The son also rises

Can parents handle it when their kids outshine them?

By Deanne Stone

When 28-year-old Price Harding III yearned for a new career in 1989, his parents’ Atlanta employment agency seemed as good an opportunity as any. Bell Oaks Co.—founded 19 years earlier by Price Harding Jr. (known as Preston) and his wife, Shirley—specialized in placing candidates in junior-level management training positions. Since Price’s three siblings had all followed other careers and his parents had given no thought to succession, they welcomed Price into the business.

For the first few years, he was his father’s willing student. “I took instruction from him and did it his way to a ‘t,’” Price recalls. “I would have been a fool not to. I knew nothing about the industry, and he was an expert.” As the graduate of a Bible college, Price found that the same qualities that would have made him a good preacher—his easy manner and compelling speaking style—now contributed to his success as a salesman.

But while Price was doing well working on commission, Bell Oaks was losing money. The company, which had a staff of 14 in 1989, was reduced to four in 1992—Price, his parents and one non-family employee. It needed a bold leader to save it, but at age 60 Preston Harding lacked the stomach to take big risks.

“This is the kind of business that needs an energetic leader to make things happen,” says Preston. “Price had all the right qualities. He was young, ambitious and willing to make tough decisions. And I had a lot of confidence in him.”

In 1992, Preston offered Price a deal: He would gift Price half the business, and Price would work to make the other half worth enough money to buy his father out. Price could run the business as he chose, and Preston would help out by managing the books.

At first Price wasn’t sure that he wanted the responsibility of saving a sinking business. But his entrepreneurial instincts won out. At the end of that day, father and son traded places: Price moved into the president’s office, and his father moved into Price’s smaller office.

Not many founders could relinquish authority to their sons with such ease—or in such highly symbolic fashion. In theory, most parents want their children to carry on the family business. But in practice, watching a son or daughter’s star rise as the parents’ powers wane can be wrenching. Do parents really want their children to out-perform them? “They had better,” says family business consultant Dr. Patricia Frishkoff of Eugene, Ore., “or the business won’t survive.”

A decade ago, the three family businesses discussed here had all run into trouble. The economy had weakened, competition was stiffening and the old ways of doing business weren’t working. One option was to sell. Another was to give the younger generation a chance to run the business. In these cases, luckily, the successor sons not only revived the businesses but also far exceeded their fathers’ achievements. Had the businesses been thriving, the fathers might have resisted relinquishing control. Yet Preston Harding, Fred Heumannn, and John White Sr. each found ways to step aside with their pride intact. And their sons managed to pursue fresh visions without demeaning their fathers’ legacies.

Transforming Bell Oaks

Preston Harding insists that he was just being practical when he turned Bell Oaks over to his son Price. “I do a job because it needs to be done and because it fulfills me,” he says. “I’m not bothered if someone else gets the credit. I have a lot of self-esteem but not much ego. Besides, I wanted to retire at 65 and, if Price did well, my wife and I wouldn’t have any financial worries.”

At the time, Bell Oaks was grossing about $300,000 a year in revenues. As the economy picked up, Price recognized an opportunity to capitalize on the growing corporate demand for high-quality employees. In 1992, he converted Bell Oaks from an employment agency that collected fees from job-seekers into an executive search firm that collected fees from corporations.

Price had to generate business quickly, and to do that he needed a sales staff. Pulling together everything he had learned about the business, he developed a training script to help his employees get off to a good start. That training program proved so successful that it’s now widely used by executive search firms around the country.

Price credits this training script as key to the company’s impressive placement record. In the past eight years, Bell Oaks has filled more than 10,000 positions for 900 client companies, and its fees for top-level corporate positions can run as high as $100,000. By 1997, when Inc. magazine named Bell Oaks one of the fastest-growing privately held companies in the U.S., Price had bought out his father’s remaining 50% share of the company. Now 42—about the same age that his father was when he started Bell Oaks—Price oversees a 40-person staff in offices in Atlanta and Boston. Last year Bell Oaks’ sales reached $3.6 million, 12 times the level when he took over ten years ago. Now Price talks of building Bell Oaks into one of America’s top 40 executive search firms within the next few years.

In effect, Price has transformed the family business and made it his own. But he contends that “Our partnership worked because my father knew that if I were to manage the business in a way that had meaning for me, he would have to give me full authority to make decisions.”

Preston Harding, now 72, says he wanted to be beaten at his game. “I enjoyed the business while I was there,” he says, “but once I left, I never looked back. If Price wanted to change the business or even the name, it was OK with me. He’s done a great job. Price was the best hire I ever made.”

Up from ‘small potatoes’

Like Price Harding, Roger Heumann of New York City turned hard times into a family business opportunity. Even as a child, Roger liked to talk with his father, Fred, about Olympia Sports, the hat and glove manufacturing business that Fred had founded in New York after emigrating there from his native Switzerland in 1939. But Fred Heumann discouraged Roger and his brother from working at Olympia Sports, which Fred considered “small potatoes.” He thought his sons could do better forging their own careers. Fred’s older son went into computers, and Roger became a financial manager in a large corporation. But he really wanted to work at Olympia Sports. In 1985, at age 31, Roger got his chance.

The business had stagnated since its heyday during World War II, when the government needed hats for the military. After the war, Olympia Sports went back to making hats and gloves for department stores under its own label. But by the mid-1980s demand for hats was down, competition from abroad was up, and sales were stuck around $1.5 million a year. Fred, then 75, talked about retiring and selling the company. Instead, Roger persuaded his father to hire him as a salaried employee and as his eventual successor.

At the time, Fred had broken his hip, and his wife was seriously ill. Distracted by health problems, he gave Roger a free hand in running the business. He gave him the business, too. Under a shareholders’ agreement, he gradually gifted Roger the company stock in annual distributions.

“My father and the manager were just coasting,” Roger recalls. “They were happy to keep the customers they had. I wanted to grow the business.” Fred, by contrast, assumed Olympia’s best days were past. But because Fred was 44 years older than Roger, both men were spared some of the customary father/son successor dynamics. Had Fred been younger and in good health when Roger entered the business, the son’s willingness to gamble on new ideas might have collided with the father’s need to play it safe.

Looking at Olympia with fresh eyes, Roger wondered why it couldn’t manufacture sports gloves under other labels as well as its own. He pitched that idea to large corporations. Winning those contracts opened another door for Olympia: putting companies’ logos on gloves.

Although Roger ran the company, he continued to defer to Fred, discussing all major business decisions with the founder. Fred didn’t interfere with Roger’s plans, and he objected only once: when Roger changed Olympia’s credit policy.

“My father was very Swiss,” Roger explains. “If customers were one week late in paying bills, he didn’t want to do business with them. I argued that the business couldn’t expand unless we took more risk. It was hard for him, but he eventually went along with me.”

Roger had other winning ideas. He introduced a new protective glove for motorcyclists that became Olympia’s best seller, and he won a contract to manufacture gloves for Ralph Lauren. This past year, he added a line of women’s gloves.

Today Roger runs Olympia from its new office and warehouse facilities in Elmsford, a Westchester County suburb of New York. A force of 50 independent sales representatives promotes its products, and an office in China oversees production in Olympia’s factories. During the 1990s, the company grew at a rate of close to 20%, with revenues last year approaching $20 million.

Fred never said much to Roger about the transformation of his “small potatoes” company. But he followed it closely. Until his death last year at 91, Fred stopped by the office a few times a week to look at the books.

“When I came into the business,” says Roger, laughing, “my father told me, ‘You’ll always be able to grind out a living here.’ That’s what he said—‘grind.’ He never imagined the business could grow this big.”

A tough act to follow

Like Roger Heumann, John White Jr. saw his future in the family business. But just as he entered the company in 1982, it fell on hard times. His grandfather had founded Taco in 1920, and his father, John Sr., had run it since 1935. The Rhode Island company makes products used in commercial and residential heating and air-conditioning equipment, so Taco’s business rises and falls with the construction industry. In the early 1980s, that industry was pummeled by the nationwide savings and loan crisis, and Taco suffered too.

Before Taco (pronounced “Tayco”) had a chance to recover, the recession of 1990-91 struck a second blow. After five years of flat sales, Taco’s business dropped by 20% in the spring of 1991. With a backlog of inventory, high fixed expenses and low cash flow, the company’s situation seemed bleak. It wasn’t clear whether Taco would remain in the family or even if it would survive.

John Jr. is the youngest of six children and the only son. One of his sisters had earlier tried her hand in the business, only to be eased out by their father when she didn’t work out. To prevent his daughters and their husbands from exercising any further influence on management, John Sr. bought back all the company shares held by his daughters. At the same time, he brought his son into the business with the expectation (but not the promise) of succeeding his father. John Sr. still entertained the possibility of selling the company if business didn’t pick up.

John Jr. started off in sales in the early 1980s. Over the next decade, he worked in every phase of the business—but without authority to make decisions.

Like Fred Heumannn, John White Sr. was 44 years older than his son. But whereas Heumann was ready to retire at age 75, White, at a similar age, showed no signs of relinquishing power to anyone. By 1991, he had controlled the company for 56 years.

“My father managed me the way he managed the company,” John Jr. says. “He was always right on top of me.” But after decades of micro-managing the business, in 1991 John Sr. loosened his grip on his son and a few other key employees. The decision to delegate authority was motivated not by a change in management style but by his frustration with Rhode Island’s business climate: Incensed by high taxes and strong labor unions, he took his complaints to the public. In 1991, he launched “Red Alert,” a ten-year campaign to encourage voters to pressure politicians for change.

“My father became famous,” John Jr. says, “but he got so swept up in the campaign that he neglected the business. Even before the campaign, he ran the company conservatively. From the 1960s through the 1980s, management didn’t change much. In all that time, he didn’t introduce any new ideas or strategies.”

While John Jr. and his father shared the same goals for the company, they had very different personalities. “My father was from the old school,” says John Jr. “He kept a tight hold on the reins and made all decisions by himself.” By contrast, John Jr.’s emphasis was on building trust between employees and management and on giving employees more say in decision making. He candidly admits that his approach stems less from philosophy than from necessity. “I delegate authority because I have to,” he says. “I’m a good communicator but not the strongest manager. I need employees who are motivated and willing to take on more responsibility.”

With his father distracted by the Red Alert campaign, John Jr., then 33, saw an opportunity to take a larger role in running the company. After ten years of working in all phases of the business, he felt that he had a handle on its problems. He presented a plan for restructuring the company to his father. “Give me six months,” he said. “If my plan works, then give me six more months. If it doesn’t work, we can talk about selling.”

John Sr. gave his son the go-ahead to begin restructuring the company. To bring costs under control, the company took the painful step of substantially reducing its factory and office staff. Then, together with the workers, John Jr. brainstormed ways to make the factory more efficient. Workers were organized into teams, and work stations were relocated to increase efficiency. The company established the Taco Learning Center, an on-site education program where employees could increase their skills and chances for advancement. And to improve customer service and deliveries, John Jr. divided the company into four divisions or product areas. As these changes kicked in and profits increased, Taco invested in new plant equipment and bolder product development.

The innovations paid off. Between 1991 and 1995, Taco’s productivity and sales rose while annual employee turnover fell below 1%. But at first John Sr. was skeptical.

“My father had a hard time accepting that the changes I wanted to make would work,” says John Jr. “When the business first started turning around, he’d say, ‘Well, wouldn’t you rather be lucky than sorry?’ But after five years of witnessing sustained growth, he finally acknowledged that I was right.”

In 1996, when John Jr. was 38 and his father 82, John Sr. became Taco’s CEO and made his son the president. By the time John Sr. died last year, Taco had become an international leader in its industry, and revenues had climbed to $120 million—up 150% from $48 million in 1991, when John Jr. began restructuring the company.

“When I first started at Taco,” says John Jr., “my father wasn’t sure I had what it took to run the business. If he hadn’t gotten so caught up in the Red Alert campaign, I might never have had a chance to prove what I could do.”

Deanne Stone is a writer who lives in Berkeley, Calif.