The beat of a different drummer
Four heirs who thought outside the box.
When choosing a CEO, why should any company hire the boss’s son/daughter/spouse, rather than a career professional? You know the familiar reasons, but here’s one more: A CEO must think outside the box—and that requires a combination of security and audacity that family members are more likely to possess. Consider these four examples.
1. Lachlan Murdoch was only 28 four years ago when his father, News Corp. chief Rupert Murdoch, made him publisher of News Corp.’s perennial money-losing newspaper, the New York Post. This tabloid had never turned a profit in 24 years under Rupert’s ownership, nor had anyone expected it to: Most News Corp. executives regarded the Post as Rupert’s personal indulgence, one that provided a platform for his conservative political views at a cost of some $30 million a year.
“I don’t think we were complacent,“ Lachlan’s predecessor, Ken Chandler, told the Wall Street Journal last July. “It’s true we had limited expectations, because we were running on such a tight budget.”
Lachlan had a different take on the Post: He saw it as an opportunity to prove himself by succeeding where his father had failed. Because he was the boss’s son and knew he wouldn’t be fired, Lachlan had the nerve to ignore the budget and pursue an impossible dream.
In short order he replaced the entire Post senior management team, making changes his father hadn’t thought necessary. One result: The Post‘s circulation has risen by 55% since 2000, a nearly unheard-of feat in today’s age of flat or declining newspaper sales. Its ad revenue is up, too. The Post is still far from profitable, but black ink is now at least a possibility.
2. William Clay Ford Jr., great-grandson of Ford Motor Co.’s founder, was installed as non-executive chairman in 1999 by his father, his aunts and his cousins to look after the Ford family’s interest. But although Bill Ford had spent two decades at the company, he was dismissed as a neophyte by the company’s egotistical president and CEO, Jacques Nasser, who excluded Bill from major decisions. Meanwhile, the quality of Ford Motor’s vehicles was declining, its factory productivity was slipping and its finances were a shambles.
In 2001, when Ford Motor lost $5.5 billion, Bill Ford sacked Nasser as CEO and replaced Nasser with … himself. At the time, most experts doubted that Bill Ford possessed the fundamental management skills to run America’s fourth-largest corporation. Yet since then he has turned Ford Motor around precisely by adhering to his great-grandfather’s fundamentals: reducing costs, improving quality and developing a regular program of new models. In the second quarter of 2004, this one-time corporate basket case reported earnings of $1.9 billion—nearly 50% more than its leading rival, General Motors.
3. Helen Copley, who died last August at the age of 81, broke into the business world in 1953 as a secretary to James Copley, chief executive of the Copley newspaper chain founded by his father in 1905. She married her boss 12 years later, in 1965; and when he died of brain cancer eight years after that, she inherited his controlling stake. Instead of hiring an outside CEO, as most observers assumed she would do, Helen took the job herself.
To improve sagging morale, in her first years as publisher she reached out to the 1,500 employees in her San Diego headquarters by meeting with all of them in small groups— something no previous Copley had done. She also reached out beyond her newspapers’ right-wing audience to appeal to moderate and liberal readers as well—a strategy that other Copleys considered apostasy. Over the next 28 years Helen Copley moved an autocratic and narrow-minded newspaper group into the mainstream and built the flagship San Diego Union-Tribune into a two-time Pulitzer Prize winner, as well as California’s third-largest newspaper. She preserved the chain’s family ownership and three years ago passed control on to her son.
A similar transformation famously occurred at the Washington Post in 1963, when the self-described “doormat wife” Katharine Graham took over the CEO’s role after her husband’s suicide. Against all expectations, she transformed the Post into one of America’s great newspapers and its parent company into a publicly traded conglomerate, stood up to a President and even won a Pulitzer Prize for her own autobiography. Nobody knew how remarkable these women were until they took charge—and they got that chance only because they were family.
4. J. Irwin Miller was descended from the Irwin, Sweeney and Miller families that made fortunes in banking, real estate and cornstarch in Columbus, Ind., before founding Cummins Engine Co. there in 1919. He went to work at Cummins in 1934, when he was 25, and served as its chairman from 1951 to 1977. In the process he built Cummins into a billion-dollar company, the world’s largest independent producer of diesel truck engines. But that’s not why you’ve heard of Cummins and Columbus.
Miller, you see, was a renaissance man (he played his own Stradivarius, read Greek and Latin, and had a master’s degree in classics from Oxford) with a particular passion for architecture. Early in his tenure as Cummins chairman he took it upon himself to transform his decaying town of Columbus into a showcase for buildings designed by prominent architects like Eero Saarinen and I.M. Pei.
His method was audacious but simple: He persuaded Columbus city agencies to hire famous architects for new schools and public buildings by offering to pay the architectural fees through his company’s foundation. Miller also directly commissioned famous architects for local factories, banks and offices, as well as his own home. Other local civic leaders followed his lead, so that today Columbus—still a town of fewer than 40,000 inhabitants—is a virtual museum of modern American architecture. “Columbus, Ind., and J. Irwin Miller are almost holy words in architectural circles,” wrote architecture critic Paul Goldberger in 1976.
Miller died last August at the age of 95, having blessed his company and his town with the sort of fame that money can’t buy. To suggest that he thought outside the box is almost trite. On the contrary, Miller never left his company and hometown “box.” Instead, he changed the box.
What’s an appropriate epitaph for J. Irwin Miller? I suggest the words of Theodore Roosevelt, who died the year Cummins was founded: “Do what you can, with what you have, where you are.”
Carly Fiorina vs. the family dilettantes: And the winner is…
Remember the battle over Hewlett-Packard’s acquisition of Compaq Computer Corp.? At the time it was announced—the fall of 2001—H-P’s newly imported chairman, Carleton Fiorina, claimed the merger would round out H-P’s product offerings, provide economies of scale and add more service capabilities. But children of the computer firm’s late founders, William Hewlett and David Packard, bitterly opposed the proposed merger. To them, it represented a betrayal of the founders’ belief in “organic growth focused on genuine product innovation.” The merger, suggested David Packard Jr., “would dissolve the personality and soul of H-P.”
At the time, yours truly boldly hedged my bets by staking out a middle position. “You can’t help cheering the way the Packard and Hewlett children have rallied to defend their parents’ legacy,” I wrote here (FB, Spring 2002). “On the other hand, the prospect of relatively uninvolved heirs meddling with a company’s management is a trifle scary.”
Fiorina subsequently pulled off the Compaq merger in 2002, but just barely: 49% of H-P’s shareholders voted against it. So how have things turned out? At this writing, H-P’s shares are worth less than on the day the merger was announced or on the day it closed.
The reasons for this stagnation, it develops, were astutely anticipated by the Hewlett and Packard heirs. In transforming itself into the tech industry’s most sprawling conglomerate, H-P lost its focus and became squeezed between two leaner, tougher rivals with much clearer business models: Dell (which stands for cheap, simple boxes) and IBM (which stands for patching together complex subsystems). “H-P is trying to be all things to all kinds of customers,” The Economist commented last summer, “and is leaving more and more of them plain confused.”
Did Carly Fiorina, the hands-on hired gun, anticipate this problem? Not at all. Did I? Not exactly. Only those detached dilettantes in the Hewlett and Packard families, it now develops, instinctively understood the intangible but essential value of their company’s soul.
To be sure, the final chapter in this story (as in all business stories) remains to be written. But it’s not too soon to suggest one lesson: Corporate identity really does matter—and, consequently, corporate bloodlines matter more than many observers might suspect.
The trouble with ‘super-voting stock’
To Colonial Americans, “taxation without representation” was an outrage of revolutionary dimensions. But today many investors voluntarily buy corporate shares that offer them little or no voting value, thanks to “super-voting stock“ arrangements that keep the founding family in control at companies like Ford Motor, Comcast and Estée Lauder. You could call it the “Singapore solution”: You sacrifice democracy for the hope of stability.
Rupert Murdoch, whose founding family controls News Corp. with less than 30% of its equity, made that argument last spring. “To have very strong [family] influence in the company and to bring stability to the company is a good thing,” he told the Financial Times.
As I’ve suggested before, this argument has its limits. Super-voting stock brings stability to a company only when the super-voting family is stable itself.
Conspicuously absent from Murdoch’s familiar litany of exemplary family-controlled media firms (like the New York Times Co., the Washington Post Co. and Viacom) was Adelphia Communications, the cable TV company that was looted into bankruptcy by its founding and controlling Rigas family. In effect, this unstable family used its control to hold Adelphia and its shareholders hostage for the family’s debts.
Or consider the Mondavi wine dynasty. Founder Cesar Mondavi left his Napa Valley winery to his widow and sons, Robert and Peter. But the sons fell out violently, and in 1966 Robert set up a rival winery down the road.
To avoid a repeat of that fracas, Robert spent 30 years planning the transfer of his company to his two sons. His plan included a super-voting stock arrangement, under which Robert’s family controlled nearly 85% of the company’s voting stock although they owned less than 40% of its equity. But after Robert finally stepped down from the board in 2003, Robert’s son Timothy abruptly quit his job, took a six-month sabbatical and moved to Hawaii. Then Robert helped oust his older son, Michael, as chairman.
This past fall the Robert Mondavi Corp. proposed a recapitalization that would effectively eliminate the Mondavi family’s super-voting stock. Which makes good sense: Who’d want to acquire a company whose foundation is based on the entrenchment of an erratic family?