Hail to The Chiefs
When siblings run the company as equals, can they run together or are they bound to stumble?
My father, Sam Stone, and his two brothers, Mark and Arthur, worked together in business for more than three decades and were still good friends when they retired. Sam and his older brother, Mark, launched a chain of retail credit clothing stores in Wheeling, West Virginia, in 1944. Eventually they went into discount clothing and merged with a discount store operator. When the youngest brother, Arthur, joined Richard's Inc., he was given equal ownership and management responsibilities. For years all three brothers functioned as equals in an executive team.
To all outward appearances, the three men functioned in Richard's (the firm was named after my brother) like the three musketeers. Sam, who fulfilled the controller role and oversaw finance, was the acknowledged leader, but over time Arthur, who headed operations, became a strong figure. All three brothers were committed to the goal of making the business grow, and to maintaining equality in all important decisions affecting the welfare of the firm. Yet they recognized that each needed to rule in his own domain. Luckily, the business permitted each to have a high degree of autonomy. They operated out of offices in different cities. But whenever major business decisions had to be made, they would fly to New York and "check out the figures" over their mother's kitchen table.
The business collaboration between my father and his brothers was more successful than most. The risks in any such arrangement are well known, the greatest one being competition between siblings. This has its roots in the siblings' lifelong need for parental approval, which begins in childhood. Early battles over who gets the best toy or the largest piece of cake can surface later on in the business as resentment over allocation of stock, perks, and titles.
The potential for friction is aggravated in a second generation, when brothers and sisters are in line to take over a business. The traditional model for success is "winner take all"; the parent names one of his offspring, most often the eldest son, to head the firm, and the others accept subordinate roles. Then, as the founder gradually withdraws from the business, the siblings are left to define their roles and responsibilities.
As more businesses are passed to a second generation, a crucial question arises: Can brothers and sisters who are all ambitious and committed to the business really share power, or will lingering feelings of competition, rivalry, and jealousy inevitably pull them apart?
Growing up with Richard's, I was impressed by the unity achieved by the Stone brothers. Now, as a family business consultant, I believe that shared sibling management is possible, but only with better planning by both the founder and his offspring than most firms normally do.
Comanagement is not without its detractors, who maintain that there must be a single leader, and that shared authority is at least inefficient if not unworkable. But it is nonetheless a growing trend, in family businesses as well as the rest of corporate America. For example, at Fel-Pro Inc., a $230 million company in Skokie, Illinois, three members of the fourth generation, Kenneth Lehman, Dennis Kessler, and David Weinberg, share the title of president. The company, a manufacturer of gaskets and sealing products founded in 1918, has become ever more profitable in recent years and has received a number of awards for quality manufacturing—and, notably, for excellence in management.
Like the three presidents of Fel-Pro, Jerry Scolari and his brother, Joey, have equal control over Scolari's Warehouse Markets, a chain of 16 grocery stores based in Sparks, Nevada. The Scolari brothers rotate the title of president every May, when their fiscal year begins. Joey is, in fact, chief executive officer and Jerry, chief operating officer. The shared presidency has mainly symbolic importance, emphasizing to employees and store managers, says Jerry, that the brothers "make all our business decisions together."
One of the reasons shared management has worked at both Fel-Pro and Scolari's is that the people now at the helm took over gradually from the previous generation. Succession should not be a sudden, wrenching event, as it is in too many businesses. Under the best of circumstances, it is planned and carried out in stages, over a period of 5 to 10 years. In this time, the older generation can play a crucial role in helping their successors define their separate responsibilities and set up ground rules for teamwork.
The process of working out roles has another benefit: During this time, it should become apparent which siblings are deeply committed to both the success of the business and the welfare of the family, and which are not. Only the most committed siblings should eventually be put in charge, whether the family opts for one or more chief executives.
Sometimes, during a crisis, the children themselves discover the depth of their commitment. This is what happened to Somer Obernauer Jr. and his sister, Lorie, when problems arose in their father's business, the Keystone Ribbon and Floral Supply Co. in Pittsburgh.
Founded 40 years ago by Somer Sr., Keystone supplies ornaments and packaging for floral arrangements to florists—everything but the flowers. About two years ago, the company began to flounder. Everyone was working hard, but critical decision-making just seemed to fall through the cracks, resulting in a sales downturn and morale problems. Many of the company's 22 employees felt stressed, and turnover was high.
During that difficult time, Somer Jr., who had joined Keystone in the late seventies, and Lorie, who came in the early eighties, attended a seminar on family business. As they listened, they realized that their situation was not unique, and that there were solutions to their problems. For the first time, they sensed that they were part of the same team. They approached Somer Sr. and told him they wanted to hire a consultant to help solve the problems. Somer Sr. wasn't keen on counselors, but agreed to hire me.
The major problem, I soon saw, was poor definition and assignment of management responsibilities. The three family members, and one key nonfamily person, the purchasing manager, worked with me to define, in a systematic way, all of the management tasks that had to be performed. Then, each person identified his or her strengths and weaknesses. Strengths were matched with management activities, which ultimately led to the definition of management roles.
As a result, Somer Sr. agreed to step back from day-to-day operations and function as senior statesman for the firm, while retaining the title of president. Somer Jr.'s strengths made him a strong candidate for administrative tasks, and Lorie seemed best suited for sales. They took over these jobs, Lorie as vice president and Somer Jr. as secretary/treasurer.
"Now that each of us is responsible for specific areas of the business, our employees know exactly who to speak with concerning their particular responsibilities," Lorie says. "It's also helped us to make sure that we get the important things done without duplicating our efforts."
Somer Jr. still participates in the buying, though, as does the purchasing agent. 'To buy successfully, you need more than one point of view," Somer Jr. says. "That way you'll make a large cross section of customers happy."
Now that they have definite roles, Somer Jr. and Lorie are ready to expand. "When the business was out of control, we couldn't even begin to talk about expansion," Somer Jr. says. "Now we can begin to take the next step."
The process of organizing the company continues. And both Somer Jr. and Lorie realize that as it grows, their roles will change. The biggest thing I've learned is that we aren't finished learning how to make this a better business," says Lorie. "Sometimes, when we are dealing with big problems, we revert to our family roles. When we first raise an issue, it tends to be done emotionally. We are still learning how to communicate in our business roles."
The Obernauers' long-term success will depend on whether Somer Jr. and Lorie can remain equal bosses and still retain individual control over their segments of the business. For many siblings, creating such "peerness" and "separation" is the most difficult issue they must resolve.
Peerness is a term I use to describe the level playing field that can be created for adult siblings working in the same business. It implies that all are equals in terms of influence and contribution to the company, even though each has a separate turf which he or she can dominate. It is often very hard for siblings to achieve separation in business because families, in their desire for closeness, often pressure siblings to erase differences and focus on sameness. Achieving both peerness and separation is difficult because it calls on people to live with ambiguity. They need to be able to act decisively, to take initiative, yet must remain team players.
For those owners who decide to pass the family business to more than one sibling, the question remains: how? One common approach is to split the company into divisions and give each sister or brother the responsibility of running one of them. Another is to create subsidiaries or new product lines for different children to manage. The family can develop a multiple presidency, in which siblings function as a top management team, or it can rotate the presidency, as the Scolari brothers do. Finally, when the company has a trusted senior executive who isn't a family member, he can be named president and the children can be given equal status with the title of vice president.
The big problem in many family companies is that the members' separate responsibilities are never rigorously spelled out. More importantly, even when they are, old conflicts between siblings can often undermine peerness and teamwork.
The efforts of two brothers to achieve a working relationship on equal terms in a $25 million graphics business illustrates what can be done. The founder of the business, whom I shall call Carl Davis, was 62 and wanted to slow down a bit. Although he was ready to loosen his ties to the day-to-day operations of the firm, conflict between his two sons, Carl Jr. and Bud, prevented him from doing so.
Carl Jr., 38, had always been "just like his father." He was highly visible within the company and aggressive about having things done his way. As a boy he would go with his father to the office on weekends, and as a teenager had an after-school job in the warehouse. He had always known that his father expected him to be part of the business, and he loved it.
Bud, 36, was an accommodator, more willing to adjust his views after hearing what others had to say, which was what he had always had to do with a brother like Carl. As a boy, whenever Bud tried to assert himself, Carl would argue him down. Years later, it wasn't too different. Carl would have a very clear idea of how things ought to be in the business. But Bud would often have to moderate Carl's extreme viewpoint and then sell it to others in the company.
The father and Carl Jr. had always been very close, and Bud had always felt like an outsider. The conflict between the two brothers had been bubbling up for years. Arguments became increasingly common, ranging from sales strategies to where to put the Christmas tree. If Carl Sr. was going to pass the business to his sons, he had to resolve their long-standing differences and old resentment. Both Carl Jr. and Bud felt strongly that the business should stay in the family, and knew it was up to them to work out their problems so that it would.
That's where I came in. After several conversations it became clear that if Carl Jr. and Bud were going to comanage the company, they would have to modify old rules and behaviors. They would also have to clearly delineate areas in which they would make joint decisions, and other areas where they could make independent ones. The very dialogue that was necessary to define their positions, moreover, forced the brothers to communicate and made them more aware of the issues that had divided them in the past. It also encouraged them to experiment with new roles that might lead to more productive relations. Whenever the brothers could not resolve an issue, the father, Carl Sr., acted as a "tiebreaker" in these planning sessions.
The Davis brothers agreed to make all strategic decisions jointly, that is, decisions that would dramatically affect the direction of the company. For example, they would both have to agree on creating a new division, merging with another company, or changing their marketing strategy.
As a result of their negotiations, the brothers took several major steps. They decided to "fire" Carl Sr. from his role as tiebreaker, and instead adopt a system of circuit breakers to prevent disagreements from escalating. Before a discussion got too hot, they would stop and let the issue sit for two to five days, during which time they would seek counsel from others. They would repeat this, if necessary, three times. If they still could not agree, they would call in a consultant. And if they could not work it out with a consultant, they would consider the decision a "no go"—that is, they would make no decision.
The brothers were confident that their long-term planning would carry them over the short-term bumps. They also recognized they held extremely different points of view on the use of new technologies in the plant. To develop a plan for the business, they hired a technology consultant. Once again, they had purposely inserted a buffer to reconcile their differences.
The brothers agreed that their salaries and perks would be equal. In addition, a committee of the board of directors was appointed to review the performance of the brothers, and a family council was established to improve communications with spouses and other relatives.
Planning for succession is a two-way process between two generations. It often works best if the incoming siblings, after gaining some experience, present the initial management succession plan for review by the senior generation, as the Davises did. Once the plan is revised and adapted, it is up to the leader of the senior generation to help the family understand the impact the changes will have on the business. He or she should also tell employees how their roles will change, and should advise service providers and key customers about the future of the organization.
It is critical, too, that the plan describe both managerial and financial arrangements. Settling just the details of ownership, or, conversely, only who will hold what positions, is not enough. In these cases, arguments in the undefined area will inevitably arise, and will cause the downfall of the partnership.
Working out details may not be easy.The founder must play the crucial role of moderating differences between the siblings and in laying out guidelines for their collaboration after the "tiebreaker" is gone. In doing this, however, he must realize that the siblings are no longer little kids, and may find it difficult to acknowledge that they are now capable of resolving their own differences in ways more sophisticated than wrestling in the den. Even the biggest rivals among siblings find ways to get along, once the rules are clear.
Being equal bosses isn't for everyone. The key to being able to function in this way is commitment. The incoming generation must be able to focus on the long haul, and live by the new rules and roles they construct. They must continually exchange information (meetings, meetings, and more meetings), and must trade off individual wants for the common good. It takes a lot of work, but it can be energizing and dynamic.
Barbara Hollander is president of Barbara Hollander Associates, a family business consulting firm in Pittsburgh, and is cofounder and current president of the Family Firm Institute.