Articles

T-bird stewards share family business lessons

By DARYL JAMES, Thunderbird Magazine Editor

Family man
Cuban heritage inspires Thunderbird professor

Some critics predicted disaster for Ford Motor Co. during the recent auto industry meltdown. Thunderbird Professor Ernesto Poza took a different view. He went on CNN and told U.S. viewers to buy Ford shares if they had a long-term investment horizon, like the Ford family does. Poza had no stake in the company at the time, but he believed in the power of family business. Afterward, he decided to put his money where his mouth was.
“I called my broker after the interview,” Poza says.

Ford shares had fallen drastically, and Poza locked in during the rebound. Since then the price has more than doubled and doubled again, but Poza still has not sold. As a pioneer researcher in the field of family business, he understands patient investment, which often spans generations in the companies he consults. “You never own a family business,” Poza says. “You just grow it for the next generation.”

Poza traces his research interest to his childhood in Cuba, where his family owned a cattle ranch and sugarcane farm. His parents dreamed of protecting the investment for the next generation, but they lost the opportunity when Fidel Castro came to power and nationalized the business. “I grew up with a sense of loss,” Poza says. Now he specializes in helping other family businesses make the tenuous transition from one generation to the next. “I can’t think of anything better or more noble than to have somebody else take the baton from you and run with it for another generation,” Poza says. “When you see it, it’s a thing of beauty.”

Although family business is the oldest form of enterprise, serious research on the subject did not emerge until the early 2000s. Poza’s book, Family Business, was among the first to tackle the subject in 2003. The fourth edition of the title, published in 2013 with co-author Mary S. Daugherty, continues to challenge assumptions about family business. “Contrary to the prevalent stereotype of family businesses as nepotistic, conflict-ridden underperformers, in reality family firms perform better than nonfamily firms,” Poza says.

Where family businesses sometimes stumble is with governance issues, or the systems set up to regulate joint decision making. Poza calls this the Achilles’ heel of many family enterprises — especially when leaders fail to establish proper ownership structures, boards of directors, family councils, family constitutions and family employment policies. “The desired outcome is rational decision making not overwhelmed by traditional family dynamics,” he says.

Many T-birds working with family businesses all over the world have helped numerous organizations achieve and maintain this outcome. Poza points to the examples of alumni Mark Smucker ’96 from the United States, Shigeki Yamamoto ’08 from Japan, and Rodolfo Paiz ’08 from Guatemala. Their stories on the following pages show how different family businesses have navigated governance challenges to create sustainable prosperity in their communities and beyond.

Family values
Preserving founder’s beliefs at J.M. Smucker

Mark Smucker ’96 grew up in Orrville, Ohio, where his great-great grandfather founded The J. M. Smucker Company by first selling apple butter from the back of a horse-drawn wagon. More than 115 years later, the company has grown into a leading marketer and manufacturer of fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk, and health and natural food beverages in North America.

Notwithstanding his family ties, Smucker needed hard work and dedication to grow within the company, leading to his current assignment as president of U.S. Retail Coffee. From age 16 through college, he spent summers working in a variety of roles at the company, starting in the Orrville fruit spreads manufacturing facility and later in various departments at the corporate offices. “I was exposed to every aspect of the business from the ground up,” he says.

The initiation is part of the rules for any young family member interested in joining the business. Other requirements for family members to join the company include a graduate degree and at least two years of work experience outside the company. After two years as an eighth-grade science teacher, Smucker decided to further his experience by attending Thunderbird. He was inspired by his maternal grandfather, Samuel Coddington ’49, an early Thunderbird graduate who still enjoys sharing tales of his global adventures. “I got the international bug from him,” Smucker says.

A summer internship in Mexico paved the way for Smucker’s own global career, starting with a full-time advertising job in Argentina after graduation. “I loved the culture of the expatriate life and the independence that comes with it,” Smucker says. “Initially I did not have concrete plans to join the family business.” When an opportunity emerged to join the company, he and his wife, Katie, moved to Brazil where he managed the company’s fruit ingredients business. By the time Smucker returned to the United States, he was fluent in Spanish and Portuguese and ready to apply his international perspective to other parts of the business. “I use my Thunderbird education every day,” he says.

Smucker says attention to the company’s Basic Beliefs — Quality, People, Ethics, Growth and Independence — guide strategic decisions and daily behaviors. The continuity of family leadership and positive company culture also have helped drive success over five generations. Smucker works alongside his cousin, Paul Smucker Wagstaff, who leads the U.S. Retail Consumer Foods business, and their uncle, Richard Smucker, who leads the company as CEO. “When faced with significant business decisions,” Mark Smucker says, “the family has consistently placed the best interest of the company before the needs of the family.” He says the focus on the Basic Beliefs is key to sustaining the positive family environment that is the essence of the corporate culture. As the company has experienced growth through the acquisition of brands such as Jif and Folgers, it places special emphasis on modeling its values to help preserve and maintain the company’s culture.

“When welcoming new employees to the company following an acquisition, the first thing we focus on is nurturing and developing our culture with our new employees,” Smucker says. “This ensures that our family values and principles resonate throughout the entire organization.”

Proverb buster
T-bird helps family firm reach beyond Japan

Nearly every country has a variation of the same proverb, which paints an unkind picture of third-generation family business stewards. In the United States the saying goes: “Shirtsleeves to shirtsleeves in three generations.” Japan uses: “Rice paddies to rice paddies in three generations.” Shigeki Yamamoto ’08 knows the three-generation rule. But rather than slowing down, he and his cousins are growing the Daikure Company, a family enterprise started by their late grandfather in 1951 near Kure, Japan.

A new era will begin for Daikure in fall 2013, when the manufacturer of steel grating and heat exchangers opens a 5,000-square-meter factory in Taiwan. “This is our very first step to challenge in a global market,” Yamamoto says. As Chairman and President of Daikure Taiwan, Yamamoto says the global expansion represents his first major test as a family business steward. “I entered Daikure in 2008 and was given great responsibility to go into a global market from scratch,” he says.

Although Yamamoto entered the business later than his cousins, his preparation spanned decades. From the age of 10 until he came to Thunderbird nearly 25 years later, he watched his father lead the company as president before passing the responsibility to Yamamoto’s older cousin. “My dad was always talking about his job with my mom, so I automatically had a chance to know about the business,” Yamamoto says. He also enjoyed visiting his father’s offices as a child. “It felt like a sanctuary to me,” he says.

Rather than starting immediately at the family firm, Yamamoto earned two undergraduate degrees at the University of Tokyo and then took a job with Nippon Steel. When he expressed a desire 10 years later to join Daikure, some relatives questioned his motives. “I was working at a large company with a great salary,” he says. “They saw no commonsense reason for me to quit and go back to a small company.” Eventually everyone agreed to the move, although Yamamoto asked for time so that he could come to Thunderbird to improve his English and prepare for greater leadership responsibilities. “I knew Daikure needed to go into global markets,” Yamamoto says. “And I knew Thunderbird was the place to learn how to do that.”

As a bonus, Yamamoto also discovered the family business class taught by Thunderbird Professor Ernesto Poza. “That class gave me the frameworks I needed for understanding complex family business relationships,” Yamamoto says. “It was my most important experience at Thunderbird.” Any doubts he had about joining Daikure as a third-generation steward quickly faded. “I am highly motivated to keep Daikure strong for the next generation,” says Yamamoto, who has a son. “Daikure will keep moving forward to survive and to build long-lasting growth.”

Cats and dogs
Family business beneficiary pays it forward

Admiration quickly surfaces when Rodolfo Paiz ’08 talks about his grandfather. The late family patriarch grew up in rural Guatemala, where he lost his parents and most other relatives by age 11. “He and his older brother were alone,” Paiz says. “And when he was 18 his older brother died too.” Despite the setbacks, the orphan pressed forward as an entrepreneur. Three times he tried and failed, but he also built a reputation along the way as a man of his word. “He always had a certain set of principles that he believed in,” Paiz says. “When he got back up, he went and paid people the money he owed from the last time he went belly up.”

The social capital paid dividends when the U.S. economy crumbled during the Great Depression, causing manufacturers to send surplus inventory to Guatemala for distribution in Central America. “My grandfather got a storefront leased to him with no cosigner, no deposit and no collateral because he had a reputation for paying up no matter what,” Paiz says. For the next 30 years the family sustained the business, but the real growth came in the second generation when the siblings stepped forward as partners. They opened a second store in 1960, and the business grew to include about 200 stores by 2000. The success led to a merger with a Costa Rican competitor and Dutch partner, which culminated in a majority sale to Wal-Mart Mexico.

“We sold a jewel of a company,” says Paiz, who earned his allowance as a child doing chores for the family business. He started paying attention to strategy and operations at age 12 — the minimum age to attend family meetings. “We grew up with financial statements and stockholder meetings,” he says.

He now uses his experience to consult other family businesses as founder and senior partner of The Guayacan Group. Although finance, accounting and marketing work the same for all types of businesses, Paiz says family businesses fall in a special category with their own sets of governance challenges. “Family businesses are entirely unlike nonfamily enterprises and should never be run or analyzed in the same way,” he says. “Both cats and dogs are great species, but you don’t give a dog cat food.”

Paiz knows firsthand the value that a family business consultant can create because his family relied on an adviser for many years. “Working with a consultant for so long, we created a lot of things we thought we didn’t need,” he says. “Later, we found our path hacking through the jungle much easier because a lot of the required infrastructure had been laid down before we even knew we needed it.”

Paiz says his goal is to help other family businesses in the same way. “A well-run family business is the most powerful form of business organization on Planet Earth,” he says. “If I really want to add value somewhere on this planet, this is a good way to do it.”

Photo captions: An oak tree symbolizes family business (GRAHAM); Thunderbird Professor Ernesto Poza (Photo by TIM CLARKE); Mark Smucker at JM Smucker Co. headquarters in Orrville, Ohio (Photo courtesy of JM SMUCKER CO.); Shigeki Yamamoto ’08 at the site of the new Daikure factory in Taiwan (Photo by LEONNA LU); Rodolfo Paiz enjoys a Guatemalan sunset (Photo by FotoSerra).

Magazine Department: