Growth Drives Family Firms Crazy

By Francine Russo

Lots of family companies struggle just to succeed. The struggle places tons of pressure on the family unit, within which there's always plenty of emotional inventory anyway. But growth is a huge problem too, and managing it presents family firms with rosier but no less complex issues. "My brother-in-law and I were giving each other the finger. Nobody was showing up for Easter dinner," recounts Park Kerr, chairman and founder of the El Paso Chile Co., a $10 million-a-year specialty-food company that sells salsas and snacks to the likes of Williams Sonoma and Neiman Marcus. "Dealing with change in a family business--everything's personal. It's about money-equals-love, and who threw up on the piano when you were three years old."

Like an increasing number of business owners who need to resolve conflicts, Kerr hired a family therapist, Deborah Bright of New York City, to sit down with him, his wife, mother, sister and brother-in-law and hash things out.

The stakes in such cases are anything but small. As Paul Karofsky, executive director of Northeastern University's Center for Family Business, points out, fewer than 1 in 3 family concerns survives into a second generation; fewer than 1 in 10 makes it to a third. "As the current generation of family owners--war babies and baby boomers--look to transfer their companies," he warns, "the consequences of failed succession will cost trillions." Not to mention a lot of I-told-you-so's.

It was its phenomenal trajectory of growth that tripped up El Paso Chile. Formed in 1980, when Park Kerr and his mother Norma sold decorative strings of chile peppers on the street in El Paso, Texas, the company within a decade was selling $1.5 million annually of food products such as salsas. But operations were tilting out of control, so mother and son brought in Kerr's brother-in-law Sean Henschel, a management consultant, to run things. Park's sister Monica also came to work in the company.

Business got better--and work worse--Henschel says, when "we started growing like a rocket." Henschel hired professional managers: a head of operations, a national sales manager, a controller. "These people picked up the ball and ran with it," Henschel says. Kerr, on the other hand, played defense, frustrating them at every turn. "I'd think, 'Goddammit, it's my business, and I'll do what I want,'" he says. "I'd rather drink bleach than go to a team meeting."

Soon everyone in the family was talking, but not to one another. Rumors flew. "I told Park, 'It's over; I want out,'" says Henschel. At this point, they called in Bright. She interviewed each person before gathering them for a three-day smackdown at an El Paso hotel. There was yelling about devious motives; there were tears. There was plenty of salsa.

"In Park and Sean I saw people who loved each other," says Bright, "but they misunderstood each other's motives." She helped each see the other's point of view. She also convinced them that with Park's creativity with products and packaging and Sean's organizational skills, they were better off together than apart. Bright did more than sprinkle Freudian fairy dust over the family; she helped come up with a solid organizational plan. Kerr was promoted to chairman and founder, in charge of new products. Henschel became president, with complete authority for day-to-day operations. Bright instituted rules of behavior--including daily meetings--and taught the group communication skills.

Other family advisers, like Fort Worth, Texas, psychologist Samuel Lane, introduce such corporate structures as a governance system, a shareholder buy-sell agreement and a succession plan. Increasingly, even "talk" therapists such as Dr. Edward Monte of Family Solutions Group in Philadelphia are becoming allied with business hard-siders. "If they smell a shrink coming," says Monte, "they run the other way."

The critical aspect of family-business therapy is taking the "family" out of it, or at least removing dysfunctional emotions from decision making. Monte was called in by Robert Edmund of Edmund Optics in Barrington, N.J., to deal with Edmund's father Norman, who, like a lot of founders, couldn't let go. The elder Edmund started the $52 million-a-year company, which sold telescopes and chemistry sets to schools. He declared himself semiretired and moved to Florida without removing himself from the decision-making process. It was very similar to the problem FORTUNE 500 CEOs experience when their predecessors stay on the board. "When Robert was in his 50s and his father was in his 80s," relates Monte, "[Robert] got cranky having to ask his dad's permission for everything. He was like Prince Charles waiting to rule." Robert felt the company needed to incorporate and shift from school supplies to high-end industrial lenses. His father disagreed.

Monte refereed. "Robert needed to own the company emotionally," the therapist explains. "His father was feeling his identity as founder was being taken away, and he was feeling his encroaching mortality." Acknowledging his father's fear of financial dependence, Robert offered him a financial incentive. He also gave Dad a seat on the newly created board of directors. This handed Robert control, but his father could feel it was not total. "We had come to a generational roadblock," says Edmund. With the roadblock smashed, the corporation grew 20% in 2000.

Succession was never an issue at Rubenstein Brothers of New Orleans, a men's clothing emporium. The business had passed smoothly from the founding brothers to David and Andre, sons of one founder. The brothers got along well; their wives joined the business; Andre's twin sons Kenny and Mark began working in the store. David's daughters wanted in.

Tension arrived soon afterward, with each mother fiercely guarding her young. "If I criticized my nephew Mark--and I did--I became the bad guy to his father and mother," David recalls. Result: the family stopped talking altogether.

Therapist Lane ferreted out what Mark had been afraid to tell his family: he was unhappy there. "It's hard on young people to be trapped in a business," says Lane, who helped smooth Mark's exit.

Then Lane worked with the family to create a grownup organization: a governance plan, a family-meeting schedule and a family-employment policy. This last proved its worth when David's daughters signed on. "It's not seat of the pants," Rubenstein says. "The policy says, 'This is what we expect,' so we can measure success or failure." Lane also helped the Rubensteins create a succession plan. Significantly, it didn't guarantee that the children would run the store. Nothing personal; it's just business.