative and hence being too “hard” on him. Writes the head of a California corporation: “In order to decide fairly and on the merits, you must begin with a slight prejudice against hiring the relative; your tendency must be not to hire him.”

Do consider the possibility that a would-be nepot may profit from two or more years of experience in another company before joining an organization where he has family ties. Such experience would be made a requirement by 58 percent of those from companies where nepotism occurs very often. Among those who have personally been nepots or patrons [senior executives related to nepots], there is 54 percent agreement with the wisdom of such a requirement.

Do consider the advisability of the nepot's obtaining some kind of formal business training or preparation before he goes into administrative work with relatives. A degree from a business school is favored by 38 percent of those who have been nepots or patrons; on the other hand, a doctoral degree in science, engineering, psychology, or other advanced field is favored by only about 10 percent. A popular requirement is one to three years of apprenticeship in factory work, field selling, and/or clerical work; 58 percent of nepots and patrons consider this desirable.

Don't turn the hiring decision over to outsiders, however skilled they may be in executive recruiting. Approximately seven respondents in every eight show lack of enthusiasm for delegating the hiring job to consultants.

Don't employ a relative who does not have one or more highly “visible” assets—at least, if there is much possibility of resentment or misunderstanding among nonrelatives in the company. Respondents have varied opinions as to what this asset should be, but the advantage of some “strong point” is mentioned repeatedly. Some think it should be demonstrated managerial capacity. Others think it should be exceptional intellect or personality. Still others think it should be know-how. “It is important,” says one large-company manager, “that the relative have a ‘specialty' skill, such as in finance, engineering, or sales.”

 

Tips on training

What about the training and supervision a nepot receives in administration after being hired?

Do have him take intensive in-company training, say 67 percent of businessmen from companies where nepotism occurs very often, and 64 percent of businessmen from companies where it occurs fairly often.

Do consider the possibility of extensive but informal on-the-job coaching for the nepot from his superiors, say nearly two-fifths of the respondents from companies where nepotism occurs often. The fact that a majority do not urge such training would indicate, however, that this step is far from mandatory, in their opinion.

Don't let the nepot work under the senior relative's supervision, say 64 percent of nepots and patrons, and even more—73 percent—of others. But there is not such strong agreement that the nepot should be forbidden from working in the senior relative's department or division, so long as he is not under the latter's direct supervision.

Don't let the junior relative come into the company unprepared for the undercurrents and backlash his appointment may create. The director of manufacturing of a medium-sized Midwest company urges: “The pros and cons of nepotism should be thoroughly explained to him, and a course in human relations for him is a ‘must.' He should also be asked this question: ‘Are you prepared to understand nepotism in all of its disadvantages, and will you be sincere in trying to hold the detrimental factors in check?' ”

 

Management policy

Finally, what suggestions do our executives have for policies concerning nepotism?

Do consider the possibility of adopting specific, written statements of management's policy toward nepotism, say a great many businessmen from companies employing relatives in management. The fact that about half do not check this step as desirable, however, suggests that nepotism is too “touchy” a topic in many organizations to be committed to writing.

Do announce that management is committed to the standard of objectivity (even it if has no formulas or devices for assuring it). Urgings of this kind are repeated over and over in the questionnaires. The commitment should be communicated to all managers. It should also be communicated at the start to the junior relative. “Make it coldly plain to him,” says the chairman and chief executive of an East Coast bank, “that he gets and holds the job on the basis of his own qualifications and productive performance.” And a sales manager in a New York organization makes this suggestion for implementing the standard: “The relative should be measured against able nonrelatives. He should be put to competitive tests, where the ability of one person is bound to outshine the ability of others. I don't mean rigid, written tests but instances that will indicate one's character, morality, sense of justice, business acumen, and so forth.”

Don't go along with any proposals that the number of relatives in management be limited to an arbitrary figure or percentage of total employees, say most respondents. Less than one in five from companies where nepotism occurs with any frequency find such a limitation useful.

Don't count on a committee of executives from outside to act as a check on nepotistic policies. Only 10 percent of all respondents include such a committee in the list of steps that they consider desirable.

Don't set the salary range for relatives lower than for nonrelatives in comparable positions, say the great majority of executives from companies with or without nepotism. Only one or two in a hundred see any wisdom in this kind of salary discrimination.

 

This article is excerpted from the Harvard Business Review, Jan.-Feb. 1965. �(c) President and Fellows of Harvard College. David W. Ewing was an associate editor of the Review when the study results were published.

 

PROS AND CONS OF HIRING RELATIVESThe 2,700 people responding to the Harvard Business Review study were asked to indicate the greatest advantages and disadvantages of nepotism. They are ranked below, from greatest to least important.


ADVANTAGES

1. Compared with nonrelatives, a relative is likely to feel a stronger sense of public responsibility in his work.

2. A relative is likely to fit in better than nonrelatives.

3. A relative is likely to take more interest in the company than do nonrelatives.

4. When an executive's relative is employed in management and proves to be capable, the morale of the management team is stimulated.

5. Compared with nonrelatives, a relative of an executive is likely to be more loyal and dependable.

6. Relatives in management help to assure continuity and effective carry-on of corporate policies.

7. Because an executive's relative in a junior position does not have to “play up to the boss,” he can set his own pace and develop his potentials better.


DISADVANTAGES

1. Nepotism tends to create jealousy and resentment among the employees.

2. Nepotism tends to discourage outsiders from seeking work in the company.

3. If a relative is hired as an executive and proves to be inadequate, he cannot be fired or demoted as readily as others can.

4. It is impossible for managers to be objective about the qualifications of their own or other managers' relatives.

5. In management groups where relatives are influential, family interests tend to be put ahead of corporate interests.

6. Nepotism may cause loss of respect for the intelligent judgment, integrity, and objectivity of top management.

OBSTACLES FOR THE NEPOT

Managers responding to the Harvard Business Review study noted that a nepot, once hired, might face attitudes or self-perceptions that could add difficulty to his ability to perform his job.

One problem in particular had been observed much more than others: that the nepot finds it difficult to work productively with others and earn their respect because others tend to suspect his authority was not earned (even if in fact it was). Respondents also indicated that management might tend to think the relative of an important executive will take it easy because he feels protected.

Some respondents worried that the pressure to live up to others' expectations would inhibit the nepot's self-development. They also feared that a nepot would come to doubt his ability to succeed without the patron's help. Quite a few worried about the nepot's self-esteem, the image he presents to others, and difficulties of self-evaluation. “He'll never know,” wrote one market research manager, “if he's worth half his salary or twice the amount.”

-- D.E.

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An Wang's Legacy to His Children

A lot of competitive market forces conspired to bring Wang Laboratories, one of the world's largest computer companies, to the brink of financial disaster in 1989. A new book by journalist Charles C. Kenney, Riding the Runaway Horse, shows that top-heavy management failed to respond with vision to a rapidly changing marketplace. But Kenney's book, excerpted on the following pages, places much of the blame on the hubris of the man they called "the Doctor" and his insistence on naming his son, Fred Wang, president of the company.

The Chinese-born inventor-entrepreneur dearly wanted his two sons, first Fred and then the younger Courtney, to succeed him at the head of the huge enterprise based in Lowell, Massachusetts. Board members felt that Fred Wang lacked the experience, judgment — and heft — to lead the company. So did the more charismatic nonfamily executive, John Cunningham, whom Fred replaced as president in 1986.

Kenney's book suggests that the son obediently followed his father's plan, but that more radical action was needed to rescue Wang Labs. With the company deeply in debt, An Wang was forced in 1989 to fire his son.

Fred went on to attend the John F. Kennedy School of Government at Harvard, planning a new career in public service. By then his father was ill with esophogeal cancer and was forced to accept a nonfamily turn-around specialist, Rick Miller, as CEO. Miller took drastic steps, laying off more than half the firm's 30,000 employees. Meanwhile, the 71 year-old founder lay dying in a Boston hospital. Kenney's book recounts the entrepreneur's last days. — The Editors

An Wang was not a man who had ever lost sleep worrying. He had weathered an extraordinary array of hardships — a war and devastation in China, the loss of half his family, the emigration to a new world with a strange culture and a language that he never quite mastered. He had survived business turbulence and a near catastrophe. He had survived the terrible pain of firing his own son, of living to see not the realization but the shattering of his dream.

But his time had come, and he set about tying up loose ends in his life. One loose end was his unexpressed affection for his children. By trying to run his company primarily for the benefit of his family, Wang had harmed both the company and the family. And although his family's interests came first at Wang Laboratories, he had never sought to excel as a father. Through the years there had been many missed Little League games and weekends when other boarding-school students saw their fathers but the Wang children did not. When Fred was growing up, he recalls, his father was "working most of the time."

For his offspring, An Wang's work produced a fortune. The Doctor, as he was called, established two trusts, one for his children, a second for his grandchildren. The first trust, established in the mid-1950s, eventually grew to contain a substantial amount of Wang stock. Alt one point, that trust alone had been worth more than $500 million.

But for all the money, the Wang children had encountered difficulties in life. Fred suffered the humiliation of being blamed publicly for the company's decline. Courtney still harbored ambitions to run the company, consistent with his father's original dream. But now the notion seemed preposterous. Courtney was a 33-year-old branch manager in the Dallas office and hardly a major player.

Of course, the family could, through its control of the board of directors, place Courtney in charge. But that would require unanimity on the part of the family—and it was not at all clear that Fred would support moving his brother up. Such a move would also mean the loss of Rick Miller, for Miller's contract stipulated that he would never be subordinate to anyone at Wang Labs other than Dr. Wang. Besides, the board and the family were quite happy with the progress Miller had made with the company.

And Wang's youngest child, Juliette, had had some difficulties that caused her parents pain. When she was barely into her 20s, she phoned her parents one night to say she had eloped. That she was marrying someone who was not Chinese crushed Lorraine Wang. That she was doing so without even a traditional wedding was more distressing.

More troublesome was a financial problem into which Juliette and her husband, Mark Coombs, blundered. In the winter of 1984, they received a cold call from a stockbroker. Soon thereafter, according to press reports, they started an account with the broker with $13.5 million worth of Wang Labs stock. Within a few years, they had lost $2 million; they sued the broker, charging his firm had engaged in highly speculative ventures without their knowledge. In August 1988, Juliette's husband, who bad worked closely with the broker, was found dead of carbon monoxide poisoning in a car.

For Juliette, and perhaps for Fred and Courtney as well, there was a feeling that An Wang had withheld himself from his children. His life story was a remarkable one, yet he had never shared much of it with them. Fred learned about his father's experiences in China only as An Wang sat and shared some of his past with a ghostwriter. He never told his children that he had been married once before he met their mother. He made no real effort to pass along Chinese culture or traditions to his children. And, sadly, Juliette says, "he never really communicated to us that he loved us."

In the final days of his life, in the hospital, he did try to convey his feelings. "He wrote in big letters 'I love you' and underlined it a bunch of times and put exclamation points after it," says Juliette. "And he would hold it up and show us."

He was immensely strong, but he was, after all, only human. Surely he was frightened, though he did not show it. In the final days, his doctors said it would be all right for him to go home, but that seemed somewhat impractical, and he felt more comfortable in the hospital, where the doctors were nearby.

Near the end, Juliette read him Dylan Thomas's poem "Do Not Go Gentle Into That Good Night." She said that it was "one of the few things he really enjoyed" during his last days, this poem that urged him to "Rage, rage against the dying of the light."

But his rage was insufficient. The predawn hours of Saturday, March 24, 1990, were cold and wet with sleet. At 5:41 a.m., while it was still dark, An Wang lay in his room at the Massachusetts General Hospital, where he died alone.

THROUGHOUT THE WORLD, he was variously described in obituaries as the shy, bow-tied entrepreneur who held 40 patents and 23 honorary degrees; one of America's wealthiest men, who had given away tens of millions of dollars to charities; and a recipient of the Presidential Medal of Liberty.

Many of the stories briefly recapped his life: born the son of a schoolteacher in Shanghai, earned his Ph.D. at Harvard, worked at the Harvard Computation Laboratory and contributed to the invention of magnetic core memory, started his own company, invented one of the first electronic calculators, pioneered a word processing system that rocketed Wang into the ranks of the world's most successful computer companies. He was described as a man who started with nothing and built Wang Laboratories into a worldwide empire with more than 30,000 employees and revenues in excess of $3 billion.

The memorial service was set for Tuesday, March 27, at Memorial Church in Harvard Yard. Bundled in winter coats, the men and women walked solemnly through Harvard Yard and into the magnificent church.

Just as the service began, with the company's most senior people in attendance, rank-and-file employees began gathering outside the towers at Wang headquarters in Lowell. That morning, two customer service representatives, Gail Taylor and Patrick Wisler, had invited people to join them for a moment of silence outside during the lunch hour. It started with Taylor and Wisler, small groups, and then larger groups and whole waves of people until, finally, there were hundreds of employees, many weeping openly. They stood and formed a human chain so long it encircled the towers. At 1:00 p.m., they bowed their heads in silent tribute to An Wang.

At the memorial service, Juliette spoke first and read John Donne's "Death Be Not Proud." She finished with a Stephen Spender poem which, she said, "has a lot to do with what he's done with his life."

Courtney Wang, a slight man with slicked-back hair, was introduced next. "I'm not sure any of us are ever really prepared for the loss of a true friend," be said. "For me, this was not only a true friend, but a very dear father — to the world, a great man. One thing I think all of us have in common today is that we're all very fortunate, very thankful, very grateful for having been part of his life." The formal eulogy was given by Governor Dukakis, who said, in part: "Each of us has heroes, and Dr. Wang was one of mine. More than a friend, more than a colleague, he was the personification of the American dream. Not merely a success by anyone's standard, but a man whose genius and generosity made it possible for others to reach their dreams."

 

And, finally, Fred Wang rose to speak.

"My family and I would like to thank all of you for coming and joining with us today, and showing your respect to our Dad," said Fred. "Although he was not one for pomp and circumstance, I'm sure he would appreciate this sharing in the celebration of his life. Over the past few weeks, the family was able to spend quite a bit of time with him while he was still in the hospital. While we were keeping company with him, he would jot us little notes. And some of them include his thoughts and ideas on success. I know he would want to share those with all of you today.

"First, he said, 'Don't dwell on the past, but look to the future.' I'm sure that for you employees here he intends for you to continue the turn-around and bring the company to the greatness that it has the full potential to achieve.

"Second, he said he always depended on education. His father, my grandfather, was a teacher, and he grew up in this educational atmosphere. In 1946, when he arrived here in America, he was one of a group of people who were to start up the new business leadership in China. But instead of applying to a number of business establishments to get a year or so of experience, he applied to graduate school — to Harvard, in fact. And he has continued to donate to the educational and cultural institutions where he had a chance to spend his time.

"Third, he told me, 'Always be humble. Acknowledge your weaknesses and learn from them. Don't only listen to yes men, but heed the critics.' Finally, he wrote, 'I always tried to do my very best. Sum this up by saying the world does not need us, but we need the world. If you practice these keys, then you will be great and worthy.'

"We love you, Dad, and we'll miss you greatly."

It was a touching scene, especially so for those few Wang executives with a genuine fondness for Fred, who wondered whether Fred hadn't misread his father's message a bit, whether the message that Fred had thought was intended for the company — "Don't dwell on the past, but look to the future" — was actually an intensely personal message for his oldest son.

In the final days of his life, how he would be remembered was very much on An Wang's mind. When Rick Miller received the final communication from the Doctor, Miller learned how passionately Wang cared about not being forgotten in death.

The two sheets of paper arrived on Rick Miller's desk wrapped tightly in white surgical tape. One sheet was blank, evidently meant as a shield to prying eyes. The other contained the note:

"Rick: You are my Godsend to take over WLI at the most critical time and you almost finished the first phase of financing part and [have taken] a long step on the expense restructure and sales revenue side.

Keep up good work. WLI need you and Wang Family need you.

I mentioned to you that I wonder if you can finish my work and build WLI like Ford, Du Pont, who can paint their immigrant's name on one of the major industrial company in USA. With our Stock Structure Junk Bond or not, you might do it.

Thank you,
An Wang"

In 1991, Wang Labs was still a proprietary minicomputer company in a world where open standards were the trend and where minicomputers were fast becoming dinosaurs. (George Colony of Forrester Research in Cambridge referred to minis as "flapping Terodactyls.")

Not long after the Doctor died, Miller began quietly considering various options, including merging with another company, seeking a minority investor, selling parts of the company, or forging a strategic alliance of some sort. Miller wanted to move Wang away from manufacturing and selling hardware toward selling software and advising customers on total computing solutions to their business problems.

During the second week of April 1991, Rick Miller called IBM chairman John Akers and asked for a meeting. By early May, the two men agreed that they had something serious to talk about. To determine whether a relationship would make sense, each man formed a team of executives and the two groups met for formal discussions. At Wang Laboratories, the senior management team worked feverishly for six weeks, struggling with negotiations.

A deal was struck. IBM would invest an immediate $25 million in cash in Wang Laboratories and would make an additional $75 million available. In return, Wang would sell its customers IBM equipment. Though it was not explicitly part of the agreement, there was also a possibility that Wang would make its potentially valuable imaging technology available to IBM.

The most immediate advantage to IBM was that it would now have the worldwide Wang sales force selling its products. Over the longer term, IBM would gain by having Wang office software systems run on IBM computers.

For Wang, the immediate benefit was IBM's cash, but a far more important advantage was the IBM name. There had long been fear among Wang customers and potential customers that a company in Wang's precarious financial position might one day sink. Its customers would then be abandoned. But customers knew IBM wasn't going to just disappear, and Wang's alliance with IBM gave Wang renewed credibility.

Whether the deal will eventually save Wang Laboratories will not be determined for years. But in the Wang-IBM affiliation, there is a rich irony. IBM was the company that had enraged An Wang during the early 1950s, when the company bought his core memory patent. Though he emerged from the deal with $400,000 — a fortune at the time — he was left embittered by the way he was treated by IBM, particularly in the word processing market. Who would have thought that this company, for which An Wang had so little respect and which, in his greatest delusion, he planned one day to overtake, might now be the salvation of Wang Laboratories?

Charles C. Kenney is an editor of The Boston Globe. Excerpted from Riding the Runaway Horse: The Rise and Decline of Wang Laboratories. Copyright (© 1992 Charles C. Kenney. Reprinted by permission of Little Brown and Co.

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Tougher Rules for Nepots

Few family business owners are tougher on their own kind than the men who run Coors Brewing Co. in Golden, Colorado. Bill Coors, grandson of the founder, and his nephew Pete govern the hiring of family members with a traditional principle: Give them a job at the bottom and make them work their way up. "We've been taught a meaningful work ethic," Pete says, "and we won't tolerate any family member who doesn't have that. If they can't live within those rules, then we won't have any of them working here."

Determination has been a large factor in Coors' ascension from a regional brewery to the third largest in the United States; the parent firm, Adolph Coors Co., has sales of $2 billion. However, Bill, chairman of the parent company, and Pete, chairman of subsidiary Coors Brewing, say that specialized training is the key for any family member who wants to succeed. Pete and his brothers have engineering degrees, which Bill says is "the technical basis for holding down a job here." Pete has an MBA on top of that.

Family members with standard business degrees or other general educational backgrounds can expect to be asked to go back to school to get training in an appropriate specialty. Two years ago Pete suggested such a move to his niece Holly, the first of the fifth generation to work at the company. He told Holly, who had obtained a liberal arts degree, that if she wanted to bubble to the top of the marketing department she had better go back to obtain a graduate degree in the discipline. So she enrolled in the American Graduate School of International Marketing. This January she returned to Coors as its international marketing assistant.

In a first-generation business, it's usually Mom and Dad who decide what requirements, if any, should be set before the kids can join the company — and, when the children show up for work, what explanation, if any, is owing to the other employees. Customarily, those parents who want to make certain their children have minimal qualifications will insist that they get at least a college degree and perhaps some experience outside the business first.

In a fourth-generation company such as Coors, however, the matter of employing relatives becomes vastly more complicated. Two of Pete's brothers hold high positions, and there are other children of Holly's age coming along. The company has grown to the point where it has many skilled nonfamily employees. For older and larger companies, standards must be set to avoid the impression of unfairness and rampant nepotism. More specialized training is needed before family members can measure up to other employees. Generally, the family has grown, too. It may have several competing branches, with parents and their offspring, cousins, spouses, and inlaws all vying for the top positions.

Particularly in a recession, when jobs are few, more younger people are knocking at the door of the family business. The gatekeepers have to be objective and choose only the most qualified.

An informal Family Business survey shows that family businesses tend to develop formal guidelines for the hiring of relatives when they have grown to a certain size, which varies according to the industry and the number of family members aspiring to join the firm. Very large companies, however, tend to avoid separate rules for family members and insist that, like other job candidates, they go through standard application procedures.

Several factors influence the necessity of this approach. Separate standards send the wrong message to other employees — even if qualifications are tougher. Special handling also undermines the authority of hiring personnel. For example, at the JR Simplot Co., a food, fertilizer, and energy conglomerate in Boise, Idaho, family members aren't even encouraged to come aboard. Jack Simplot, owner of the $1.6 billion concern, which supplies McDonald's with its golden fries, says family members must run the personnel gauntlet like everyone else.

Of course, in some large companies that are still family controlled, the influence of family may simply be subtler and less visible. A spokesperson at the New York Times, where the Sulzberger family retains voting control, said that the company gives no special preference to family members; they must apply for a job through the personnel department. Older readers of that venerable newspaper, who have seen generations of bylines with such names as Hays, Ochs, and Sulzberger, may be skeptical. The paper's new publisher, Arthur Sulzberger Jr., who recently took over from his father, said he does not get involved with the hiring of family.

Family firms take varying approaches to the hiring of kin, depending on their stage of evolution. Some families write down specific requirements. Others establish a philosophy in a family charter. Many others still have no formal rules but continue to rely on gut appraisal of the candidates and their talents.

And yet there are several common themes that emerge from talking to a number of families. Many agree, for example, that young people graduating from college clearly benefit from working at another company before joining the family business, even those who are being groomed as successors from their early days.

"It establishes a feeling of self-worth," says Maynard Sauder, president and CEO of Sauder Woodworking, a $300 millon manufacturer of ready-to-assemble furniture in Archbold, Ohio. "It's critical that young people accomplish things at a company where their name doesn't carry any weight. It also enables them to make their first mistakes elsewhere. If they do that in the family firm, the mistakes tend to be remembered by family members for a long time."

That's the view at brewing giant Adolph Coors, too. Retired vice-chairman Joe Coors Sr., for example, spent six years working for DuPont and then Borden's before turning his attention to beer. "They were very valuable experiences," says his son Pete. "Particularly in this day and age, it is very good for a family member to find out what it is like to work in a company where their name isn't on the product."

Nowadays some level of higher education is a common requirement in family companies. Gone are the days when the kids started at the office right out of high school. Additional schooling is now viewed as fundamental to making it in today's competitive world. "It doesn't guarantee your effectiveness," says James Gould, president of Challenge Machinery Co. in Grand Haven, Michigan. "But it's a necessary step for anyone who wants to distinguish himself as capable of management. And the education itself provides useful information. It gives you a range of perspectives from which to solve problems."

Specialized training is also fast becoming a key qualification, as families appreciate the value of professional management. More and more owners prefer to see children get degrees that are specific to the position they expect to shoot for once they join the firm. "When you need talent in a specific area, you've got to choose a person with a specific background," says John Borthwick, who manages Derma Sciences Inc., a $5 million pharmaceuticals manufacturer in Old Forge, Pennsylvania.

At Derma Sciences, all the top family employees have specialized training. "My mother, Mary Clark, is a biochemist," John says. "She had gotten the patent that our company is based on, but I had a marketing background and had run four businesses, and joined her to start the company. My brother was trained as an accountant; he's now CFO. My stepfather had a background in finance, and is now head of stockholder relations. And my stepbrother was a lieutenant colonel in the Air Force; he's now head of operations at one of our divisions."

For public firms or those with outside investors, specialization may be unavoidable. Mary Clark was president for the first two years of Derma Science's existence, but then, as John recalls, "Our investors told me I had better run the business. Mom now focuses on R&D, which is her strength."

There are not yet any formal hiring requirements for relatives at Derma Sciences, however. Written rules seem to evolve as companies get bigger and older. Family members interviewed for this article who run small operations said they tend to handle the hiring of relatives personally, relying on familiarity with newcomers' backgrounds and talents to decide if they are prepared. To avoid suggestions of nepotism, they will often discuss the newcomers' qualifications with nonfamily managers.

"Most family businesses start out making hiring decisions on a case-by-case basis," says Gerald Le Van, an attorney and president of the Family Business Foundation in Baton Rouge, Louisiana. "But it's never too soon to make rules. Most families just don't get around to it until they're confronted with a tough case."

At medium-size companies, family owners tend to have some kind of written requirements or statements of guidance. To ensure objectivity — or for the sake of appearance — they often leave the final decision to a board of directors, a family council, or a senior nonfamily manager.

Once drafted, the rules are presumed to apply to all relatives, whether direct descendants, distant cousins, or inlaws. Common among the requirements, says Le Van, are five or so years of experience outside the family firm, and a college education or better. An emerging trend for families who desire graduate education, particularly MBAs, Le Van says, is to have college grads work for several years and then go back for the advanced degree. It gives young men and women some practical experience against which to apply the lessons they learn at school.

Some family leaders are also beginning to place minimum age requirements on the incoming generation, refusing to hire children until they reach, say, their late 20s or early 30s. "These owners figure that people in their 20s have to throw themselves into something," Le Van says. "If they sit around in the family business they'll only get frustrated. They need the hazard of getting fired, of getting transfered. They have to confront a sense of risk, of failure, before they mature enough to do a good job. This risk just isn't as great in the family firm."

Though some themes are common, there are numerous variations. Below are the hiring requirements at a range of companies, with the reasoning behind them.

Computerware Inc.: It's all in the charter

For a decade, the family members who ran Computerware Inc., a $60 million firm in Bristol, Pennsylvania, made family hiring decisions on an ad hoc basis. But having confronted several difficult situations, and having grown to more than 200 employees, they found a need in 1990 to draft a formal family business charter. "All the family members signed it, including spouses," says John Kovalcik, president of the microcomputer sales and service company. "Of course it's not a legal document, but it sets the tone, and the family members agree the specific points are worth heeding."

One section of the charter, labeled "Participation," lays out the rules for hiring family members. It may serve as a model, and reads as follows:

"All family members are welcome to join the business.... It is required that before any future generation children join the business, they obtain the appropriate education requirements for the business and spend a minimum of 3-5 years working for another company before they join.

"All family members entering the business must be approved and ratified by the board of directors [John Kovalcik, his three brothers, their father, and one outsider]. Specifically, their salaries, job descriptions, and reporting senior must be reviewed.

"No family member can report to another family member without approval of the board. This is to be highly discouraged.

 

"Family members are not to be overpaid or underpaid for the position they hold.

 

"If a family member does not work out in a position, they will be treated just like any other Computerware professional — they will be reassigned to a less demanding position.

 

"All Computerware employees who are family members are required to set the highest standards of dress, demeanor and deportment, integrity, dedication, and hard work in keeping with the mission statement and goals and objectives of the company.

 

"All part-time positions should be of limited duration or of a consulting nature for part-time family employees.

 

"Evaluations of owners in the business should be conducted annually at the spring board meeting. Each board member shall evaluate the particular owner in the position using the standard Computerware evaluation sheet...."

 

The charter resulted in part from values the family had agreed upon during a difficult period in the 1980s, when changes were necessary at the top of the organization due to rapid growth. First, the two brothers who had formed Computerware made their older brother, John Jr., president, because of his outside experience and four years of management work at the company. Then the three brothers decided that they needed seasoned financial oversight, and asked their father to join as CFO.

The charter will now help guide more tough decisions, which continue to stem from the company's growth and the need to strengthen top management with people who have specialized, expert backgrounds.

One brother, for example, is stepping aside as director of sales to make way for a professional manager who has experience none of the brothers has. The move, in turn, will enable the brother to focus more attention on developing a new market. And Dad is about to retire, so a new CFO will be needed as well. "We have some heated discussions," John says, "but what's reflected in the charter is our most basic understanding: that we are more concerned with the wealth of the company than with our egos. So if someone else can do a better job, then he should be the one to do it."

Sauder Woodworking: Three fundamentals

Family members are always welcome at Sauder Woodworking, but CEO Maynard Sauder says the firm sets three basic conditions for hiring them:

1. Academic preparation. Typically, an undergraduate business degree is required, though the degree can vary according to the type of job the person is interested in. "The education should be business related, and must be beyond the high school level," says Maynard. 'We don't require an MBA You could get a two-year technical degree, if you wanted to work in production. That would limit you to mid- management in the long run, though."

2. Work experience. Candidates must have worked somewhere else, though no time minimum is specified. Many of the Sauder kids have worked summers at the plant. Maynard practically grew up there, he says. "And that's all fine. But you shouldn't come here right out of college for a permanent job. You've got to succeed on your own merits, without any questions in your own mind or the minds of others."

3. Job openings. No person will be hired until there is a real job that fits his or her qualifications, according to Maynard. "There's no point in being brought on as an 'Assistant to Someone for Nothing,' " he says. Because Sauder Woodworking has gotten so big (2,400 employees), most family members don't need to wait long before an appropriate job comes along.

Maynard says family businesses should adopt these rules as the minimum, and be patient in applying them. "A lot of parents encourage kids to come into the business as quickly as possible," he says. "We see a lot of negatives to that: The child never knows how well he could have done, doesn't gain a feeling of self-confidence, and is not as well respected by other employees if he has no experience."

Maynard's views are shared by his brother Myrl, vice-president of engineering, and his son Kevin, who has been with the company for four years and is now director of marketing. Yet they wonder why other family businesses don't follow the same route. "We've been to many family business seminars, given by consultants such as John Ward and Ivan Lansberg," Maynard says, "and they all preach these same rules. Yet the rules seem to be ignored by a lot of people."

Granite Rock Company: Climb Someone Else's Ladder

Bruce Woolpert, co-president with his brother Steve of Granite Rock Co., a supplier of crushed stone and concrete, has one hard employment rule: "When you get out of college, you should work for another company for at least five years." Granite Rock, which employs 400 in Watsonville, California, is fully owned by the Woolpert family. Dad and Mom, who used to alternate as president and CEO, are no longer involved on a daily basis.

Bruce is quick to point out that this rule is as much for the good of the young person's own career as it is for Granite Rock. A family member should pick a company he would genuinely like to work for, Bruce says. "He should admire the people, so he will learn from them. It should be a company where he could stay his entire career if he should choose to. Because who knows, he might just find that's exactly what he'd like to do."

Bruce says children new to the workforce should spend as much time at another company as is necessary for them to generate self-confidence. They should also work their way up through at least one level of supervision, and should have a chance to manage some people. "If you're working at General Motors, you should reach the line-manager level. If you're at a hotel, you should become an assistant manager." This will typically take five to seven years, he says. "Young people think they know how to manage, but they don't until they have to do it."

Bruce adds that part of growing up professionally is to make mistakes and to be taken aside by a boss and told "Don't you ever do that again or else." This doesn't happen enough in family businesses, he says. 'There are always critical times in a young person's career when he or she needs correction," he says. "It's hard for a family or a nonfamily employee to tell a 22-year-old family member, 'Hey, we're thinking of firing you.'"

The risk of such a long apprenticeship is that the person will end up staying with the outside employer and will not sign up with the family company. But if that happens, Bruce says, philosophically, "Then they probably belong there." Both he and Steve have young daughters, so they haven't yet confronted this possibility.

This does not, however, absolve children from their responsibilities as part-owners or eventual heirs to the family business. "Even if children only own stock and have no other connection, they should be placed on the board of directors when they are 16 to 18 years old," Bruce says. "That's their job as an owner. Even if they just sit there for years and don't say a word — as I did — they have to learn what's important to the business and the family."

Challenge Machinery: Hands-on experience

There are two general requirements at Challenge Machinery, a $28 million maker of graphics arts equipment such as paper drills and collators. The first is a bachelor's degree, and the second is the intention to get a master's. Though president Jim Gould would not require family newcomers to already have an advanced degree, he says they should "be prepared to get one," preferably an MBA or master's in management. The value, he says, is gained largely from one's classmates. "In modern programs, many of the students are older and have had work experience. They become good contacts, and offer different perspectives on how to solve case studies and other problems."

The second requirement is a minimum of five years spent working for another company — again, to give young employees some outside perspective. But not just any company will do. Jim says it is much more appropriate for the person to get experience at a company in the same industry as the family firm. Because of increased competition and industrial specialization, he says, "The 1990s CEOs will be technically grounded in their industries. They will not be money managers or takeover artists, as they were in the 1980s."

Like other owners, Jim Gould strongly recommends setting up a family business council to handle the hiring of relatives, among other tasks. And it is the council that should establish the hiring rules. That's how it's done at Challenge Machinery; the council is run by the four active family members — Jim, his sister Sara, their aunt Sally, and cousin Ed Martin.

Gerald Le Van of the Family Business Foundation concurs. "A family council, or a special committee, should be responsible for drafting hiring rules," he says. "Then no family member should come on board unless they are hired by the group." It is the best way to set impartial rules, to judge an applicant's background, and to maintain fairness, he says.

All the rules in the world cannot mask the fact that hiring, at some point, becomes a subjective decision. There are many pluses to having family members on the corporate team — they are often more committed than nonfamily employees to helping the business succeed, they bring a certain cachet to customers who like to deal with "the people in charge," and they harbor a long-term view which often results in better decisions and more stable progress.

Still, rules help demystify the hiring process and protect the family firm from being besieged with unqualified relatives who only bring unnecessary tension. Better to have the family live by the rules, than have the family rule your life.

Mark Fischetti, former managing editor of Family Business, writes about business from Lenox, Massachusetts.

Don't call us, we'll call you

The six kin who own the Pond Branch Telephone Company have a simple policy on the hiring of family members: Don't.

The company is one of the 2,000 tiny, private utilities that link the remote villages of rural America. Martha and Everette Kneece, with Martha's father, literally built the company, putting wires down the backroads and then across the fields of western South Carolina, connecting 8,800 customers in the region. The Kneeces' four children are now all vice-presidents of the $6 million concern.

The problem with hiring family is that it would lead to bad relations in Pond Branch, location of company headquarters. It's a small community, Very small. "We don't even have a post office," says Ann Amick, one of the Kneece children. The nearest town proper is Gilbert, population 300. Because Pond Branch is so isolated, Ann says, the six family members not only work together, they essentially live together and socialize together. The family and their 54 employees dominate the community. "In order for any of us in Pond Branch to maintain any kind of normal relationships," Ann says, "we have to set limits. The six of us mutually agreed we could not hire any spouses or relatives, It's in our personnel policy. No, relatives of employees are allowed either."

In family relationships, close is nice, but too close is dangerous, Ann says. "All of us kids grew up with the company. We slept in the back of vehicles on the road. We slept in the office. We get along well because of the closeness we feel, But we've seen the problems that working together in a small community can cause at home, and the problems domestic situations can cause at work. There's no way our company can go on unless we see to it that not too many relatives get involved. We need a diversity of employees."

If the Kneeces, want to keep the company in the family they'll have to change the policy some day. But that won't happen for quite a spell; the, oldest child in the next generation is Ann's daughter, who is 9. If welcomed, the kids will be ready. "My daughter's been coming to work with me since she was three weeks old," Ann says. "So has my sister's daughter. They'll know the business, all right. Sometimes they think they're already management."   — M.F.

To hire or not to hire family?

Establishing rules or guidelines by which to hire family members creates a common understanding for everyone. But before you even draft rules, you'd be smart to consider whether you actually want any other family members in the business, advises W. Gibb Dyer Jr., associate professor of organizational behavior at Brigham Young University, and an expert on family business. In his new book, The Entrepreneurial Experience, Dyer suggests family members ask themselves the following questions before jumping to step two:

1. Do I trust other members of my family?

2. Do other members of my family generally share the same goals?

3. Is my family able to handle disagreements and conflicts?

4. Do family members share their feelings and concerns rather than keeping them to themselves?

5. Can I make decisions with (rather than for) family members?

6. Do family members have knowledge, skills, or experience that will help the business?

If you answer no to one or more of these questions, Dyer says, you had better develop a strategy to overcome the weakness. Otherwise, choose not to employ family members. — M.F.

 

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Family Connections

"GOOD EVENING. Welcome to Roseland. Jaime Hernandez over there at the bar can make you a drink. Have a song request? Ask Ruben Hernandez, our deejay. Noella Hernandez can find you a snack. And if you'd like to learn the lambada, Mike Hernandez, our retired assistant general manager, can show you. Excuse me a moment; my brother's got a question in the front office. Enjoy..."

Siblings Hilary and Larry Ginsberg run Roseland, Manhattan's famous ballroom. Since Dad's real estate business footed the $3.5 million bill for the place 10 years ago, they've spent a million dollars renovating the 70-year-old music and dance landmark. Just down Broadway from Radio City Music Hall, Roseland is now a vast, flexible, art-deco cavern that can hold 3,450, and brings in top contemporary acts — and more than $3 million a year.

But Hilary and Larry don't want to change history. They want to preserve it. Roseland's greatest asset is its image as New York City's center of big entertainment, since it opened on New Year's Eve 1919. Intact is the "Wall of Fame," which displays the dance shoes of such greats as Eleanor Powell, Betty Grable, Gregory Hines, and Bill "Bojangles" Robinson. Near the foyer, an engraved plaque dating back to World War I lists the names of 550 couples who met on the dance floor and later married.

The Ginsbergs have tried as well to preserve the nepotism that dances rampant through their staff. Twenty-one of their 60 permanent employees are related. There are seven families that boast long-time employment there. And several, like the Hernandezes, have many family members working at Roseland. On a given night, for example, you might think you're seeing quadruple, seemingly running into members of the Guerrero family at every turn — the coat check, the in-house deli, the cash register, the coat return. And so it goes.

It's not just that the Ginsbergs have been kind. When they took over the dowdy dance hall, they inherited a peculiar staff. "People who work in the nightclub business are part of a subculture," Hilary explains. "They work odd hours, in the middle of the night. They never see their families. So over the years they've hired their own family members, so they can be around them more."

The Ginsbergs have also promoted family hiring for functional reasons. "This is a dangerous business," Hilary says. "Everyone is handling cash. The place is huge, it's dark, it's open all night long. We can't possibly keep track of what goes on during an event. So we encourage our employees to hire family members, because they can be trusted more."

What about conspiracy? "Well, we're not that naive," Hilary says. "We hire spotters from time to time. But mostly we try to create an atmosphere of guarded trust that encourages loyalty and mutual respect. Through our actions we try to say, 'You treat us right and we'll treat you right.'"

"... HI, I'M BACK. Hope you're ready to dance. Don Glaser, our orchestra leader, has worked out some new numbers with singer Lois Costello, his ex-wife. Just step forward, step back, aaand turn..."

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Who's In, Who's Out? The Case for Clear Rules

Too often, family businesses practice what I call birdcage management. Outside blood is rarely brought in to help the company grow or to tackle tough business problems.The same family members, with the same old limited skills and experience, try to solve problems they couldn't solve before.

The problem perpetuates itself every time another relative wants to join the firm. Instead of establishing rules of entry, the business owner shakes up the birdcage and forces everyone in the business to fly around and perch, willy-nilly, wherever they land.

The dilemma begins when teenagers get their first summer job at the family business. That is when they confront being regarded by other employees as the boss's kid. This is also when they start wondering whether people really like them for themselves. The boss's children laugh uncomfortably at the late comedian Alan Sherman's ditty about his rise in business: "I thank old Yale, and I thank the Lord, and I also thank my father, who is chairman of the board."

More serious issues arise when the child chooses a college; courses; majors; graduate school. If he or she is thinking about a future in the family business, you need to establish some clear ground rules about educational requirements. In some families, the rules are very simple: Every family member who wants a job, gets one. The birdcage is expanded to set a perch for everyone. Other businesses refuse to hire any family members, or at least require family members to compete for jobs and promotions on the same basis as other employees.

In most families, though, the rules aren't very clear. Each family member is handled as an individual case. This approach might work in the second generation, but usually breaks down in the third generation and beyond, when the sheer size of the family becomes unwieldy. In third and later generations, it's likely that significant blocks of stock will be owned by relatives who are not active in the business, perhaps triggering what I call the "parasite vs. plunderer" conflict (see Family Business premier issue).

Hiring family members mixes business and family issues. If approached strictly as a business decision, only entry qualifications would be considered. This sounds good, but it's unrealistic. So is hiring every single member of the family. The morale problems created by underperforming or disgruntled family employees who are retained only so they can receive a paycheck are invariably disruptive.

A mixed approach works best. This requires a separate set of family rules for entry, which begin with basic job qualifications: education, training, and experience. I see too many college dropouts returning to the family business.

Some may have learning disabilities or simply be unsuited for higher education. Most, I fear, are just taking the easy way out. To discourage dropping out, some families impose educational requirements over and above those required by the entry-level job description. For example, a younger-generation member may meet the business's entry requirements as a junior bookkeeper, but family rules may also require an accounting degree.

Some families require a certain amount of time to elapse between education and entry. One family requires a wait of at least five years after the last year of formal education before a relative may enter the business. Technically, this rule would not bar a family member who had taken a five-year "vacation" after college, so there should be a back-up rule requiring minimum training and experience before entry.

In some lines of business, there are formal training programs for the younger generation. For example, members of the Jewish Young Men's Apparel League hire each other's children for long and rigorous apprenticeships. In my view, it's not important for the younger generation to gain experience in the same industry as the family business. It is important that they be required to fly or fall in a different birdcage, without the family safety net.

The most important reason for requiring outside experience is self-image. Outside the family business, a child must face the traumas of transfer, promotion, termination, competition, evaluation, company politics, and so on. He or she will acquire skills, training, and experience simply unavailable to one who spends all of his working life in the family business. Of course, there are special situations. A child may be needed during economic reversals, or because of the sudden death or disability of the founder or another key employee. But by and large, a rule requiring significant outside experience is a good one.

Family rules can prevent a great deal of misunderstanding and conflict, especially if the rules are fully discussed, written down, and circulated with good explanations. I know a third-generation CEO who will have to decide whether to admit any or all of 11 fourth-generation members. All are teenagers, including numerous nieces and nephews as well as his own children. Unless there are clear-cut family rules about entry into the business, he may be forced to decide on a case-by-case basis. The parents of those teenagers (he, his siblings, and his cousins) own significant shares in the company, though none except the CEO is active in management. Without family rules, he is bound to offend some if not all of them. I doubt that he could solve his problem by making case-by-case decisions, no matter how hard he tries to be objective.

This CEO is also looking ahead. He hopes his successor will be one of the fourth-generation teenagers. He hopes to shake the family birdcage and have the most qualified member fly to the top perch. He must look beyond mere entry. That future leader, whoever he or she is, needs experience and challenge outside the business in order to return and run it successfully. It might be a good short-term business decision to hire a talented but inexperienced young family member to fill a job that is not particularly demanding. A good long-term family business decision would be to deny a nephew or niece that job until he or she acquires some experience outside that would prepare him or her for eventual leadership. Tough love? Perhaps. But good business, or rather, good family business.

The best family employment rules, like the best family decisions in general, are made when all participate, communicate, deliberate, and vote. Hammering out clear entry rules in an intergenerational forum leaves all family members feeling that they've been hseard and treated fairly. Your goal is for everyone to feel like a winner in the process.

Family members who work in the business cannot escape the birdcage; it's always there. Your challenge is to develop birds who have earned their wings.

—G.L.

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Ruder Finn's Struggle with the N Word

David Finn never thought his children would want to go into the business he started in 1948 with his childhood friend, Bill Ruder. What's more, the 68-year-old executive always believed that nepotism would undermine sound management. Then, in the late Seventies, three of his four children took temporary positions with his Manhattan-based public relations firm, Ruder Finn. They did well. They wanted in.

New York consultant Peter G. Scotese, a friend and an occasional business confidant of David's, had warned that bringing the family into the firm would cause "several years of convulsions." But both he and David were astonished by the upheaval that ensued in 1986 after David's son, Peter, was promoted to chairman of the finance committee and oldest daughter, Kathy Bloomgarden, was given the title of executive vice-president.

Three senior managers and 11 other employees walked out the door, taking the firm's biggest accounts with them. A front-page Wall Street Journal article in July 1986 titled "Family Affair" described rampant nepotism and turmoil at the firm. Many clients were jittery over the negative publicity; the firm lost one third of its business in six months. Morale was at an all-time low.

That was almost four years ago. Now three Finn children are ensconced in leadership positions: Peter, 35, is chief financial officer and chairman of the executive committee. Daughter Kathy, 40, is president of the firm, and daughter Amy Binder, 34, is president of the New York office. A third daughter, Dena Merriam, 37, is a writer in the research division.

The firm's 1988 fee income was $15.8 million, the highest in its history, and this year David, the chairman and chief executive officer, expects to top that with more than $20 million in billings. And Ruder Finn now appears to be a happier place. "Morale is pretty terrific at this point," says Ellen Schaplowsky, an executive vice-president who joined the firm in 1987.

The transformation seems almost magical. How did they do it? The turnaround at Ruder Finn holds some important lessons for passing the mantle of leadership to a second generation.

In the Fifties, Ruder Finn was the fastest growing firm in the PR field. In the Sixties, Fortune listed it as the largest in the business. Its fees ran about $5 million. Now ranked 14th in billings, Ruder Finn stayed private in the Eighties while competitors were being acquired and growing by leaps and bounds.

In a way, the firm, which now has 310 employees in five offices across the country, had always been a family company. Bill Ruder was married to David's sister. When Ruder, the more business-minded partner, divorced his wife and left the firm in 1980, David, the creative half of the partnership, was left in charge. Without Ruder's steady hand, the firm began to founder, losing a few major clients.

David's children seemed to be going their own way after college. Kathy had a doctorate in political science, Peter and Dena had masters in English, and Amy was, like her father, a gifted photographer. Until Peter and two of his sisters drifted into the business, David says he "had never addressed the question of whether this would be a family company or not. I always assumed it would not be." So had the senior managers, particularly Norman Weissman, a 31-year veteran and a Ruder Finn vice-chairman. Weissman led the walkout in 1986.

David had started thinking seriously of family leadership in 1981 when he turned 60 and realized Ruder Finn didn't have younger executives in place who could guide the future of the firm. His original idea had been to put his three children in charge of subsidiaries, to prevent senior managers from feeling threatened. After the walkout, he decided to turn Ruder Finn into a full-fledged family firm.

For help in managing the transition, he hired his friend Scotese, the consultant. "The family members were not as seasoned as we would have wished, but I felt they had the potential to do the job," Scotese recalls.

Seeking to contain the damage from the walkout, the board of directors, consisting of Finn, Peter, Kathy, Amy, Bill Ruder, and vice-chairman Charles Lipton, decided that improved communication with staff was essential. Staff meetings were held more often, and management invited employees to drop in for informal chats during business hours. "We had lots of parties," Amy says. 'The baseball team became active again."

In interviews with job applicants, Peter Finn patiently explained Ruder Finn's side of The Wall Street Journal story: The reporter had talked only to former employees and clients, painting an overly bleak picture.

Management trumpeted a profit-incentive program, introduced several years before, that gives nonfamily members opportunities to move into positions of responsibility. Under the program, different company divisions, such as high-tech products or health care, are divided into stand-alone units with their own budgets and financial accountability. Each profit center manager operates virtually as an independent entrepreneur, and reports to a member of the executive committee. (The company has added several centers each year; there are now 20.)

To allow more room for upwardly mobile young executives, the firm this year created a new layer of management called executive vice-president. All eight in that group are nonfamily. In addition, Peter instituted a flexible compensation package tied to performance. "There are over a dozen people at the firm making more than the Finns," David claims.

Over the past 12 months Ruder Finn has added 21 senior people. Its success in competitive presentations has improved, Finn says, because of the quality and enthusiasm of the younger recruits. The firm has landed several new accounts, including Polaroid and Bristol-Myers. It opened a London office.

Much of the credit for the firm's renewal goes to the bright, aggressive new generation of leadership. "It's a different company now, thanks to them," says Rosalind Safrin, director of corporate administration and a 20-year Ruder Finn veteran. "There's a spirit here. There's sharing and giving."

From Scotese's viewpoint, companies can avoid the problems encountered at Ruder Finn by informing the staff far in advance about the possibility of a second generation of family management. "You need time to smooth the transition," Scotese says.

David is thrilled by his progenys' accomplishments he sees the succession as a partnership of Peter, Kathy, and Amy. Still, he insists it is not a good idea to decide too soon about bringing members of the next generation into the business. They may not be good at it. "There was a time," he now recalls, "when we didn't tell people we were related because we thought it might be off-putting; now we are proud of it, our clients say it's one of our strengths. Family ownership represents our commitment to the firm's long-term health and independence."

—P.P.

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