Winter 2011 Openers

Do Americans recognize family business brands?; Data can help firms seeking a non-family CEO.

Do Americans recognize family business brands?

The results of the Family Business Brand Test USA reveal some misperceptions. Marketing staff at family companies should take notice.

 

By Willem Smit and Joachim Schwass

When it comes to branding a family business, an interesting paradox emerges. On one hand, it can be very advantageous to advertise a company’s family heritage because its long-term orientation is at the root of its valuable and difficult-to-copy competitive advantage. On the other hand, we have noticed that very few companies actively promote this aspect of their uniqueness to the outside world.

 

Why don’t family firms reveal their “familiness factor” to their customers, suppliers, future employees and investors? In these times of economic uncertainty, when longstanding, caring institutions are valued more and more, family firms play a guiding and stabilizing role. Their solid, long-term reputation gives family businesses a corporate brand advantage.

 

DNA test for family business brands

 

In order to truly benefit from this corporate brand premium, family firms should first be recognized as family businesses. So, to measure the public’s awareness of the family DNA in corporate brands, we designed a test that was posted on www.familybusinessmagazine.com and on the IMD website.

 

The Family Business Brand Test USA asked participants to identify whether or not 24 companies from six different industries are family businesses. In each of the six industries (hotels, consumer products, wineries, quick-service restaurants, grocery stores and department stores) we listed two well-known family businesses and two equally well-known non-family firms.

 

The survey results enabled us to classify corporate brands into four categories (see figure). The True Positives are real family businesses and viewed as such by the general public. The False Negatives, or “Lost Sons,” are family firms whose family connection is not recognized by the majority of respondents. The True Negatives are non-family businesses that are correctly perceived as such. Finally, the False Positives are like “Step Cousins” —companies that are regarded by the public as family businesses but in reality are not.

 

About 127 individuals (of whom 65% work or have worked for a family business) completed our test.

 

Mixed results

 

The main finding of our test is that family businesses have a mixed score on the branding performance of their family factor. Their family business brand premium is recognized in less than 60% of the cases.

 

Particularly strong in perceived familiness is S.C. Johnson, famous for household brand names like Pledge and Windex. Notably, S.C. Johnson promotes itself in ads as “S.C. Johnson: A Family Company.”

 

S.C. Johnson is closely followed by winery E.&J. Gallo, hotel chain Marriott and quick-service restaurant Chick-fil-A. Winery Kendall-Jackson, Hyatt hotels and supermarket chain Wegmans are the other three that are recognized as True Family Business Brands.

 

The relatively low 58% recognition rate implies that the other 42% of the family firms included in our sample are falsely identified as non-family companies. These “Lost Sons” are department stores Dillard’s and Nordstrom, the relatively lesser-known In-N-Out Burger fast-food restaurant on the West Coast, supermarket chain Publix and consumer products company Alberto Culver. (In late September 2010, after our brand survey was completed, Unilever PLC agreed to acquire Alberto Culver.)

 

What about non-family business brands?

 

Nine of the 12 non-family firms in our survey are correctly classified as not being family-owned or family-controlled: department stores Sears and Macy’s, consumer products companies Colgate-Palmolive and Procter & Gamble, fast-food chains Wendy’s and KFC, the Holiday Inn hotel chain, and the Kroger and Safeway grocery chains.

 

Yet there are notable misperceptions. Two wineries, Vendange Wine Cellars and Inglenook Vineyards, are falsely identified as family firms. More than half of the respondents are certain that these non-family vineyards are family-controlled or family-influenced.

 

More than 90% of the respondents think the Hilton Hotel chain is still run by the Hilton family. The company founded by Conrad Hilton agreed to an all-cash buyout from the Blackstone Group LP in 2007, which made the private equity group the world’s largest hotel owner. Perhaps Paris Hilton’s frequent media exposure is the reason behind the misclassification.

 

Marketing implications

 

The mixed results of this DNA test for family business brands should serve as a wake-up call for corporate communication executives and marketing managers at family firms. The fact that less than 60% of the family firms in our survey were correctly identified should make us all consider where and how to position family business corporate brands in the perceptual space of the general public.

 

Joachim Schwass is Professor of Family Business at IMD and director of the Leading the Family Business program. Willem Smit is a research fellow at IMD, specializing in marketing strategy and global branding.

 

 

 

 

 


 

 

 

 

Data can help firms seeking a non-family CEO

 

 

Is your family firm thinking of hiring a non-family chief executive? A new report from executive recruiting firm Spencer Stuart provides some data to inform your negotiations with top candidates.

 

The report, “Beyond the Family Tree: Succession Planning for Family Businesses,” was written by Gil Stenholm, who leads Spencer Stuart’s family business practice in North America. The data are based on “real-time compensation data” from Spencer Stuart executive searches for family companies over the past three years, plus discussions with CEOs and others who have worked with or for family companies, Stenholm says.

 

Stenholm notes that even executives with top-notch credentials—a degree from a blue-chip MBA program and experience at a Fortune 500 company or leading consulting firm—may not succeed at family firms. “It’s usually not because their résumé is bad; generally it’s because somebody’s trying to fit a square peg into a round hole,” he explains. “It’s chemistry, it’s style and it’s personality.” To ensure a good fit, Stenholm recommends that family business owners identify the skills and traits needed to lead their firm.

 

To obtain a copy of the free report, see www.spencerstuart.com/research/articles/1436/.

 

 

 

 

 

 

 

CEO compensation snapshot

 

Average base compensation, bonus and trends in equity compensation for a representative sample
of public, family and private equity companies with less than $1 billion in revenue.

 

  Public company Private equity
portfolio company
Family company
Base salary $605,000 $508,000 $497,000
Bonus $321,000 $703,000 $211,000
Equity Stock option or equity awards very common, ranging in value from $70,000 to nearly $15 million 3% to 8% ownership, generating a payout, usually at the exit, but under unique circumstances partially before, equal to $3 million to $40 million Typically long-term incentives similar to profit sharing and annual awards range from 50% to 150% of salary, equal to $3 million to depending on company and individual performance
Other Non-equity incentive compensation common Drivers selected to EBITDA Non-equity incentive plans common
Source: Spencer Stuart, “Beyond the Family Tree: Succession Planning for Family Businesses”

 

 

 

 

 

 

 

 

 

 

 

 

Company and CEO traits comparison

 

Observations based on Spencer Stuart’s CEO, COO and board searches over the past ten years
for public, private equity portfolio and family companies.

 

  Public company Private equity
portfolio company
Family company
CEO turnover Approximately 4 years Approximately 2.5 years Approximately 7 years
CEO influence over governance and strategy CEO drives strategy, reportsto board. Sarbanes-Oxley compliance is time-consuming. Especially if also chairman, CEO oversees most governance responsibilities CEO and PE sponsors develop strategy jointly; chairman is almost always a private equity owner Limits on external CEO’s ability to shape strategy, given family priorities, politics, traditions, ties to community and employee commitments
CEO ownership 1% to 2% of outstanding shares, accumulated during the course of tenure 3% to 8% of outstanding shares, negotiated up front and vesting upon private equity’s exit Generally, none
Control over operations and team selection CEO is directly responsible for company operations and performance; has complete control over who’s on his/her team CEO is responsible for company operations and performance, with ongoing participation by sponsor companies; sponsor firms may force some team changes in key roles CEO is responsible for operations, but faces limits on his/her ability to make changes to operations or key personnel
Source: Spencer Stuart, “Beyond the Family Tree: Succession Planning for Family Businesses”

 

 

 

 

 

 

 

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