Why We Failed at Succession: A Son's View

By James C. Farah

There were plenty of signals. But sometimes you ignore them.

My father has not wanted to see me or speak with me since August 1988, and my last board meeting.

Although I left Farah Inc. first in 1977, so I would not to have to directly oppose my father, he has never forgiven me for the disloyal act of walking away. I should have realized that it would be worse if I left a second time. And it was worse in 1988, even though this time he fired me. One of my father's major efforts in the year that followed was to insure that he explained to any employee who would listen that I was the cause of all the company's ills. In the beginning, this surprised and hurt me but actually, I think he was just following his usual pattern of blaming others.

He now states publicly that he wishes he had never let his children work in the business. In his opinion my generation (I believe I head his list) was totally responsible for the company's poor results. A competitor even quoted my father on the exact number of millions of dollars he believes his children caused him to lose. In a recent letter to an El Paso newspaper my father wrote ". . . the attempt to put management in younger hands failed."

I tried to get him to realize that the way employees reacted to his criticism of me was to think that if blood doesn't matter, what does? But as his letter to the El Paso Times shows, he still must use me as his whipping boy.

"Why couldn't you tell that you would never succeed your father in the family business?" When asked that question not long ago, I realized that I had never really confronted this issue. I felt that some combination of naiveté, hope, and a sense of obligation kept me at Farah Inc.; that I probably didn't want to lose the experience I was gaining. My personal net worth was totally dependent on my Farah stock. The more I thought about the question, the more it seemed a perfect way to begin the story of how my family failed at succession. This is what happened from my point of view.

Farah Inc. is a multinational apparel company, whose primary products are men's and boys' pants. The company's shares have been listed on the New York Stock Exchange since 1967. My father, William F. Farah, and my mother, Betty, control about 15 percent of the stock. I had four predecessors as president in less than ten years, but I kept the faith a long time. The personal price I have paid is high. When I left in mid-1988, 1 was president and chief operating officer. For all practical purposes, I was fired by my father. My three siblings were fired at earlier stages. I was Farah's fifth president and the last member in my generation to work as an employee. Of the four of us, only my sister, Haleen Farah Zwelfel, remains on the Farah board. Haleen and my brother Robert still own some shares in the company. My brother Kenneth and I do not have any direct involvement and own very little stock. This is a much different scenario from that envisioned when the company was founded 70 years ago.

That was in 1920, when my grandfather, Mansour, started a shirt manufacturing business. He and his brother had emigrated from Lebanon to Las Cruces, New Mexico, where they went into dry goods retailing, grain merchandising, and real estate. They were diversified enough in their interests that they even opened the town's first movie theatre.

My grandfather then moved to El Paso with his wife, Hana, and sons, James and William, to start the manufacturing business. My grandfather and his brother ended their partnership at that point. The new company prospered as a regional workshirt company until the Texas prison system started making shirts for less. The need to shift to other products led to the creation of the pants business.

In the mid-thirties, my grandfather became ill and died at the age of 52. My uncle was about 20 and my father was in his late teens. With my grandmother, the boys helped the company continue.

My father dropped out of college and was never able to earn his degree. Not long after joining the company, he left for a time to serve in World War II. When he returned in 1945, the business converted from military uniforms to manufacturing pants under private label for J. C. Penney, Sears, and Ward's; the Farah label was introduced in the mid-fifties.

My earliest recollection of the factory was of a huge freight elevator in the multi-story building the company operated during the forties. Then I remember visiting the construction site for the company's first one-floor plant which was finished in the early fifties. Building this plant was like building a home, and we visited the construction site often.

When I was nine years old, I started working in the business. My uncle had me answer the switchboard on Saturday afternoons. While the Spanish surnames seemed impossible to pronounce, I did overcome my fear of the Spanish language, and consider myself bilingual, thanks in part to that early training.

Over the next 33 years, with a few exceptions, working in and learning the business was a major part of my life. I never really considered doing anything else, and it seemed that the family shared those sentiments, especially my grandmother, Hana Farah, of whom I have particularly fond memories. She loved to tell the story that it was I who made her quit working. The day I was born — I was the first grandchild — she rushed to the hospital and received a parking ticket. Somehow my birth helped her to decide to be less active in the company. Retelling this story gave her a lot of pleasure.

My grandmother visited the factories and office nearly every day until her death in 1977. She was involved in production management, quality control, and helping out in the clinics and cafeterias. Her presence was significant, because it symbolized the family's commitment to the employees.

Having the name Farah was very exciting to me as a boy. Many of my classmates from high school went from graduation to Farah to start lifetime careers. Farah paid strong salaries and bonuses. And there was a pride associated with the fact that only American citizens were employed and that the company bought only American-made supplies and materials.

A high point in Farah's history was going public in 1967. 1 did not take part in the thought process leading to the decision. There were many times later, however, that I believe my father regretted that Farah was no longer private. A public company puts everyone in the family who works in the business, even the patriarch, under close scrutiny.

One of the advantages to the family, however, has been the greater flexibility in selling stock. That aside, Farah is at a competitive disadvantage, because all of its important competitors are private. When earnings are weak, everyone knows about it. Based on what I know about the pants business, few of the major companies are currently enjoying strong profits, but the private firms can avoid scrutiny. In late 1985 and during part of 1986, we did try to take the company private. And over the period ending last year, we pursued several alternative strategies, but every attempt was unsuccessful.

Because going public made several nonfamily people instantly wealthy, there continued to be a feeling that everyone was "family" at Farah. This warmth and generosity was symbolized best by the annual Christmas party.

Every Christmas, bonuses were handed out at a grand party. There would be drawings for cars and televisions. Every employee also received a gift, such as a complete set of pots and pans. The reason this particular memory is so clear is that for the 1971 Christmas party, the El Paso Coliseum was filled to capacity. The arena must have seated 8,000 people. My late cousins, my siblings, and I helped with the drawings. The event was almost live theatre.

In spite of this kind of strong tradition, 20 percent of the work force walked off their jobs in 1972 to fight for union recognition. Farah suffered through a lot of negative publicity because of a national boycott which lasted until 1974. This did finally force the company into collective bargaining. There are no longer such events like the Christmas extravaganza at Farah today.

I have often wondered how different the company and family would have been if my uncle had lived. My uncle, James, served as President and CEO from the time the company was incorporated in 1947 until his fatal heart attack in 1964. What I remember most about the day he died was that my father came to my high school to take me home. I distinctly recall hugging him, crying, and saying that I would always be there to help him. Shortly after that, he bought me a car so that I could go directly from school to work. He told me that if something happened to him, I would be responsible. I was 17.

When James died in 1964, the company's annual sales volume was about $30 million. Before his death the company had been approached by the Wilson Products Co., and the brothers were discussing selling the business for about $25 million. As a consequence of my uncle's death the company was not sold. Estate tax considerations were certainly of primary concern at that time. I will never know whether my uncle was grappling with the same issues I tried to resolve many years later. Would selling the company relieve the family of stress? Was he trying to separate from my father, the way their father had separated from his brother? I do remember how sad my father was at losing his brother, although his brother's death left him free to run the company the way he wanted. His comment to me was, "Now I can make the decisions." I don't know whether he ever realized the balance they had, but others close to both of them have told me how successful they were as a team.

During my high school years I worked in the factories — trouble-shooting and learning production. Even after I began attending Stanford and later the Wharton School, I was expected to resume work at one of the factories during summers and holidays. On May 17, 1970, 1 received my MBA. On May 18, 1 was unloading rolls of fabric in the warehouse. This was also the first time I was on the payroll.

For the first few years after graduate school, I worked in manufacturing with the vice-president, Joe Chemali Jr. He told the managers who were training me that I was ". . . not to be treated any differently than anyone else who would eventually be president." There was never a written or thoroughly discussed plan for the training and development of my generation. But I knew that I was to be the "inside" guy; my brother Kenneth, who was more gregarious, was to be in marketing and sales, my brother Robert was to be the engineer.

We never met as a family with a specific issue to discuss. I never had a mentor until my stint in sales many years later. Without well thought out and detailed career plans, learning was a sink or swim prospect.

My titles in the company were: assistant to the vice-president of manufacturing, assistant to the president, vice-president of finance and chief financial officer, vice-president and general manager of young men's and boys', vice-president of sales, senior vice-president of sales, executive vice- president and chief operating officer, and finally, president. Most of the early posts I created myself. Many of them I filled for only a year. The sales job was my favorite, because I was successful at it and management operated on a more business-like basis. I was sales manager for six years from 1978 to 1984.

The post I had prior to serving as CFO was assistant to the president — my father. In that position I realized for the first time that there was serious competition between father and son. Whenever I made a suggestion or offered criticism, his reaction would be: "I know what I am doing!" From that point the discussion would regress into emotional arguments, partly because I did not know how to control my angry reaction to his defensiveness and aggressiveness. We were both unable to put our emotions aside.

One of the core arguments we had surrounded my father's efforts to add manufacturing capacity so as to increase volume and plant efficiency, and then, theoretically, profits. During much of the seventies the argument intensified, because the company had more production capacity than sales, resulting in unfavorable earnings. To compound the company's financial woes, my father built a mini-textile mill to vertically integrate sources of supply. We were not allowed to make an economic evaluation, because he had made up his mind to build the mill. Being vertical does create theoretical profit enhancements. However, the most profitable apparel companies have either no factories, or enough outside production under contract to remain flexible. Apparel is a very cyclical business, and idle fixed investment can be as costly as inventory losses.

During 1976 and 1977 I reported to the company's first outside president. I became CFO. My father and I had talked to consultants, moved the headquarters offices, and finally agreed to hire an outsider, at the board's request. My goal was to put someone into the job to control operation of the company. My father rationalized the move by thinking that the new manager could train me. My father became chairman and was still CEO. It became increasingly clear that my father did not really want someone else to head operations. He would not consider anyone from the industry for president and so the person we hired had no apparel retail, textile, or consumer product experience.

Farah's first outside president was not successful and quit. I resigned shortly thereafter. I just could not handle the stress. I had to face the fact that I did not have confidence in my father's decisions, and I had failed at improving the company on my own. I went to work for a bank on the West Coast, because I wanted to be far away from the industry and the company. It took me several years to regain my self-esteem. The combination of the boycott and strike, the losses, the failure of the new president, and a lender liability case were powerful experiences. In 1977 1 was forced to take a stand as a member of the board either supporting or opposing my father. I could not do either, so I left in June.

But I did ask to go back to work in December of 1978 after being away for only 18 months. A new president was in place: number four. From 1978 to 1984 Ray Williams did an excellent job of handling his relationship with my father and running the business. I returned to be sales manager.

I did not understand the way Mr. Williams and my father worked together. Even though Mr. Williams reported to my father, Mr. Williams was very tough on him when he interfered. In every instance that I am aware of when my father directly involved himself with anyone below Mr. Williams, they would have a tough confrontation. Their relationship lasted about six years, but then it began to unravel. My father stopped doing business with a group of accounts that would have contributed about 20 percent of the domestic division's volume in 1985. He also started changing manufacturing methods. All of this was against Mr. Williams' wishes.

In my opinion, that six year period was very tough on my father's ego. Mr. Williams was credited with the company's turnaround. By 1984 it had fully recovered from its financial weakness of the late seventies. So my father could rationalize firing Mr. Williams. For a couple of years after Mr. Williams had gone, my father blamed him for many of the problems the company faced.

My brother Robert and I were to run the company together after Mr. Williams left. We had never worked together, and had a lot to learn about each other, to say nothing about coping with our father and doing our jobs. My father continued to be very active in the domestic division, bypassing both of us regularly.

I should have realized that I could not be as tough on my father as Mr. Williams had been, nor would I have really wanted to be. Mr. Williams was not the kind of manager who had an interest in being the transition person between generations. He even said to me at one point that my father and he agreed in 1978 that "the kids would not come back into the business." A short six months elapsed between the time their relationship began to deteriorate and the day Mr. Williams left the company. I went from sales manager to chief operating officer in about that same time. Before Mr. Williams left, the company made a great acquisition, Generra Sportswear, which carried the company's profit until it was sold back to its management in 1989.

After Mr. Williams was gone, the roles the three family members — my father, my brother Robert, and I — filled were never clearly defined. All three of us have very different styles. I am more of a delegator, Robert is more autocratic, and my father loves to spend his time looking for areas that need correction. Finding them is easier than fixing them. And too often, I would not listen to his advice. It was a very tough environment.

In most scenarios, no one individual deserves all the blame. I made my own mistakes. I tried to be involved in too many details. The domestic division experienced too much turnover in its marketing group. I made a couple of serious personnel mistakes, one especially in manufacturing.

In addition to family problems and our mistakes, the company's overall conditions were difficult. Mr. Williams inherited a lean organization in 1978, because my father really cleaned house before hiring the new president. The company had a huge tax loss to carry forward. The international division was throwing off substantial profits and cash. The banks were very supportive, partly because my father had sued them for improper interference in 1977 and 1978. That was the precedent-setting Farah vs. State National Bank lender liability case which Farah won.

When in December of 1986 the board elected me president, not one director congratulated me or shook my hand, although that did not discourage me. My father did come into my office and was very emotional and apologetic. It must have been clear to the board that it was not going to work. I was president for a relatively short time and was never really able to function as COO. A well-respected member of the retail and apparel financial community recently said to me, ". . . you were doing the right things to fix the company, but you were overruled."

My opportunity to be president was obviously in part due to being family. But in addition to certain advantages, I inherited a very complex company from my predecessor. Not only was my father very active, but the company had lost some large volume accounts. The department store industry had been in disarray for several years. Many unique business conditions were available to my predecessor when he joined the company, from tax advantages to the retail environment, that were not there for me. There were no more tax loss benefits, and the international division just broke even in 1987. 1 think that it is fair to say that the deck was stacked against me.

Around my fortieth birthday, I finally faced myself and my relationship with my father. It had never worked and never would. In the spring of 1987, my father and I had one of our more rational meetings. I explained that I wanted to leave, if he wanted to stay. He asked me to work with him a year or so, so that he could put an organization in place. He had made his decision by June or July of that year saying, "I intend to work until the nails are in my coffin." We were finally leveling with each other about that "r-word" — retirement.

In spite of the fact that I loved the business, it was finally clear that my career at Farah was over. I was not interested in forcing his retirement, because I would still have had to work under difficult interpersonal conditions, even if he were not CEO.

After years of considerable turmoil, the board of directors finally acted in mid-1989 to retire William Farah as chief executive officer. At the age of 70, he is now titular chairman, a board member, and a consultant. The board then, as now, was more independent. Two key members are former industry executives, friends of my father's and, interestingly enough, also former competitors.

The board began to put serious pressure on my father and his role in the company at the fateful August 1988 meeting. Since then my father has told people that I was disloyal because I did not warn him that the board would reprimand him at that meeting. This took place two months after he had fired me, and my successor was really the one expressing frustration to the board. I was history, and after all, Farah is a public company. My father's retirement brought the family's active involvement in the business to an end; neither my siblings nor I have been in active management since early in 1988. In its most recent fiscal year ending in October 1989, the company lost about $11 million.

I really believe that a family business can be the best kind of enterprise possible. It can combine personal trust and professional accomplishment. However, if there is dissension within a family, and consequently within a business, the results can be tragic. In our case, that dissension divided and weakened the family unit, maybe forever. My hope is that anyone who sees parallels to my story will work to preserve their family. There are many resources available today which can help prevent the kind of tragedy my family experienced.

I think this turmoil had a tragic impact on the business as well as the family. We worked at assigning blame, and we were not effective in solving the company's other problems: we were not making timely deliveries to our retail customers; Farah's market was changing radically; our manufacturing capacity and overall expenses were too high; the company's employees, customers, and suppliers were very discouraged.

I had pushed for expanded retail distribution, and we did get back some of the business we had given up. Additionally, I insisted on rethinking each family member's involvement in the business, and I finally reached an understanding with my father regarding my own future. The combination of these factors insured that I would no longer be working for my father at Farah Inc. I had slain too many sacred cows.

Yes, there had been a lot of signals over many years, but I still gave working in the company my best effort. I grew professionally and personally. I still have every intention of being successful in my industry.

To this day my family — my parents and their children — have difficulty communicating about substantive issues. My brothers and sister and our families see one another often, and have begun to really enjoy each other now that we are all out of the business. But the problems that still exist among us are the result of the family's inability to resolve conflict.

Communication is central to avoiding the kind of failure I experienced. Therefore, I am keeping the lines of communication open with my two daughters. My youngest is being encouraged to follow her own interests. My oldest and I both enjoy the fashion business, and she says she would like us to work together someday. I have told her, first, she must do her very best in school. Second, she must plan to work in the industry to build her skills and self-confidence. Only then will we evaluate how well we might be able to work together.

If we feel that we can get along, then all three of us just might start our own family business.

Chronology

1920
Mansour Farah starts manufacturing shirts in El Paso, Texas.

1937
Mansour Farah dies. Hana, James, 20, and William, 17, take over running the company.

1945
William returns from World War II to rejoin the company.

1947
Farah Manufacturing Co. Inc. is incorporated.

1950
Hana Farah becomes less active.

1955
Farah introduces the FARAH label.

1960s
Sales of Farah casual slacks grow explosively.

1964
James Farah dies.

1967
Farah initial public offering.

1970
Jim Farah joins the business.

1972
Labor unrest starts, ending in 1974. First loss year.

1977
Lender dispute. Jim leaves Farah to avoid conflict with father.

1978
Ray Williams hired as president. Jim rejoins Farah, as sales manager.

1984
Farah acquires Generra Sportswear Co. Ray Williams fired.

1985
Jim succeeds father as president.

1988
Jim is fired by father. William Farah remains as only family member employed at the company.

1989
Farah sells Generra back to its management. William Farah retires as CEO; remains as titular chairman.

James C. Farah heads a venture capital business specializing in apparel-related companies. He is also a consultant to the retail industry and has recently opened a family firm consulting practice.

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April 1990

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