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The business of family businessesRare breed of well-bred execs face down challenges, pressure
By Greg Botelho
NEW YORK (CNN) -- It is a case for Tony Soprano -- or better yet, for his psychiatrist, Dr. Melfi: The joys and challenges of handling the family business. A significant, if dwindling number of legitimate corporate leaders can empathize with the fictional crime boss's angst, namely the on-the-job and in-the-home pressures to make the family both wealthy and proud. While many mom and pop ventures thrive, the situation becomes increasingly complex the bigger the family business. "Every move you make is scrutinized for its meaning, its performance, its adequacy," said professor Michael Useem, director of Wharton School's Center for Leadership and Change Management at the University of Pennsylvania. "There's almost a sacred responsibility top make sure the family's wealth grows, and you have the ghosts of your ancestors looking over your shoulder." Whereas family-dominated enterprises made up about 80 percent of the Standard and Poor's 500 largest companies some 80 years ago, Useem estimates they make up 20 percent of the top companies today.
He cites pressure from analysts, shareholders and money managers, as well as a tendency for American families to prefer cash when they sell their stakes in the company, for the decrease. While the corporate world is not dominated by big names like Rockefeller and Vanderbilt as it was decades ago, there are still exceptions. William Clay Ford Jr. is CEO of Ford, founded a century ago by his great-grandfather Henry and ranked by Fortune magazine as the nation's fourth-largest company. Riley Bechtel is the fourth generation to head the Bechtel Group, the world's largest construction company. With his grandmother still a force, William Lauder recently took over as chief operating officer of Estee Lauder. Large family enterprises are even more common outside the United States, thanks to a host of cultural, political and legal factors. Mexico's version of Katherine Graham, The Washington Post's late legendary leader, Maria Aramburuzabala had no business experience when she took over and refocused Mexico's largest brewer, Grupo Modelo (which makes Corona), after her father died. Mukesh Ambani has also done well with the family business, Reliance Industries, building the multi-purpose firm into India's largest company. The intense scrutiny and responsibility notwithstanding, experts say that large family-run businesses have distinct pluses for executives, employees and consumers alike. "The obvious advantage is the trust, loyalty and dependability that you have from and for your customers, employees, suppliers and stockholders," said Dan Rottenberg, editor of the trade magazine, Family Business. "There is just a totally different perception of the job and a totally different sense of responsibility for the owner." 'You can't quit your family'
According to Rottenberg, 80 percent to 90 percent of all U.S. companies are "family businesses," defined by his magazine as those in which several generations of a single family have been and remain actively involved.
Such companies, he noted, account for an estimated 49 percent of the U.S. gross domestic product, 59 percent of the work force and 78 percent of new jobs. "Family companies tend to be intuitive and instinctive," Rottenberg said. "The business and the culture is in their blood, which means they don't have to spend a lot of time with analysis, poring through reports or making decisions." While some employees prefer the stability endemic to family businesses, other ambitious would-be executives are turned off, feeling they cannot rise up the ranks without the right pedigree. "One of the big challenges of family companies is attracting outside talent," Rottenberg said. Because of this, such businesses tend to downplay their roots -- emphasizing, if anything, the company as a family, not the family running the company. As an example, Useem pointed to State Farm Insurance and CEO Edward Rust, whose father and grandfather held similar posts at the insurance giant. Useem said Rust runs State Farm like a professional manager, exercising sound business judgment to bolster the bottom line, and not as an owner-operator using his instinct and flouting his bloodline. As companies grow -- particularly once they become "public," meaning people outside the family can buy shares -- the outside pressures on executives with family ties intensifies correspondingly. "If it's publicly traded, you've got no choice -- you have to get results," Useem said. "If you push back the clock 25 years, a family enterprise could take the heat. But these days, if the enterprise is genuinely failing, the drumbeat that the board of directors will feel to bring in outside management will become irresistible." That said, those closely connected to a given family and company do not have many options. As Useem pointed out, William Ford Jr. would have a hard time leaving to head another, rival auto company, even in a climate where CEOs frequently swap jobs. While most people can head home to their family and gripe out work, that is not a luxury for everyone. "If you have a problem in your job or business, you can quit and leave," Rottenberg said. "But you can't quit your family."
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