Spring 2006 Contrarian's Notebook
The odd couple strikes it rich; The enemy within; A tale of two gene pools.
The odd couple strikes it rich
The Boyles of Columbia Sportswear turn a family feud to their own advantage.
You've probably seen—and maybe even laughed at— Columbia Sportswear's TV commercials. In one of them, Columbia's 81-year-old chairwoman, Gert Boyle, poses defiantly with clenched fist, revealing the words “Born to Nag” tattooed on her upper arm. In another, Gert pushes her CEO son Tim into a cement mixer to test the company's clothes for ruggedness. In yet another, Gert paralyzes Tim with a blow dart and abandons him to freeze on a glacier, but he survives the cold, thanks to his Columbia parka.
In the otherwise syrupy world of family business marketing, what a breath of fresh air this is. What a brilliant way to capitalize on a natural and universal phenomenon: the eternal strains between parents and their children. What a coup for a company whose sales have climbed from $800,000 when mother and son took charge in 1970 to $1 billion a year today.
At most companies, playing the “family business" marketing card means only one thing: painting the company as one big, happy family. Which is all well and good, except for three drawbacks: (1) It's boring, (2) nobody really believes it and (3) it can be very embarrassing when long-smoldering tensions suddenly explode in public.
The Pritzkers of Hyatt Hotels and Marmon Corp., for decades a living poster for family togetherness, were torn apart by such bitter internal bickering four years ago that they're now in the process of breaking up their empire altogether. News Corp. was shaken last July when the 34-year-old heir apparent, Lachlan Murdoch, decided he couldn't work any more for his demanding and demeaning father, chairman Rupert Murdoch. (His sister had already skipped out, apparently for similar reasons.) California's Mondavi wine dynasty and New York's Greenberg insurance family have suffered similar public humiliations in recent years.
Not Gert Boyle and her son Tim, who jointly own a 62% stake in Columbia valued at $1.07 billion (and who were featured in Family Business Magazine's January/February 1991 cover story, entitled “Starring in your own ads”). Mother and son have spent 35 years arguing about how to run the business since Gert's husband, Neal, died suddenly of a heart attack.
Their squabbling is no act: Taciturn Tim and outspoken Gert really do get on each other's nerves to such an extent that they've minimized their workday contact by locating their offices on opposite sides of Columbia's headquarters in Portland, Ore. Like the Jack Lemmon and Walter Matthau characters in The Odd Couple—or, come to think of it, like any two people who must spend a lot of time together day after day over years and decades—the Boyles complain constantly about each other yet ultimately cherish and respect each other. But unlike most other business families, the Boyles make no effort to hush up their quarrels. On the contrary, they celebrate them.
The Boyles seem to understand instinctively one of the great truths of marketing: To attract an audience, you need drama. And the essence of drama is conflict. Or as the business philosopher Arnold Glasow once put it: “Honesty is the best policy because it has so little competition.”
The enemy within: What Daddy doesn't know...
...can wreck his reputation, a superlawyer discovers.
You can't choose your parents (or your children), goes the old saw. And even if you choose not to invite them into your business, their actions can reflect on you.
Consider New York superlawyer David Boies, who has spent most of his 64 years cultivating a reputation as the legal world's “Mister Clean”— the man who advises scandal-tarred companies like Adelphia Communications or Tyco International to restore their reputations by making full disclosures of any conflicts of interest.
Now it turns out that Boies failed to discover or disclose a conflict of his own. As the Wall Street Journal reported last October, his children owned a one-third stake in Legal & Scientific Analysis Group, an expert-witness and research company to which Boies's law firm steered clients.
A “substantial portion” of LSAG's more than $2 million in revenues in 1999 and 2000 came from referrals from Boies's law firm, Boies, Schiller & Flexner. A holding company partly owned by four of Boies's six children received about $200,000 in profit and consulting fees from LSAG during those two years, the Journal reported.
Boies told the Journal that he was aware of some “but not all” of his children's ventures. He said he didn't know about their stake in LSAG until a reporter told him about it. He added that three of his children, who worked at Boies Schiller at the time, didn't know about their own stake in the company either. Boies said his eldest son, 45-year-old David Boies III, who has his own law firm, oversaw his siblings' investments during the years in question.
Meanwhile, in the past few years Boies's law firm has also guided clients to at least two other companies—a document-management firm and a copying firm—without disclosing the Boies family's stakes in those firms. These references generated millions of dollars in income and potential returns for Boies's children. Boies insists that attorneys at his law firm who personally recommended LSAG and the two other companies to clients didn't know about the Boies children's stakes in them.
This ignorance is certainly convenient. If David Boies, his three children who worked at his firm, and all the other lawyers at the law firm didn't know about their connection to LSAG, then technically they didn't violate any ethical rules by steering the law firm's clients to LSAG. But legal technicalities are beside the point here. If your primary business asset is a reputation for fair and transparent dealing, do you really want these strange coincidences and your lame excuses examined before 2 million readers of the Wall Street Journal?
This very question is now being pondered—at last—by the Boies family. David Boies told the Journal that his children are in the process of selling their stakes in all companies that do business with his law firm.
Good idea. “Good will, like a good name, is got by many actions and lost by one,” observed 19th-century Scottish editor Francis Jeffrey. Lord Francis might have added: It can also be lost by those who carry your name if you don't know what they're up to.
A tale of two gene pools, or: So you want to go public?
The Knight family thrives and declines by the public capital markets.
So you want to preserve your family company by taking it public? Before you do, check the quality of your gene pool and consider the following saga.
In 1895 an entrepreneur named William L. McLean acquired the Philadelphia Evening Bulletin, a struggling daily newspaper with a circulation of 6,000, smallest among Philadelphia's 13 daily newspapers. Thanks to his efforts, within ten years the Bulletin's circulation had increased to 200,000—largest in the city—and it remained Philadelphia's leading daily under two succeeding generations of McLeans.
Around the same time, in 1903, an Ohioan named Charles L. Knight bought the Akron Beacon-Journal. Upon his death in 1933 he passed that paper on to his sons John and James, and they subsequently built a respected chain of two dozen major dailies. When their Knight Newspapers (later Knight Ridder) acquired the Philadelphia Inquirer in 1970, the Inquirer was a despised second fiddle to the McLeans' formidable Bulletin. But astute observers of this competition noticed two points in the Inquirer's favor: First, Knight Newspapers, as a public company, enjoyed access to America's abundant public capital markets. Second, the McLean gene pool had largely run dry, and the third generation lacked the talent or imagination to compete effectively. Sure enough, by 1980 the McLeans had sold the Bulletin, and by 1982 the Bulletin had ceased to exist.
Now jump forward a generation. The Knight family is gone from Knight Ridder. Under cost-cutting pressure from Wall Street money managers, the Inquirer and other Knight Ridder papers have eviscerated their product by eliminating their most expensive (read: most talented) journalists. In its latest round of employee buyouts, the Inquirer virtually consumed its seed corn by retiring 75 journalists, or 15% of its staff. Yet this cost cutting failed to persuade Wall Street that Knight Ridder stock is a good buy. Consequently, the company's biggest institutional shareholders demanded that management sell the company altogether—and at this writing Knight Ridder's managers, ever beholden to Wall Street, were scrambling to find buyers.
In other words, the same public capital markets that once helped the Philadelphia Inquirer destroy the Bulletin now seem to be destroying the Inquirer. And the same thinning of gene pools that buried the Bulletin may be doing the same to the Inquirer.
What went wrong? Patriarch John Knight's eldest son was killed in World War II, and another son died in 1958. By 1969 John (known as “Jack”) was 75 and concerned about inheritance taxes and succession. Going public seemed the best solution. But Jack Knight neglected to set up a two-tier stock plan to preserve voting power for the founding family, as the Sulzbergers and Grahams have done so effectively at the New York Times and Washington Post, respectively. Instead he seems to have vaguely staked his hopes on his grandson, John S. Knight III, a Harvard and Oxford graduate with a passionate interest in continuing the family's control in order to avoid what he called faceless management by committee. But in the process of being groomed for the succession, John S. Knight III was murdered in his Philadelphia apartment in 1975 at the age of 30.
The moral? There's no magic formula for family business survival, because no one can control the future. And public capital markets, like everything else in this world, can be your friend or your foe, depending upon how and when you turn to them.
Marshall Field V, the Chicago department-store-heir-turned-newspaper-publisher-turned-real-estate-developer, once explained his guiding credo: “The only real tradition in my family is that each successive generation shouldn't blow it. If you can leave the family fortune a little bigger than you found it, well, that's what counts.” Which is probably as much as any generation can hope for.