Nicholas Pritzker had nothing but brains and energy when he came to America from Kiev in 1881 as a ten-year-old. More than a century later, his heirs sat atop a $15 billion enterprise built on real estate development, manufacturing and the Hyatt hotel chain. Recessions, the Depression, wars — the Chicago dynasty thrived through them all.
Then came the fourth generation. The death in 1999 of family leader Jay Pritzker, Nicholas's grandson, ignited a struggle among the 11 heirs to the empire that will likely bring about its dissolution. Angry that they had little say, some cousins forced a secret agreement to carve up the fortune. Eventually the fight produced a poster child — 18-year-old aspiring actress Liesel Pritzker, Jay's niece, who claimed in a lawsuit last year that her trust funds had been stripped of $1 billion.
The Pritzker saga offers a clear warning to every family-run company moving beyond its founding generation. Any family business, even an enormously successful one, can run into big trouble when questions of succession and management aren't dealt with in a timely and open fashion. Addressing the questions head-on can help ensure hard-won success continues for years; ignoring them can doom a company to internal warfare and eventual collapse.
Fact is the odds of leaving an ongoing enterprise for the great-grandkids are small. Researchers estimate that only a third of family businesses make it to the second generation, a figure that shrinks to 12 percent for the third generation and a paltry 3 percent for the fourth generation and beyond. (The oldest family-run business in the United States is the Zildjian Cymbal Co. of Massachusetts, which opened its doors in Constantinople in 1623 and moved to America when the Zildjians did in 1929.)
“The Pritzkers made all the classic mistakes,” says Kelin Gersick, a senior partner in the Connecticut consulting firm of Lansberg Gersick & Associates, which advises family-run businesses on issues of ownership, control and succession. “They convinced themselves of one of the biggest of all the fallacies — that a few people at the center can take care of it all.”
Real estate developers often have an especially tough time handling transitions between generations. Notes Gersick: “We've found in real estate development that there's a tremendous amount of intuition and talent involved, and that's not necessarily transferable in a family.” And there often are plenty of assets to tempt family members who are beyond the center of power. The challenges are different for the dynasties of public-held companies, like the Simons, Taubmans and Lowys. Those problems will be dealt with in a future issue.
For now, here's some advice from three of America's private real estate businesses already are developing lines of succession:
Survival depends to a great degree on planning and adaptability. And among developers, there's no better example of how that can be done than Schostak Brothers & Co. of Southfield, Mich.
Lou Schostak and one of his brothers established the firm in 1920 primarily as a commercial, which prospered by representing Detroit retailers as they opened stores in the growing suburbs. Schostak's brother soon left the company, but the name stuck, and by the 1950s the company was well established. That's when Lou's son Jerry joined the firm.
Jerry Schostak helped direct Schostak Brothers to its next big opportunity, shopping center development. The company built some of the region's first malls and eventually built more than three-dozen stores for one of the area's fastest-rising stars, a discounter called Kmart.
Along the way Jerry Schostak had four sons, three of whom eventually went to work for the company. The eldest, Bob, joined after college in 1977, and brother David came aboard a few years later after law school. Still later came Mark, the youngest.
Jerry Schostak made sure they had the right exposure by involving them in strategic issues before they moved into senior positions. Eventually Bob and David became co-presidents and co-COOs of the company, while Mark became president and CEO of the family restaurant business. Their father is still active in a financial institution in which the company invested years ago.
“The business needed skillsets, which each of us seemed to have a natural instinct for,” says Bob Schostak, who is now 47. He and his brothers “are very close friends. We did not have any sense of competitive issues between us. We've been able to build on our strengths and accept each others' roles.”
But dealing with the next generation may be trickier, Schostak acknowledges. “It was easier towith one father and three brothers,” he says. “Now we're dealing with several fathers and all of the first cousins. My sons are the oldest and the closest to considering the business. One is in medical school, so it's become a lesser issue. But my middle son is a junior in college and intends to come into the business, so we're beginning to plan for the fourth generation.”
Among the thorny questions: What qualifies a family member to come in? Joining the company “is an opportunity and a privilege,” says Schostak. “It is not automatic.”
“The brothers are meeting with my son to help guide him through his thought processes — what he should be focused on academically, what the timelines should be for entry into the business, what he should be thinking about if he wants a position in the company,” Schostak says. “We're a very close family and we're going out of our way to make sure the cousins are aware of each other and become good friends.”
Schostak says the company has sought outside expertise for help in the planning (see below for one consultant's tips), and has even sought out other businesses.” The goal is not only to keep Schostak Brothers a family affair but to create a climate in which family members' abilities are put to the best use — a climate that's friendly to new opportunities and is able to capitalize on them, much as Jerry Schostak was able to do in the 1950s.
In Montgomery, Ala., Jim Wilson & Associates Inc. hasn't made as much of an effort at planning for the third generation. After all, the founder — Jim Wilson Jr., 68 — is still on the premises and running things. “There are three votes, but only one counts,” jokes Jim Wilson III, one of two Wilson sons in the business. “We're all together when big decisions need to be made, but the big thing that's keeping us straight is dad.”
The elder Wilson was trained as an accountant and got his start developing markets for A&P — an opportunity cut short when he was recalled to active Arny duty during the Berlin crisis in 1960. Afterward, he spent nine years working for another family's real estate firm before forming a joint venture in 1971 that built 13 malls. In 1975 he started Jim Wilson & Associates, which develops malls and shopping centers throughout the south.
Wilson's two daughters aren't active in the family business, but sons Jim and Will are. Jim, the oldest, worked for Manufacturers Hanover in New York before coming back to Montgomery; Will got his grounding at Donahue Schriber in California. As befits their experience, Jim handles financing issues and Will handles development.
Ironically, financial difficulties in the early 1990s helped the Wilson sons to find their niche. Faced with a tough market, the company pared its holdings and reduced staff. “That helped us to eventually grow, and it gave us our own identities inside the company,” says Jim III.
The company hasn't felt the need to plan much for the arrival of the third generation, whose members range in age from 3 to 19. But the Wilsons vow to remain flexible. “We're taking it day by day and seeing what our industry holds for us,” Jim III says. “The kids are still young.”
The senior Wilson says the company tries hard to be inclusive, whatever the family member's role. “I want to continue as long as I can,” says the patriarch, who had a liver transplant three years ago but is still at the helm. “At the same time I want to structure the place so that the boys as well as the girls participate in everything we do.”
For the family of Malcolm Glazer, there's no time like the present to start thinking about the future. From his humble beginnings in the jewelry business in Rochester, N.Y., in the 1940s, Glazer has assembled a huge and diverse portfolio of businesses — from First Allied Corp., the nation's largest private owner of shopping centers, to television stations to the Tampa Bay Buccaneers.
Now the second generation is carrying the ball, and Glazer's six children are all involved in running the empire. “Our family business consists of so many different parts,” says Ed Glazer, who runs the shopping center side. “W all work together but we do our separate things.”
That second generation now has small children — 10 so far — and Glazer says he and his siblings know the work that awaits them. “The challenges really start with the third generation, when everyone has children,” he says. “You go from six people to 30.”
What to do? Glazer advises others to start thinking about the transition sooner rather than later. “As soon as people start having children they should have conversations they've never had before,” he says. “It really starts with making sure everyone is on the same page today.”
Ed Glazer remembers his dad taking him to work as a child; sitting him down and teaching him the business. Now he's does the same. Glazer talks about his father with pride. It's obvious is that he will do whatever he can to make sure future generations don't mess it up.
WHAT TO DO WHEN THE ENTREPRENEURIAL ROOTS GROW TANGLED.
Kelin Gersick, a senior partner in the Connecticut consulting firm of Lansberg Gersick & Associates, urges companies facing generational changes to create new systems of government — a “cousin consortium” with a formal and objective organizational structure.
A change in mission may be part of that. “The entrepreneurial strategy that carried the first and second generations probably needs modification” at that point, Gersick says.
“What I advise in general, but it's particularly true in this industry, is that the family has to see they have a common enterprise, not just a common business,” he says. “Let the company evolve to fit who they are and what they bring to it, and not jam themselves into the mold of the first generation. Sometimes they must give up what made the original company successful. They need to remember what to focus on — dreams, goals, values, not a particular template.”
But such shifts sometimes face fierce opposition. “The third generation needs to help the company evolve to fit their personal success formula, and sometimes that feels disloyal to the founder,” Gersick says.
The biggest reasons for companies coming apart often are the most basic. “Sometimes you can see fundamental flaws in thinking that cause the collapse — not enough fairness and equity, maybe not a big commitment to finding the best talent, or getting so focused on management that they ignore issues of ownership,” Gersick says.
That last point was particularly important for the Pritzker family cousins, some of whom felt cut off from decisions about their own futures. “People need to feel a sense of belonging and commitment,” Gersick says.
For Ed Glazer, the issue of passing along a strong family business is vital — “something we definitely think about and talk about. It's something you can never be overprepared for. You'd like to think you're building something for generations to come.”