Autumn 2005 Contrarian’s Notebook

My daughter Julie, who used to write for Sex and the City, is often asked why a hugely successful TV series would shut down after just six seasons, leaving hundreds of millions of viewers around the world feeling as if they’d just lost a group of close friends. Julie and her colleagues usually reply: Better to go out at the peak of your game than to hang around until someone else drags you out.

They aren’t talking specifically about folks like 80-year-old Maurice “Hank” Greenberg, who spent 40 years at the helm of American International Group, only to be abruptly forced out this year with his reputation in shambles amid charges of massive accounting fraud. But their comments are appropriate to his case.

In the wake of Greenberg’s departure, allow me a modest proposal. Maybe it’s time to rethink two business clichés:

1. “Nobody on his deathbed ever said, ‘I wish I’d spent more time at the office.’”

2. “When it comes to work, mere satisfaction won’t suffice; you must have passion.”

First of all, that aphorism about what nobody ever said on his deathbed just isn’t true: Cyrus McCormick, who invented the reaper, is said to have shouted, “Work! Work!” just before he expired in 1884. More recently we have the investor Kirk Kerkorian, who just this year, at age 87, launched a battle for control of General Motors; Sumner Redstone, who at 81 seems to have no plans to step down as CEO of media conglomerate Viacom; Rupert Murdoch, 74 and chairman of News Corp.; and Ralph Roberts, 85-year-old founder of Comcast Corp., who stepped down as chairman only three years ago. And of course there is Hank Greenberg, whose refusal to retire drove both his sons from AIG, and who, when once asked about his succession plan, remarked that his grandmother lived to 108.

Such superannuated workaholics are especially prevalent at family companies, where the boss is also likely to be the controlling stockholder and the children are disinclined to do anything disrespectful, like push him out the door. And, to be sure, wielding perpetual power is a great way for an energetic (not to mention narcissistic) elder to keep his blade sharp at an age when many retirees’ brains are turning to applesauce from lack of use.

Whether this scenario is such a good deal for the CEO’s company is another matter altogether. News Corp. is a disparate collection of media properties tied together only by Rupert Murdoch’s interest in them and by his insatiable appetite for activity, and I would not want to be a News Corp. shareholder on the day he dies (assuming he ever does). Hank Greenberg, it now develops, spent 40 years sweeping his company’s problems under a series of imposing rugs and haranguing anyone with the temerity to try to hold him accountable. The result: Now the law is holding Greenberg and his former firm accountable for a broad range of improprieties worth billions, and AIG’s stock has crashed along with Greenberg’s hard-earned personal reputation.

As consultant Ivan Lansberg once observed in these pages, although most family firms tend to be nice places to work, family companies are also especially vulnerable to “abusive boss” syndrome—that is, bosses who exercise leadership through temper tantrums, bullying, humiliating criticism and profanity. Junior family employees under such bosses are often the worst victims: “Since these sons and daughters stand to succeed the abusive leader and inherit the business,” Lansberg wrote, “they’re especially vulnerable targets for the leader’s manipulations and resentments.” Remember, Lansberg penned those prescient thoughts four years before Greenberg’s downfall. (See “Bobby Knight, meet J.P. Morgan,” FB, Winter 2001.)

In fact, as British sociologist Belinda Board concluded in a New York Times essay (May 11), successful business executives share many personality characteristics with psychopaths: grandiosity, lack of empathy, exploitativeness and independence, for example. They’re also likely to possess traits associated with compulsive personality disorder, like stubbornness, dictatorial tendencies, perfectionism and excessive devotion to work.

Large public companies can check these tendencies through such devices as outside directors, outside shareholders and a mandatory retirement age. That’s not so easy when the autocratic boss is your mother or father who owns the place. As Greenberg’s case at AIG reminds us, even when such a boss is removed, he’s still there. After Greenberg was forced out last March in a desperate attempt to save AIG’s stock price and executives’ scalps from prosecutors, it developed that Greenberg remained chairman and controlling stockholder of two obscure partnerships named for AIG’s founder, Cornelius Vander Starr—and that through these partnerships Greenberg remained AIG’s largest de facto shareholder.

Something similar happened at Adelphia Communications in 2002, when the founding Rigas family, having siphoned some $2.7 billion out of the cable company and driven it into bankruptcy, resigned from their management positions—but retained their controlling equity.

Bottom line: What’s good for the boss isn’t necessarily good for the company. And some family firms have difficulty distinguishing between the two. A boss’s refusal to ride gracefully into the sunset may in itself be a sign of serious systemic problems at his company.

Which brings me to that second cliché, the one about finding passion in your work. “Passion pursues the object of its desire relentlessly, irrespective of the cost to others,” notes Juan Hovey, a California-based communications consultant. “We all know Type A entrepreneurs who sacrifice their families in pursuit of success.” True enough—but we rarely recognize that these Type A guys often wind up sacrificing their companies too.

Hank Greenberg certainly felt passionately about his chosen line of work. So did the Rigas family. So do Sumner Redstone and Rupert Murdoch. But then, so did Napoleon, Mussolini and Hitler. Maybe we could all do with a little less passion and charisma in the workplace and a little more humility and teamwork.

What the rich can give their kids

If too much money can ruin wealthy children, what else can you do for them?

When Franklin D. Roosevelt’s New Deal jacked up federal gift and estate tax rates in 1934, the world’s richest man reacted instinctively: John D. Rockefeller Jr. put $60 million (the equivalent of close to $1 billion today) into a series of irrevocable trusts created for the benefit of his wife and his six children.

“Father understood that we needed a certain amount of economic independence, which he would have to provide,” Rockefeller’s youngest son David explained recently in his Memoirs. “….He had no alternative if he wanted to provide us with independent means.”

No alternative? To sons who were already millionaires many times over, did those extra millions sheltered from taxes really make a difference in assuring their independence? Almost since the dawn of time, philosophers and wealth advisers alike have argued the opposite: Money, they say, may help the poor or the middle class achieve independence, but for the children of the rich it matters less than things that money can’t buy, like sound judgment, credibility, patience and a strong sense of self-esteem.

A big material inheritance, like a winning lottery ticket, rarely improves anybody’s life—because, as the Roman architect Marcus Vitruvius astutely observed 2,000 years ago, our most important possessions are the ones that can survive a shipwreck. Vitruvius cited the example of a clever castaway washed up on the shore of Rhodes who, through his ingenuity, found friends, a job, wealth and position in his new home. “And so,” Vitruvius concluded, “I thank my parents for giving me an education.”

There is in fact a great deal that wealthy parents can do to foster their children’s independence—not to mention executive potential—whether those kids are infants or middle-aged adults. A few suggestions from financial advisers and psychologists I’ve surveyed:

• Give kids struggles they can manage. “Self-esteem comes from being educated and productive—from feeling you can use your natural abilities and strengths,” says Gayle Buff of Buff Capital Management in Newton Highlands, Mass. “Having obstacles enhances self-esteem. There are always roadblocks in life; you can’t buy your way into every situation.”

• Talk to your kids about money, especially when they discover they have more than others. “Help kids to think about ‘What is money for in your life?’” says Fredda Herz Brown, managing partner of the Metropolitan Group in Creskill, N.J. “Define ‘rich’ in terms other than money—that is, ‘We’re rich because we have each other, good educations, and so on.’ That enables them to get more comfortable with the subject.”

• Let the kids experiment with money. “Give them the latitude early to make decisions and fail,” says Marshall Front, chairman of Front Barnett Associates in Chicago. “Better to make small decisions in their 20s and learn from their mistakes, than big mistakes later on.” When parents want to give a gift to children, says financial adviser Michael Horowitz of Mill Valley, Calif., “I tell them, ‘Give it cleanly. Trust the child to spend it as he or she sees fit.’” Putting conditions or strings on gifts, Horowitz says, “sends a terrible message: ‘You’re not responsible enough to spend on your own.’ They’re better off without the money in that case.“

• Give kids money as an outright gift or as compensation for services. “Don’t tell your kids you’ll give them money because they need it—for a house or whatever,” Horowitz says. “That sends the message that the parent is responsible, but the child has failed—he couldn’t cut it without Dad’s help.”

• Avoid the temptation to intervene. If a child asks for advice—like how to buy a house or a car—“don’t say, ‘We’ll take care of it for you,’” Horowitz says. ‘Teach them the criteria. Do it with patience and kindness.” Adviser Sheila Chesney, who lives in a wealthy community outside Beaufort, S.C., cites the case of a client’s daughter who relocated to Texas. “Without thinking, the mother jumped in, went with her, and bought her a condo,” Chesney recalls. “That girl would have done fine on her own—she would have moved in with two other girls. But her wealth precluded that.”

• Don’t wait until the kids mature. Many wealthy parents, sensitive to the consequences of gifting too much money to kids too soon, go to the opposite extreme: They hold back altogether, waiting for the kids to develop responsibility. “They don’t realize: It doesn’t happen with the passage of time,” says Patrick Doland of Reason Financial Advisers in Northbrook, Ill. “Parents have to instill financial responsibility actively. You have to prime the pump in a reasonable way.”

• Fund the really important things, but have the children work toward certain things on their own. “Some parents say, ‘We sacrificed, we don’t want our children to sacrifice,’” notes Gayle Buff. “I say, ‘There’s a middle road. Your resources will fund their education, so they can go to the best school if their grades are good enough. But you should still have them do chores around the house to get an allowance.’”

• Encourage rather than criticize. Self-made entrepreneurs tend to be judgmental, which can squash a child’s appetite for risk, says wealth psychologist John Levy of Mill Valley, Calif. “Offer positive feedback, congratulate them on their achievements,” Levy says. “Don’t criticize their failures; when they stumble, say, ‘How can we help?’”

• Strive to give your kids as normal an upbringing as possible. “Don’t just feed them steak and the finest aspects of life,” says Thayer Willis of Lake Oswego, Ore., an inheritor herself. “Show them the whole spectrum, so they can understand their privileges and challenges.”

• Teach kids to avoid debt. “If you live within your income, your lifestyle is true,” says Willis. “It’s a simple principle to impart to kids for clarity of lifestyle.”

• Make your kids work elsewhere before hiring them in the family firm. It builds self-esteem, convinces them they can make it on their own—and helps you observe whether they have what it takes to succeed you.

• Encourage philanthropy and community service. It’s wholesome, non-acquisitive training for dealing with money. What’s more, “The ability to be compassionate and caring is the highlight of resilient people,” says Harvard psychologist Robert Brooks, author of three books on raising resilient children. Those who care for others, Brooks says, seem to lead longer lives: “The more you feel connected to other people—through a cause or religion, for example—the more it gives purpose to your life.”

In fact, given all the psychological obstacles that wealth poses to a child’s independence, John D. Rockefeller Jr. turns out to have come pretty close to a model super-rich parent after all: He deplored frivolity and tirelessly imposed three duties—be respectable, useful and thrifty—upon his five sons. “The Rockefellers had it right,” says Michael Dubis of Touchstone Financial LLC in Madison, Wis. “Raise your kids to contribute to society, not to loll around a pool in Florida.”

Shirtsleeves to shirtsleeves

Family business marriages made in heaven … or hell?

What’s that you say? You’re operating a family business not for personal reward today but to leave a legacy for future generations? Consider these two recent inheritor marriages, and you may want to think again.

My name is your name (Part I): At age 18, Susanne Papenbrock met sandal company heir Christian Birkenstock in the German spa town of Bad Honnef, Germany. They fell in love, got married and moved into a castle on the Rhine, and Susanne went to work for her husband’s company, which was founded by cobbler Johann Birkenstock in 1774. But Susanne and Christian did not live happily ever after. Today, some 15 years later, they are separated, according to the Wall Street Journal.

Worse, Susanne is now marketing her own line of shoes in competition with her husband’s company. Is her new line called “Papenbrocks,” you ask? Uh-uh. Susanne calls her business “Susanne Birkenstock International.” And why not? Hasn’t Birkenstock been her name for nearly half her life?

My name is your name (Part II): Blonde heiress Paris Hilton, 24-year-old great-granddaughter of the legendary hotel chain founder Conrad Hilton, makes her living these days performing in TV reality shows, horror films (House of Wax) and at least one sex video. This year, Ms. Hilton got engaged to a kindred soul—27-year-old Paris Latsis, nephew of Greek banker and shipping tycoon Spiros Latsis. Like his fiancée, Paris Latsis isn’t inclined to work at the family firm (EFG Bank), nor does the family firm seem inclined to hire him. He launched his first business venture while studying in London: a night club financed by his mother (Spiros Latsis’s sister).

Offhand, it sounds like Paris Hilton and Paris Latsis are ideally suited to each other. Just one question: Will they name their first baby after the mother or the father?

As I was saying…

“When it comes to holding together an investment bank, the best glue is blood—a commodity that’s in short supply and isn’t easily manufactured.”

— This column, Family Business, Spring 2005.

“Just a month after Lazard Ltd. went public on the New York Stock Exchange, the fate of one of its top European ‘rainmakers’ was in the balance, as conflicting reports emerged on whether he was leaving. A person familiar with the matter said that 53-year-old Gerardo Braggiotti … had handed in his resignation over a dispute about who would be awarded Lazard’s top European post…. The departure of Mr. Braggiotti would be a blow for the storied investment bank. Mr. Braggiotti’s unit … accounts for roughly 20% of Lazard’s global advisory revenues.”

— Wall Street Journal, June 3.