SpringerBriefs in Business For further volumes: http://www.springer.com/series/8860 Alan L. Carsrud Malin Brännback (cid:76) Family Firms in Transition Case Studies on Succession, Inheritance, and Governance Alan L. Carsrud Malin Brännback Ted Rogers School of Management School of Business and Economics Ryerson University Åbo Akademi University Toronto, Ontario, Canada Turku, Finland [email protected] malin.brannback@abo.fi ISSN 2191-5482 e-ISSN 2191-5490 ISBN 978-1-4614-1200-7 e-ISBN 978-1-4614-1201-4 DOI 10.1007/978-1-4614-1201-4 Springer New York Dordrecht Heidelberg London Library of Congress Control Number: 2011937052 © Alan L. Carsrud and Malin Brännback, 2011 All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) Acknowledgments We are grateful to the Price Center for Entrepreneurial Studies in the Anderson School at UCLA for their support in the early development of some of the cases in this volume and to the Ewing Marion Kauffman Foundation of Kansas City, MO for their support of the development of those cases developed at Florida International University. Without our students at the University of California, Los Angeles, Florida International University, Ryerson University, Pepperdine University, and Åbo Akademi University it would have been impossible to bring these cases to life and to make these stories available to a wider audience. v Contents 1 Introduction ............................................................................................. 1 Children, Succession, and Governance ..................................................... 2 2 Reading a Family Business Case............................................................ 5 About Cases .............................................................................................. 6 3 Case One: The Packard Marketing Group – Letting Children into the Business ...................................................................................... 9 Introduction ............................................................................................... 9 The Early Years ......................................................................................... 10 Making a Family Decision: Moving to New York .................................... 10 A Son Enters the Business ........................................................................ 11 The Success and Failures of Hiring a Child .............................................. 12 Current Situation ....................................................................................... 12 Future Possibilities .................................................................................... 13 4 Case Two: Gazi Family Constitution – Managing the Family in a Family Firm ...................................................................................... 15 Introduction ............................................................................................... 15 The Constitution........................................................................................ 15 Definitions ................................................................................................. 15 Explanations .............................................................................................. 16 Mission ...................................................................................................... 16 History: Entry in Education ...................................................................... 17 Strategies for Establishing Success in Education ..................................... 18 Prioritized Values of the Family ............................................................... 18 Responsibilities of the Family to Society ................................................. 19 Standards and Expectations Concerning Family Members ...................... 20 Upbringing of Children ......................................................................... 20 Support for Personal Development and Wealth Education ................... 20 Distribution of Family Resources ......................................................... 21 Working Principles for Family Members .............................................. 22 vii viii Contents Family Council and Its Working Principles .............................................. 23 Duties of the Family Council ................................................................ 23 Various Additional Clauses ....................................................................... 24 5 Case Three: Surviving Revolution, But Succumbing to Succession – The Story of Five Siblings ............................................ 25 The Roots .................................................................................................. 25 Leaving Cuba ............................................................................................ 26 A Little Bit of Foresight Goes a Long Way .............................................. 26 Frustration in Puerto Rico ......................................................................... 27 Starting Over in Miami ............................................................................. 27 Family Troubles ........................................................................................ 28 Finding a Successor .................................................................................. 28 Grandchildren in the Business .................................................................. 29 More Turmoil Occurs ................................................................................ 29 Poor Planning and Death .......................................................................... 30 More Problems Arise ................................................................................ 30 Who Will Own and Run the Business? ..................................................... 31 Reorganization of the Business ................................................................. 32 Future of the Business ............................................................................... 32 6 Case Four: Dodger Baseball – The End of Family-Owned Major League Baseball ........................................................................... 33 Introduction: January, 1997 ...................................................................... 33 The Ownership Legacy ............................................................................. 34 Dodger Way .............................................................................................. 35 The Farm System ...................................................................................... 37 League Control .......................................................................................... 38 The Owner’s Family ................................................................................. 38 Dodger Stadium at Chavez Ravine ........................................................... 39 Dodgertown and Campo Las Palmas ........................................................ 40 Player Strife .............................................................................................. 40 Hollywood Buys Baseball ......................................................................... 41 Shared Revenue ......................................................................................... 42 Players and Coaches ................................................................................. 42 League Relations ....................................................................................... 43 Family Plans .............................................................................................. 43 Alternative Investments ............................................................................. 44 Estate and Income Taxes ........................................................................... 44 Succession ................................................................................................. 45 Sale Results ............................................................................................... 46 Problematic Alternatives ........................................................................... 47 Conclusion ................................................................................................ 48 Addenda .................................................................................................... 48 Contents ix 7 Case Five: The Vicente Family and Their Santa Maria Store – Small Business Growth and Succession in Puerto Rico ......... 59 The Early Years ......................................................................................... 59 Work Had To Be Done .............................................................................. 60 When Business Becomes a Family Firm .................................................. 61 Growing the Business ............................................................................... 62 More Growth ............................................................................................. 63 Crisis in the Family ................................................................................... 64 More Unfortunate Things Happen ............................................................ 64 Help From Major Distributors .................................................................. 65 The Children and the Santa Maria Stores ................................................. 65 Time To Retire .......................................................................................... 66 The Succession .......................................................................................... 67 The Transition ........................................................................................... 67 The Uncertain Future ................................................................................ 68 Time Line .................................................................................................. 69 The Players ................................................................................................ 70 8 Case Six: Jacoby Construction, Inc. – Building a Strong Family Firm on the Sound Foundation of Succession ......................... 71 Introduction ............................................................................................... 71 History, Challenge, and Firm Overview ................................................... 71 Company Divisional Overview ................................................................. 72 Key Management ...................................................................................... 72 The Company, Revenue, and Ownership Structure .................................. 73 Jacoby Manufacturing Division ................................................................ 73 Pile Driving Hammers .......................................................................... 74 Equipment Rental .................................................................................. 74 Jacoby Construction Division ................................................................... 75 Competition............................................................................................... 75 Construction .......................................................................................... 75 Manufacturing ....................................................................................... 76 Historical Financial Review ...................................................................... 76 Financial Results: Income Statement .................................................... 76 Financial Forecasts and Growth Plan ........................................................ 77 Jacoby Construction Division ............................................................... 77 Jacoby Equipment Leasing Company ................................................... 78 Jacoby Engineering Services ................................................................ 78 Consolidated Forecast ........................................................................... 78 Appendix 1: Industry Trends .................................................................... 79 Canadian Federal Government Spending ............................................. 79 Ontario Provincial Government Spending ............................................ 80 Private Sector Spending ........................................................................ 81 Manufacturing Market .......................................................................... 81 x Contents Appendix 2: Competition .......................................................................... 81 Construction .......................................................................................... 81 Manufacturing ....................................................................................... 82 Rental Business ..................................................................................... 83 9 Case Seven: Mesbo Supermercats – A Traditional Catalan Firm Facing Its Succession ...................................................... 85 Introduction ............................................................................................... 85 What Do We Do? ...................................................................................... 85 Catalonian Market ..................................................................................... 86 Mesbo Supermercats ............................................................................. 86 Brief History ......................................................................................... 86 Early Growth ............................................................................................. 87 Brotherly Responsibilities ......................................................................... 87 Sharing Responsibilities and Expanding the Pie .................................. 88 Three Families, Ten Cousins ................................................................. 88 Jose’s Family ............................................................................................. 88 Marcos’ Family ......................................................................................... 89 Pablo’s Family ........................................................................................... 89 To the Rescue ............................................................................................ 90 Code of Silence ......................................................................................... 90 Nonfamily Management ........................................................................... 91 Progress Made ....................................................................................... 91 Expectations Expressed ........................................................................ 92 Exhibit 1 .................................................................................................... 92 Exhibit 2 .................................................................................................... 92 Exhibit 3 .................................................................................................... 93 10 Case Eight: JADDCO Laboratories, Inc. – Succession in a Technology-Based Family Firm ...................................................... 97 Introduction ............................................................................................... 97 Evolution of Technology ........................................................................... 98 Low Vision Products ................................................................................. 98 Problems in Product Development ........................................................... 99 The Lawsuit .............................................................................................. 99 The Business and the Children ................................................................. 100 Julia and the Business ............................................................................... 101 Everyone Gets Involved ............................................................................ 102 A Father’s Reaction ................................................................................... 102 Bring on the Consultant ............................................................................ 103 The Surprise .............................................................................................. 103 Post Board Meeting ................................................................................... 104 Two Months Later ..................................................................................... 105 Exhibit 1 .................................................................................................... 106 JADDCO Laboratories, Inc.: Family, Ownership, Management Diagram ........................................................................... 106