Your Family's 100 Year Plan Part III
After The Diaspora
Suzanne McGee
02/01/2005

In the 1740's, Swedish engineer, scientist and philosopher Emanuel Swedenborg began analyzing the Bible. He went on to write 30 volumes of revelations he believed came from God, describing Biblical accounts as symbolic of the human condition, and his ideas garnered a following on both sides of the Atlantic. His followers, known as Swedenborgians, eventually scattered across the northeastern United States (Harvard University boasted a Swedenborgian chapel). Some of the religion’s most powerful adherents came from Pittsburgh’s community of wealthy Scottish immigrant entrepreneurs, including Andrew Carnegie and John Pitcairn. Today Pitcairn’s descendants remain linked by their faith in the tenets of the Swedenborgian Church of North America rather than their common ownership of the mammoth Pittsburgh Plate & Glass (PPG) that he founded more than a century ago.

Pitcairn’s great-grandchildren grew up in the tiny community of Bryn Athyn, Pa.—home to a Swedenborgian cathedral built by their grandfather, the PPG founder’s son—as fourth-generation heirs to the business. They felt a close connection to the firm, to their religion and to their cousins. Each day of the week, a different group of cousins spent an afternoon romping in the gardens at their grandparents’ spacious home. “That’s how the bonds were formed at our generation,” explains 49-year-old Laird Pendleton, one of John Pitcairn’s great-grandsons.

By the time Pendleton reached adulthood, his cousins were pursuing their own interests and spreading across the country. While they all could trace their financial well-being to PPG, the ties to the family business, now publicly traded, were slackening. Tax laws made holding the family’s remaining block of PPG stock costly, and family members discovered they harbored clashing ideas about how they should manage their assets. Some wanted cash, rather than stock, so they could launch their own businesses. As a result, Pitcairn’s descendants, who had steadily cut their stake in PPG throughout the 1960s, ’70s and ’80s, sold their final holdings back to the company in 1986.

Without a family business in common, connections among the Pitcairn heirs might have become frayed, but they did have a mutual desire to stay together. “What we did—what we had to do—was to find a way to make the family about more than the family business,” says Dirk Junge, Pendleton’s 55-year-old cousin. Thus was born a new Pitcairn family “business”—the business of maintaining the family’s values and heritage, as well as managing the financial assets of the 600-plus family members, spread from Boston to San Diego, from Singapore to South Africa.

The fourth generation of a family business often faces a similar, decisive moment. Usually, family businesses that survive to this point have gone public and employ professional managers; the family may retain a sizable minority ownership stake.

TOP VIEW
Rarely do all the great-grandchildren of a business founder gather to discuss and decide the future of the family enterprise. More often, generation four is comprised of geographically scattered tribes with members who range across many occupations and avocations, including a smattering of individuals who may want to remain involved in the family business. Some, like the Pitcairns, have found a common interest outside the business to hold the family together. But more often, the entrepreneurial impulses of fourth-generation family members spur a range of diverse new enterprises.

Even in cases when the family business remains under the family’s control, second and third cousins rarely interact on professional or social levels. They no longer take vacations together, as their parents might have, nor share holiday dinners crowded around one large table, nor schooldays dashing in and out of each other’s homes. Yet these distant cousins do have common interests. Individually they may be only moderately wealthy, but if their assets are managed collectively via a family office or some other institution, they function as a single ultra-high-net-worth entity, a condition that gives them access to investment products and services at much lower costs. They can also act as one another’s confidants. After all, they are unlikely to meet many outsiders who share the experience of growing up as heirs to a family business and to a family fortune.

In even the most tightly knit fourth- and fifth-generation business, however, these bonds become frayed when cousins disagree on how the family business should be managed. One recent high-profile dispute involved Freedom Communications, a media conglomerate launched by Raymond Cyrus Hoiles in 1905. As of 2003, only one member of the family remained in an operating role, and a majority of the descendants simply wanted to cash out. The feuding family struck a deal with two private equity firms, the Blackstone Group and Providence Equity Partners, to inject the cash to buy out the half of the clan that wanted to liquidate. For $1 billion, the remaining family owners turned over 40 percent of the newspaper chain to the private equity firms.

“The fourth and fifth generations seem to be called on to address a lot of these very thorny problems about what to do with the family firm. And then what happens to the family?” asks John Ward, professor of family enterprises at Northwestern University’s Kellogg School of Management.

Family members who have fought, successfully, to keep their companies under their ownership or control usually instill a sense of identity with the business in their offspring early on, Ward says. He recalls the case of one heir to a food distribution company who taught his son from infancy to recognize that his father’s business was not just a job, but also a family enterprise. When the son was 4, he drew a picture of his father as a figure clutching a briefcase and standing beside a company truck, which he colored in with the company colors and a near-perfect rendering of the logo.

That kind of child is likely to take an interest in family affairs later in life. But even the most acclimated son, daughter, nephew or niece will not necessarily want to become involved in the business. His or her interest might veer more in the direction of the family’s other ventures, notably philanthropic endeavors. In cases such as these, family governance policies play a crucial role in guiding heirs toward their goals, and they stave off the kind of conflict that splintered Freedom Communications. Governance issues should not be restricted to running the company; they also need to be applied to the family itself, says William O’Hara, head of the Institute for Family Enterprise at Bryant University in Rhode Island and author of the book Centuries of Success: Lessons from the World’s Most Enduring Family Businesses. 

By the time the fourth generation reaches adulthood, the family’s responsibility to the enterprise their great-grandfather founded is no longer to produce a chief executive in every generation. Rather, says Richard Narva of Genus Resources, a family business advisory firm in Massachusetts, “their job is to ensure that the interests of all shareholders and stakeholders are reflected, to ensure that there is good governance—that they are looking out for the long-term interests of the company, rather than tackling shorter-term management issues.”

Most often, families work together to solidify their interests by forming a bloc to elect family members to sit on the board of directors. In extreme cases, families call on their membership to step into the breach to help the company in times of crisis. One of the most telling examples in recent years occurred at Ford Motor. The automaker had been without a representative of the Ford family at the wheel for more than two decades when Chairman William Ford Jr. took over and fired chief executive Jacques Nasser in the fall of 2001. Ford, one of 13 members of the fourth generation, worked to recover the company from a string of business disasters, including deaths attributed to Firestone tires on Ford vehicles, employee lawsuits against the company and slumping profits. As disaffection with Nasser grew, the board gradually supported Ford’s bid to replace him.

The fourth and fifth generations seem to be called on to address a lot of these very thorny problems about what to do with the family firm and then what happens to the family?

The Ford case illustrates two vital points. The family’s stake in the automotive giant had been whittled down to 40 percent over the years, as the company had sold more stock to the public and family members had sold their own Class B multiple voting stock. Thus Bill Ford had to prove that his own business savvy, not simply his family name, made him a natural heir to the CEO’s office. “Since American companies almost inevitably turn to the capital markets to finance their growth, you will find those situations everywhere, where the family ownership is diverse and shared with a vast number of other shareholders,” Narva says.

Also, Bill Ford benefited from his family’s tradition of holding regular councils comprising more than 30 Ford heirs to discuss not only family issues, but also current events at the company founded more than a century ago. These family meetings sparked Ford’s interest in the business and became a stage for him to develop and display his leadership skills, beginning with his efforts to encourage other family members to lobby the board for a seat for him and culminating with his rise to chairman. The kind of family councils—or executive committees of the family network—held by the Fords can serve to introduce and elucidate both business issues and more routine matters such as organizing family reunions and educating new generations about their heritage or responsibilities, perhaps at special family summer camps.

“If you don’t have this kind of structured family communication, that’s where later generations can run into trouble in maintaining their ties to each other and to their businesses,” says Ivan Lansberg of Lansberg, Gersick & Associates, a family business advisory firm in New Haven, Conn. “You need to create new institutions outside the context of the family company and identify new leaders in the family, people who may or may not be business leaders, but who command respect from across the different family groupings” that have evolved.

Paul Karofsky, a Boston-based family advisor, agrees that finding ways to facilitate communication among widely dispersed family members is vital to maintaining the crucial substance of emotional glue, whether it is applied to the business or to maintaining family ties that revolve around other institutions, such as a foundation or family office. He is working on a project for a third-generation chief executive of a food processing business who is eager to improve communication and identify members of the fourth and fifth generations who might be family leaders, either inside or outside of the business.

“There are 120 members of the fourth generation who will be attending this family meeting, many of whom don’t even know each other,” Karofsky says. “Sometimes you find people working for a large family firm, and because they have different last names, it’s not until they run into each other at an event like this that they realize that they are related at all.” To help encourage communication among the fourth and fifth generations, Karofsky plans to find ways in which family members can share their stories and traditions and understand where they fit in on the family tree. This is often done on retreats during which family members work together in small groups. “I facilitated at one meeting like this, where there wasn’t a dry eye in the room when one of the older family members told about how his brother saved his life one day,” he recalls. 

With their interest in family business no longer serving as the cornerstone of the geographically scattered Pitcairns, the “business” of generation four revolves around the management of their financial assets and their philanthropic activities. Many of these are tied to the Swedenborgian church, including supporting educational institutions. Clan elders Pendleton and Junge help organize family gatherings at Bryn Athyn, where the current generation of young children, members of the fifth and sixth generations of Pitcairn heirs, learn how their grandmother would assemble gift boxes of baby clothes for every newborn child in the community. “We are able to have meetings and gatherings around these activities now, listening to our family stories and making philanthropic decisions,” Junge says. “We want our biggest focus today to be maintaining those family ties, and let everyone pursue his own business interests.”

The vast majority of family members have opted to let either Pendleton or Junge manage their assets. Junge runs a traditional for-profit multifamily office, Pitcairn Financial Group, while Pendleton offers similar services through the nonprofit Cairnwood Cooperative, open only to family members. In other areas, they operate as a tight unit, whether they are bolstering the Swedenborgian church or working on the family oral history project. “We [have been] pulling together the family archives, and found letters between our grandmother and Winston Churchill,” Junge says. “We hold ceremonies that we call ‘honoring the elders,’ where senior members of the family talk about their lives and the family, so that the children can learn where they come from. And then we hold family talent shows.”

You need to create new institutions outside the context of the family company and identify new leaders in the family, people who may or may not be business leaders, but who command respect from across the different family groupings.”
Others among the Pitcairn heirs have started new businesses of their own, an aspiration that often resurfaces among fourth generation heirs. Perhaps it is a thread of the entrepreneurial spirit winding through them, as it did with their great-grandfather, or an urge to prove that they can be as intrepid as the patriarch. “There’s a sense that they should prove their own worth as businesspeople, to earn their own place in the business hall of fame through their own achievements, and not just because of their last name,” says Amy Braden, head of the Family Wealth Center at JP Morgan Private Bank.

Pendleton’s brother Kirk, fascinated with aquaculture, founded Sea Farms International in the 1970s and has overseen the company’s growth into one of the largest shrimp-farming ventures in the world, and the largest corporate employer in Honduras. It was not his first business: In the mid-1960s, he founded GK Partners, a cattle company in Missouri, later sold at a significant profit. With his son, Thayer, he also launched a Roswell, Ga.-based company, InterAg, that applied hardware, software and satellite mapping technology to farm vehicles and farmers. He sold that business to John Deere in 1999.

Often these new businesses can serve as a bridge between the family’s past and its future, because they are funded by loans or investments from the family office. Indeed, families increasingly see backing new businesses as an integral part of a family office’s responsibilities—and as another way to strengthen relationships between family members. “Sometimes, of course, those new businesses don’t flourish, but sometimes you also see them thrive,” says Nancy-Beth Sheerr, senior portfolio manager at Veritable, a family wealth advisor in Pennsylvania. “And when they do, you see a renewal of the feeling of pride and satisfaction that comes not just from preserving a family heritage but from reinventing it by demonstrating their own entrepreneurial courage.” In a way, she says, a start-up business is the ultimate tribute that fourth-generation heirs can pay to their progenitors. “It’s the fourth generation becoming the first generation for their own great-grandchildren, and repeating the pattern.”

Suzanne McGee is a New York-based freelance writer. After 14 years as a staff reporter at the Wall Street Journal, she now writes about financial markets and corporate finance, philanthropy, corporate governance and the art world for a number of publications.

Illustrations by Jonathan Barkat.

Back to Main Article: Your Family's 100 Year Plan Part III: Fractured Finances