The successor Class of Õ98

What do Generation Xers who grew up in family businesses want? What did MBA students learn about their family companies from a course at the Harvard Business School and how did it influence their choice of jobs?

By Jayne Pearl

They don’t commute to work on a skateboard. They don’t keep their pet bird in their cubicle or insist on having a cappuccino machine in the office. Unlike typical Generation Xers, they talk about whiz-bang concepts such as “valuation models,” “balanced scorecard accounting,” and “business systems integration.” And, of course, they expect to be wooed throughout life with fat salaries, signing bonuses, and promises of stock options.

They are MBA graduates with a difference. Last semester, all 37 of them went through the first course ever given on family business at the esteemed Harvard Business School. They were between the ages of 24 to 30 and they grew up in family businesses in diverse industries around the world, with revenues ranging from $5 million to $1 billion. About half were foreign students—an incentive for Harvard to start the course in the first place—and a third were women.

The graduates of the course left Cambridge in June on a yellow brick road paved for success. The only question was: In what direction were they headed? As newly minted MBAs, they had been aggressively recruited by Wall Street investment banking firms, management consulting outfits, and Fortune 500 companies. Typically, they had to decide between accepting an entry-level position with a tantalizing average first-year salary (including sign-up bonus) of $115,000, or returning to the family business, where they might earn considerably less at first but be able to have a bigger impact and greater opportunities for ownership sooner.

The course was co-taught by John Davis and Louis (By) Barnes of the Harvard faculty, specialists in family business management. In the Harvard tradition, the course was built around case studies in which students had to play different roles and make key decisions. But perhaps the most challenging aspect of the course was the homework. Each student had to prepare a report on his or her family company, based on information they gathered over the semester.

In most cases, the students had to go to their elders and other family members for help in collecting case data. This sometimes triggered sensitive debate on such issues as succession and estate planning; the different goals of family members regarding the company; their goals for the family itself; or the strengths and weaknesses of work relationships. This exercise brought the students face to face with some of the differences between working in their family’s company and starting out with a Fortune 500 company or Wall Street firm. It forced them—and, in some cases, their families—to confront issues that they had heard little about in their other MBA courses.

“These students had been through business analysis boot camp for a year before taking our course,” explained John Davis. “It’s almost a brainwashing here, about how to think through business issues such as strategy, marketing, and finance. What doesn’t come in other courses are ownership issues and family issues. They learned about large Fortune 500 companies and know their company is not like that.”

What do Generation Xers who have grown up in family businesses want? What did they learn from the course about their family’s company and how did it influence their choice of jobs? Family Business interviewed four of the MBA graduates to find out. The interviews revealed much about the aspirations of the successor Class of ’98, their expectations for the future, and what they hope to contribute to the family business.

A change of mind

Before taking the course, Wilford R. Cardon, 28, planned to work directly after graduation for his family’s investment company in Phoenix. It is run by his father and two uncles, and owns mostly real estate and petroleum businesses. The course convinced him it was important to go out into the world for a year or two first, to gain experience and credibility.

Cardon knew he ultimately wanted to work with the Cardon Co., which employs 15 people at the Phoenix headquarters and about 200 in the firm’s various subsidiaries and joint-venture partnerships. But by graduation, he had two mouth-watering offers: One was an investment banking job in the South, with a base salary of $75,000, a sign-up bonus of $20,000, and a guaranteed performance bonus in the first year of $25,000 to $75,000; the other was from a smaller company, a real estate private equity group in the Midwest that dangled an even higher compensation package in front of young Cardon.

During the summer he lost 20 pounds and loads of sleep rethinking his options. With no kids in the picture yet, he and his wife were excited about living in a big city like Chicago for a few years. Yet he was concerned because he knew his father and uncle were making estate planning decisions that would affect how the business would be organized and operated. “If I was not there,” he recalled thinking, “I would have less influence on how those decisions come down—decisions that will affect me.”

The Harvard family business course helped Cardon appreciate the many advantages of working for a family business: “At a family business you get a chance to work with people you really love, who share your same values. A family business also provides security.” A summer internship at McKinsey, the worldwide consulting firm, had helped him realize that “if I went to a Fortune 500 company at an entry-level position, I’d spend all my time working in a very political environment. It’s not a meritocracy. It’s a crapshoot. I could be out of a job if the economy turns down.”

He also learned about some of the disadvantages of working in the family company—for instance, the problems that occur when the lines between family and business get blurred. “What scares me is that the future at our business is pretty uncharted,” Cardon says. He would be the first of 21 children of the company’s three partners to join the business. “I don’t see myself being a partner with my two uncles,” he says. “I have some great cousins, but I don’t want to be forced into a business relationship with them either.”

Because his father and uncles appear to be ready to act, not just talk, Cardon turned down both of the outside jobs he was offered and returned to the family business. The report he researched and wrote for the course helped him develop a plan for the firm’s future. “I foresee the company splitting into three different groups, with a cousins’ consortium holding some assets,” he said. “My father and I have talked about it a lot. I think I helped start a pretty good discussion, but my father and uncles have been thinking about this all their lives. I just reinforced the idea of splitting the business.”

What role has he played so far? “I’m just taking inventory, getting familiar with what assets we have around here and trying to develop a plan of how to grow those assets,” he reports. He’s already analyzed vacant properties that his company owns in Arizona and Utah, and put down deposits to lock up hotel franchises for three of the sites. Although his base salary is considerably lower than the other positions he was offered, his father spiced the package with enough equity to more than compensate.

“I’m committed to my decision to work here,” says Cardon. “I want to help shape my own future. I still think outside experience would be very valuable, but if I’m not happy, I won’t just sit here. I made sure I didn’t burn any bridges with the outside firms.”

Still involved—from a distance

Linda Coye, 28, has no intention of returning to the family business in Brevard, North Carolina, where she worked for four years before going to graduate school at Harvard. Although Coye has just joined a management consulting firm in Stamford, Connecticut, she has an ongoing involvement and obvious concern for the family business.

Coye’s parents started the business as a consulting firm in 1989 but Coye Consultants Inc. was later transformed into a wholesale distributor of Toro lawn and garden machines. The firm teaches merchandising and selling techniques to the retail Toro outlets that are its customers. During her years with the firm, Linda worked on event planning and marketing, then communications and advertising, and later dealer training and human resources. More recently, she was director of corporate planning.

Although she enjoyed working with her parents, Coye realized, “Their passion in that business is not my passion. My family knew when I went to business school that I wouldn’t be back, although everyone at school thinks I will, because I’m always sending and receiving faxes, reviewing financial statements, or flying home to hire a new controller.”

Linda plans to stay on the board of Coye Consultants and eventually help prepare her brother to run the company. Her mother recently decided to retire, and her father plans to step down in three to five years, but everyone in the family has been so busy they have found it hard to find time to implement a succession plan. “My brother and I keep saying [to their parents] not to even think about leaving us yet.”

The paper she wrote for the family business class became an excellent vehicle for opening the lines of communication and jump-starting the succession process. “One weekend I flew home, sat down for two hours, and had everyone fill out 10-page surveys for me that covered their opinions on the role of the family in the business, the role of the business in the family, their individual role in the business, and the role of education and whether the business should pay for it. Even in our fairly open family, we hadn’t discussed these questions in great depth.”

She says that what she learned in the MBA program has helped her family business. “At Harvard I kept a running list of what I learned, about marketing or finance, and would call my dad and tell him.” Although her parents were receptive to new ideas, Coye and other students have been taught to be careful about trying to push through sweeping changes. “Families may not be willing to accept those changes, even though we might see clearly better ways to do things. As long as they make a comfortable living, we learned, that should be okay. It’s important to bring in theory and analysis, but we shouldn’t assume we can bring that in overnight, or that we’re always right. You don’t do that in any organization, especially a family business, where you can harm family relationships by trying to make all these changes.”

For Coye it was not the final paper that was important, but the process. “If nothing else,” she says, “it got everyone thinking and opening up about succession, and made us start taking the steps to do that.” She says the class also sparked interest in governance issues—family councils, boards of directors, and concrete ideas about how to make them happen. “Before the class, it would have been intuitive for us to invite onto a board people close to us in the industry—vendors or service providers, exactly the people we shouldn’t invite. We also realized we don’t have to start with a full-fledged board of directors, but could start with a board of advisers.”

Linda is living in New York and commuting to Stamford. “It’s tough to find a more beautiful place than Brevard, but there’s not enough energy there for me.” Lifestyle is not at the top of her list of concerns, though. Nor is money. “Initially, I’d earn less in the family business, even with ownership,” she says, “but in the long term I could probably earn a good amount there. I came out of Harvard with a lot of debt, so working and earning more as a consultant certainly helps. But that was not the basis of my decision. There’s a point at which more is not necessary. If I thought the family business was the place for me, money wouldn’t stop me.”

Learning at another firm

Irene Reed, 24, was a student at the Harvard Law School who took the family business class hoping to work through some of her ambivalence about joining Ware Realty, her family’s real estate-management firm in Chicago. Her maternal grandfather launched the firm in the 1920s, and it was taken over by her mother and father in the mid-1980s when the grandfather developed Alzheimer’s Disease. Ware Realty currently manages four residential buildings with a total of 100 units; it grosses under $3 million a year and has five full-time employees.

Reed initially dreamed of becoming a writer but felt an implicit pressure from her family to go to law school to help the family firm with such legal matters as contracts, occasional tenant suits, and trust and estate issues. She feels a deep connection and obligation to the family and the business.

“I grew up very privileged, especially for a minority person. I’ve always felt indebted to my family, because my mother became fairly financially savvy and was able to make a lot of financial planning decisions that enabled me to travel extensively, attend private school, and go to Harvard and then Harvard Law School. All that was due to my parents working hard, conserving money, and placing it in areas that were lucrative. So I feel a real responsibility to take care of the assets my parents have given me and my brother.”

In her course paper, Reed grappled with how to do what was right for the family while carving out a spot for herself. She combed real estate publications and the Internet to track long-term trends in Chicago’s residential real estate industry. She interviewed her mother to learn more about the company’s history. “My grandfather never finished high school, but he was a hustler and did what he had to do to make money for his family. That’s part of the reason we feel it’s so important for us to go into the business,” she adds.

“My parents are still operating the company the way my grandfather did. They weren’t trained in the business, so it’s been sort of touch and go. My grandfather knew how to get the cheapest materials and motivate employees. He knew how to crack the whip.”

Perhaps because Reed’s 18-year-old brother has taken an active role in the company, she has decided to work for another Chicago real estate company. “My brother’s still young and has to learn about how to manage people. But he’s the one who goes out to see the buildings and has an innate sense of real estate.” She’s hoping her outside experience will give her an overview of the industry and the financial tools to expand and improve Ware Realty. “My parents have the vision of selling off the buildings, taking the money, and buying one or two much larger buildings. My brother and I have ideas about how to take this to the next level-by upgrading staff and the quality of the buildings. We’re fairly young and my parents are approaching retirement age. It will take time for my brother and I to come truly into our own.”

Her salary at her new job will be much larger initially than the family business could afford to pay her. In fact, family members at Ware Realty don’t actually collect a salary, they just take whatever the business can provide as they need it. “One of the things my classmates insisted was that if I work for the family, I should get a regular salary.”

For now Reed is willing to pay her dues at her new job, and, after hours, help out at the family business. “The biggest challenge,” she says, “is how to take what my grandfather made and what my parents preserved, and define what I want it to be for us. The business now is more like a series of assets. We need to turn it into a business. Our options are completely open. One of our goals is to have something for our future kids, in terms of pride and financial security. We’d be remiss if we didn’t do that minimal duty.”

Already proactive

Unlike many of his classmates, Ari Shalam, 28, seems to have no doubt about the path he will take. He was so gung-ho about going directly to work for Audiovox, Inc., his family’s consumer electronic business in Hauppauge, Long Island, that he returned to the $635-million (1997 sales) public company just a few days after earning his MBA. Why so definite? He returned with the title of vice president of strategic planning, and he has big plans he’s eager to initiate.

Audiovox imports and distributes cellular phones and car stereo and security systems. “My position here is totally a factor of my performance,” Shalam says. After installing and selling car radios in the summers during college, he spent four years before graduate school working full time for Audiovox. By the time he trotted off to Harvard, he was in charge of business development for Southeast Asia, a territory he took from zero sales to $10 million a year.

Shalam says his father, John Shalam, founder and CEO, was angry when his son decided to get his MBA. He suspected his son might be using Harvard to get out of the business. “That was totally false,” Shalam says. Although Shalam had also spent a few summers working on Wall Street, and admits he found the idea of doing mergers-and-acquisitions work at Goldman Sachs attractive, he says, “I don’t have the luxury of working somewhere else for three or four years.” He is mindful, too, that his father, who is 65, wanted him “in the thick of things” in case anything materially changed at the company.

Shalam doesn’t seem to have regrets. “What would be the incremental value-added of working at McKinsey or on Wall Street, where’d I’d be the 5,000th MBA? I’d get lost,” he explains. “I won’t be making the $300,000 my friends who went to Wall Street will in a year or two, but I’m in a position to run a $200-million company.”

He is eager to put to use what he learned at Harvard. “I can implement things right away at Audiovox; I don’t have to wait until the techniques I learned become stale or outdated, as I would working elsewhere. But I’m not trying to change the world. I’m trying to be discreet and not make waves. I find places where I see opportunities to use what I’ve learned, such as in management information systems (MIS) and resource planning. We learned how to create and unlock value by managing the left side of the balance sheet (assets) more efficiently. I can talk shop with the MIS people in a way I couldn’t before business school.”

As VP of strategic planning, Shalam is in charge of assessing potential acquisitions, which he says gives him an opportunity to use valuation tools and skills for looking at existing and new business that he learned at Harvard. “I’m trying to be a little more proactive, to go offsite with managers and develop long-term corporate strategy by assessing our strengths, weaknesses, opportunities, and threats, and to use that as a template to look at other opportunities instead of passively waiting for opportunities to come to us. This is typical Harvard mentality.”

He says the family business course didn’t apply much to his situation. “It was focused mostly on issues of small private companies, such as sibling partnerships, where the kids are always fighting. My brothers and I grew up seeing the company under public scrutiny. It gives us less room to screw up. The goal of a private company is to make the least amount of profit so you can pay the least amount of taxes—by taking big perks. That creates an opportunity for infighting. By the time my kids and my brother’s kids come around, those who are qualified will come in. If they don’t, they can take their shares, look up the price in the paper, and sell them with no problem.”

For many of the 37 students, the Harvard family business course was a pivotal factor in their career decisions. Before signing up, about two-thirds had said they planned to join their family business right after graduation. At graduation, though, only about half still planned to work with their families.

Whether or not the new crop of family business successors decides to work in the family business, however, nearly all will be important shareholders and perhaps board members. What they have learned about ownership, succession, and family business governance will help them find meaningful ways to contribute to the business and define a comfortable role for themselves.

“Students who decided to join their family company were those who felt they would be able to actively make a difference,” says Professor Barnes. “Where they felt they couldn’t have that kind of impact, they were not ready to join the business, although I’d guess eventually about three-fourths will do so after getting outside experience.”

John Davis is teaching the course again this fall but without Professor Barnes, who recently retired. Because last semester’s students gave the course high ratings (6.0 out of 7.0), he plans to stick to the same approach, with one difference in emphasis. While he feels the students learned a good deal about business at Harvard, he thinks they need help in deepening their understanding of how families work—the family system.

“As a teacher, I learned how difficult it is for students to really grasp the subtleties of family interaction,” Davis says. “Families are very difficult to analyze and understand, especially when you’re on the inside. Most students did an incredible job looking at their families, but when you look at their reports, it was like they had one arm really developed and the other arm not very well developed. Even when the family analyses were thoughtful, the business analyses were even better.”

The Harvard family business course had one more benefit for its participants. Talking candidly with one another and with their teachers about their lives, their aspirations, and the variety of their career options had a liberating effect. As Davis puts it, “One of the impacts of the family course was to give them permission to do what they wanted. In many ways the students ended up with a deeper respect for their family business and what they wanted to do.”

Jayne Pearl is a frequent contributor to Family Business, and author of the forthcoming book “Kids and Money: Giving Them the Savvy to Succeed Financially” (Bloomberg Press, January 1999).


A sampling of academic family business courses

Babson College, Center for Entrepreneurial Studies
Babson Park, MA
781-239-5014
Undergrad and graduate “Family Business Management” courses

Baylor University, John F. Baugh Center for Entrepreneurship
Waco, TX
254-710-6150
Undergrad course, “Family Business Management”

Brigham Young University
Provo, UT
801-378-8944
“Managing Entrepreneurial Firms and Family Owned Businesses”

Bryant College
Smithfield, RI
401-232-6477
Undergrad course, “Managing the Family Business”

University of California at Los Angeles, Anderson Graduate School of Management
Los Angeles, CA
310-825-2507
Graduate course

Case Western Reserve University, Weatherhead School of Management
Cleveland, OH
216-368-2033
“Policy 420: Managing the Family Firm”

University of Chicago
Chicago, IL
312-413-2752
Undergrad and MBA courses

Cornell University
Ithaca, NY
607-255-2591
“Families in Business” and “Empirical Research on Family Owned Business”

University of Denver, Family Owned Business Institute
Denver, CO
303-871-3025
“Managing the Family Business,” for undergrad and graduate students

DePaul University
Chicago, IL
312-362-8471
“Management of Family Business” course, for seniors

Georgia State University
Atlanta, GA
404-651-3119
“Managing a Family Owned Business”

Goshen College, Family Business Program
Goshen, IN
219-535-7451
Undergrad course in family business management

Kennesaw State University, Coles School of Business
Marietta, GA
707-423-6045
Undergrad and graduate family business management courses

Lehigh Carbon Community College
Schnecksville, PA
412-221-8924
Undergrad family business course

Loyola College
Baltimore, MD
Graduate course, “Seminar in Family Business,” part of MBA program

Loyola University
Chicago, IL
312-915-6490
Family business course for students in the Law School and Graduate School of Business

University of New Haven
New Haven, CT
203-932-7421
Undergrad course in family business management

Oregon State University
Corvallis, OR
503-737-6017
“Family Business Management” for seniors and grad students

University of St. Thomas, Center for Family Enterprise
Minneapolis, MN
612-962-4412
Undergrad and MBA courses in family business management, which require the full participation of families and students

University of San Diego
San Diego, CA
619-260-2376
“Management in the Small and Family Business,” for undergrads and graduates

Santa Clara University
Santa Clara, CA
408-554-4681
“Managing the Family Business” for MBA students

University of South Dakoka, South Dakota Family Business Initiative
Vermillion, SD
605-677-5103
Undergrad course on family business dynamics

University of Southern California, School of Business Administration
Los Angeles, CA
213-740-0416
“Family Business Studies” course for undergrad and graduate students

Suffolk University School of Management
Boston, MA
617-573-8358
“Managing Family Business” course for MBA students in the entrepreneurial concentration

Susquehanna University, Department of Management
Selinsgrove, PA
717-372-4436
Survey course, “Topics in Family Business”