How to succeed with a family business succession
Tyson Foods’ chief finance officer confessed to investors this week. After running through its revenues, John Randal Tyson added a personal note: “I’m sure you’ve seen the news about the incident involving me. I’m embarrassed and I want to let you know that I take full responsibility for my actions.”
The news was that the 32-year-old son of Tyson’s chair, and great-grandson of its founder, had been charged with public intoxication and trespassing after a stranger found him asleep in her bed in Arkansas. Rather than firing him — the likely fate for any non-family member — the US company has asked its directors to review his behaviour.
“Don’t forget he’s been involved in this business essentially his whole life,” Tyson’s chief executive Donnie King responded when analysts asked why Tyson junior was in a job normally occupied by seasoned executives in their fifties. True. But that’s usually what qualifies you to be a king or queen rather than the finance chief of one of the top 500 US public companies.
Red Bull has managed its succession better than any other company, having appointed three executives to succeed Dietrich Mateschitz, who died in October. This was rather than his son. “I do not believe one should be both an employee and a shareholder of the same company,” wrote Mark Mateschitz, who inherited his father’s 49 per cent share in the Austrian energy drink maker.
This does not mean the scion will leave the others alone to run operations including Red Bull’s Formula One team. “I will . . . express myself in a way that makes sense to me and as I find necessary,” he said of becoming co-owner alongside the Yoovidhya family of Thailand. It’s just as powerful to fire and hire others as it is to do your job.
Entrepreneurs are most concerned about succession. Will they sell their businesses or appoint their daughters or sons to be their boss and heirs as they age? Many 20th century founders face a daunting task: More than 1.5mn German family-owned small- and medium-sized companies are in the process of retiring.
It is clear that the struggle is visible at public companies that are still controlled by family, like Fox Corporation and News Corp. These two companies are both dominated Rupert Murdoch’s 91-year-old. After decades of family maneuvering, he has appointed his son Lachlan to be his successor. This is faithfully depicted in the HBO drama Succession.
Bernard Arnault seems to favor a family joust. His five children work now at LVMH, his luxury group. He has also increased his retirement age to 80. This provides time for a face-off and invites the sort of speculation about who will succeed him that Lachlan Murdoch once described to me as “a pain in the ass”.
I can see how this contest appeals to patriarchs. King Lear-like, they offer their adult children incentives to pledge loyalty, affection, and to help them strengthen their control. It must be a harrowing thought to imagine a company being managed by someone with an MBA who has been a part of the business for years.
Less obvious are the benefits to the younger generation. It can be a disaster for family gatherings if there are multiple people competing for the same advancement. Even if one child is present, the awkward question persists: would they have been able to make it if not for their names? Most often, the answer to this question is no.
However, family control can have its advantages. Family businesses are more profitable and tend to be more focused than those run by professional executives who have many investors. A strong asset is having someone who loves the business and has been raised to appreciate its purpose.
It’s not unreasonable for relatives who inherit shares in companies to get to know them. John Tyson was taught a lesson about how public company executives should behave and how to deal with investors. It’s better to be shamed publicly than to wait impatiently for the inheritance.
This does not necessarily mean that successors should be managers and owners. According to a study done in Denmark, family successions are less effective than Red Bull’s strategy of hiring professionals to succeed the founder. Families have the power to influence companies even though they are controlling investors.
Some heirs have realized this: John Elkann is the scion of Agnelli’s family, which controls Ferrari and Juventus. He does not manage them, but oversees them through their boards, and his family holding company. Marta Ortega Pérez, daughter of Inditex’s founder, became chair of Zara’s parent group last year, but the day-to-day responsibility lies with a chief executive.
It is natural. Many people in the next generation are aware that being publically responsible for all aspects of business operations has its downsides. They have spent years studying how they operate. It is not necessary to run the whole show to be the successor.