<\/p>\n
Continued from\u00a0Fostering Sustainability at ESOPs<\/a><\/p>\n We usually relate these generational issues to observations found in the history of Westvaco Corporation<\/a>.\u00a0 By the year 2000, Westvaco was the OLDEST and LONGEST LIVING company to provide consistent dividends to their shareholders EVERY YEAR.\u00a0 It was also led by the Luke family since its inception, and was always a well regarded, well managed company.\u00a0 Of importance to ESOPs and sustainability, the continuation of the business and the risks the Luke family took to grow and expand are the hallmark of great governance and succession planning.\u00a0 To help with understanding the generational issues, we are providing what we think illustrates the behaviors by management as each generation unfolds, in family business jargon:<\/p>\n <\/p>\n A)\u00a0\u00a0\u00a0 Grandparents<\/em><\/strong> (1st<\/sup> Generation) did not go to college, they worked their tails off fixing customer problems, risking everything to meet payrolls, vendor demands; they signed personal guarantees for bank financing, and later retired from the business by being paid off, usually over their remaining lives, by the second generation; when they sell the company, the 1st<\/sup> generation is commonly worried about their employees and family members, as well as having the funds for retirement.\u00a0 The story of Westvaco is as follows:\u00a0 \u201cBorn into a Scottish papermaking family, Westvaco founder William Luke came to theUnited States in 1852. Ten years later he began running a plant for Jessup & Moore Paper Company in Harper’s Ferry,West Virginia. Although employed by Jessup & Moore until 1898, he set up a small plant of his own with his two sons (John and David) in 1889.\u201d\u00a0 In ESOP terms, the next generation needs to have the same commitment, passion and risk taking ability as the Lukes!<\/p>\n <\/p>\n B)\u00a0\u00a0\u00a0 Parents<\/em><\/strong> (2nd<\/sup>) went to State Universities, had tough jobs during their early years in the business, that is doing \u201cdirty work,\u201d because the grandparents needed cheap but dependable labor and wanting their children to know the value of \u201chard work;\u201d learned the essential values of working with others and treating people well, be it customer, vendor or employee;\u00a0 express appreciation for those who helped build the business which created the wealth to allow them to buy second homes, new cars, and a better life style their parents never had;\u00a0 Family dysfunctions form in this generation, and show up in conflict, accepting mediocrity, incompetence, avoiding the difficult issues, and power plays that create \u201cus versus them\u201d working environments.\u00a0 Of concern is when these dysfunctions show up at board meetings with siblings as directors, and one of them is the CEO!\u00a0 Grand parents rarely have siblings telling them how to run the company, now the next generation does!\u00a0 When the next generation begins their discussions of succession, and they look at maximizing their wealth, they do so because of their belief their next generation will not achieve the values they now have.\u00a0 For Westvaco, their story was: \u201cIn 1904 William Luke relinquished the presidency of the company to his son John Luke, who held the position until 1921. William Luke died in 1912, at which time the company had four mills operating inWest Virginia,Pennsylvania,Virginia, andNew York.\u00a0 While white paper production volume remained relatively constant, diversification accounted for virtually all growth.\u201d\u00a0 In ESOPs, strategic planning must be about changing the company during the transition.<\/p>\n \u00a0<\/em><\/strong><\/p>\n C)\u00a0\u00a0\u00a0 Grand Children <\/em><\/strong>(3rd<\/sup>) were born into, and did not earn wealth, raised with second homes, country clubs and private schools; during their student years, they worked in the office with easy jobs, avoiding hard work in the field; as a result, their expectations included being CEO because of ownership not performance and experience; without developing the successful values of leadership and entrepreneurship their prior generations had to suffer through and learn.\u00a0 This generation usually views the business as an investment and people as expenses; since their value is based on prior generations success- not their own.\u00a0 The 3rd<\/sup> Generation also loses sight of the people, customers, or relationships with each other as being the foundation of an effective company.\u00a0 In many cases, 3rd<\/sup> generation peers and school friends were members of other wealthy families, so did not appreciate rank and file employees as people of value.\u00a0 When thinking of succession, those non-employed family members, who do not work in the business, regularly look at the stock\u2019s value to determine if they should harvest (sell) to maximize the value.\u00a0 As a result, they will also focus their attention to dividend payments versus business reinvestment; resulting in concerns their prior generations never considered.\u00a0 While we describe the 3rd<\/sup> generation as the generation that starts the slide to \u201cshirtsleeves,\u201d\u00a0 The Luke family was able to avoid these characteristics for over 6 generations.\u00a0 The Westvaco story for this generation is: \u201cAscending to president in 1945, David L. Luke, a grandson of the founder, established the company’s modern growth pattern. He immediately began the first of many expansion programs, spending the $17.5 million the company had accumulated during the war. The company also used some of its cash surplus to acquire more land, selling the trees too mature for papermaking to provide additional financing.\u201d<\/p>\n <\/p>\n The Great Grandchildren<\/em><\/strong> (4th<\/sup> and beyond) many times found themselves skipping college, starting their own business, working in fields far from the business such as social or political work, engaging in the fine arts or non-profit communities, sitting in a staff or shop floor job, or like their parents, enjoyed the experiences of unearned wealth.\u00a0 They went to exclusive schools, drove the best cars, treated people badly, and behaved arrogantly.\u00a0 These people rarely are criminals, or incompetents; they just have different choices to career development due to their wealth. One Harvard business school study determined that wealthy people develop a lack of care in others (please see http:\/\/hbswk.hbs.edu\/item\/6324.html<\/a>).\u00a0 In some cases, these grandchildren build their own entrepreneurial opportunities and use the family wealth to create new wealth, becoming the next founders. In other words, they sell off their ownership shares to fund their own growth elsewhere.\u00a0 For Westvaco, the story continues this way: \u201cHesitant to join his family’s company at first, David L. Luke’s son David L. Luke III became CEO in 1963, after working 11 years for WVPP. He maintained the product development momentum initiated by his father and continued to upgrade efficiency with frequent spending programs. Nearly half of sales in 1967 came from products introduced in the previous ten years.\u00a0 In 1962 the Luke family controlled 30 percent of the company’s stock; by 1984 it controlled only two percent.\u00a0 During David Luke III’s 24 years as CEO, Westvaco did more than most papermakers to free itself from the cyclicality of commodity production. His program that accomplished this, “differentiation,” continued under his successors–his brother John A. Luke, who became CEO in 1988, and John A. Luke Jr., whose attainment of the CEO position in 1992 represented the fifth generation of Lukes at the company helm.\u00a0 In 2002, MeadWestvaco was formed as the result of a merger between The Mead<\/strong> Corporation and Westvaco.\u201d<\/p>\n <\/p>\n We provided the above paragraph to help illustrate some of the anecdotal behaviors of each generation.\u00a0 Before we go further, we want to emphasize that these observations are neither consistent nor predictable.\u00a0 Many companies avoid these descriptions.\u00a0 Companies like Wal-Mart, Ford, Dow Jones, and Comcast are\/were publicly held companies with family dynamics that show various stages in different ways.\u00a0 For the Ford Motor company, their history of having family members in the CEO position is well documented.\u00a0 While Henry Ford (1st<\/sup>) formed the business, his son Edsell nearly killed it, only to find Henry II to fill in for his dead father and rebuild the company<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" Continued from\u00a0Fostering Sustainability at ESOPs We usually relate these generational issues to observations found in the history of Westvaco Corporation.\u00a0 By the year 2000, Westvaco was the OLDEST and LONGEST LIVING company to provide consistent dividends to their shareholders EVERY YEAR.\u00a0 It was also led by the Luke family since its inception, and was […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[4],"tags":[8,5,9,6,13,12,7,10,11],"_links":{"self":[{"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/posts\/37"}],"collection":[{"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/comments?post=37"}],"version-history":[{"count":4,"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/posts\/37\/revisions"}],"predecessor-version":[{"id":41,"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/posts\/37\/revisions\/41"}],"wp:attachment":[{"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/media?parent=37"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/categories?post=37"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.esopmarketplace.com\/esopblog\/wp-json\/wp\/v2\/tags?post=37"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}