Lessons learned from 30 world business families With the 6C formula for success and (not) success in Thai family businesses (Part 4)

Lessons from a successful family business

In the last 3 articles, I wrote about lessons learned from Business Family, "Lessons from 30 Business Families Behind the Scenes of World-Class Family Businesses" by Professor Dr. Krisdalert Sampantharak, or Ajarn Nong, of which 11 were not successful, by extracting lessons and applying the successful formula of family businesses to the remaining 19 business families, totaling 30 business families, for you to read.

1. Company Estée Lauder, an American cosmetics company

The Estée Lauder business is a cosmetics business founded by husband and wife team Joseph and Estée of the Lauder family or ELC. Currently, there are more than 10 cosmetic brands under ELC such as Clinique, Origins, M A C, Aveda and La Mer. This business was started in 1946 and is now 75 years old. The husband and wife team divide the tasks, whether it is Estée who thinks of formulas and markets, while Joseph is responsible for production and management of the business.

The business was inherited by the eldest son, Leonard, and the second son, Ronald, with Leonard becoming the president and CEO of the company and responsible for the expansion and acquisition (M&A) of various brands, including Leonard's wife, Evelyn, who also helped run the business. It is considered a family business that allows the daughter-in-law to enter the family business.

Today, Leonard's two sons, the third generation, William, took over as chairman and CEO from his father in 2, while his younger brother Ronald is the executive of the Clinique brand. Ronald's daughter Aerin, owner of the Aerin brand under the Estée Lauder company, has also joined in the management of the business.

Today, the Estée Lauder business is 75 years old and is operated by the 3rd and 4th generation heirs. The Estée Lauder family business adheres to the principle that business and family cannot be separated. From an interview with Joseph, he said, "We are more than Family business. We are Family in Business."

This philosophy is the business philosophy of Estée Lauder up until the present. The principle of Family Business is that “family members must work together and be involved in the family business seriously, not just as owners. Because for them, work is family and family is work.”

However, despite Estée Lauder being listed on the stock exchange since 1995 and having been successful throughout, it still faced problems, such as the COVID-19 situation and the slow growth of the Chinese economy, which caused Estée Lauder's product sales to fall significantly, causing the stock price to fall by more than 50%.

In addition, there is conflict within the family who have different opinions on the matter of changing the CEO of the company. Leonard wants an outsider, Fabrizio Freda, to be the CEO instead of himself. Meanwhile, the family wants Jane, Ronald's daughter, to be another option. The conflict between father and son, William and Leonard, still exists, both in terms of the CEO and also in terms of differences in business policies.

This family grew up with love, and many people expected that love would be able to eliminate the conflicts in the family business. Back then, Leonard had conflicts with his mother, Estée, in business, but they came to an agreement with love.

lesson learned

This family business has proven that even if the founder of the business dies, the decline is due to the children fighting and splitting up, and especially allowing the sons-in-law and daughters-in-law to enter the family business, the family can still thrive until today.

The Estée Lauder family business has been successful in the cosmetics manufacturing and distribution business by expanding the business through M&A to acquire various brands. When there is a conflict, the 5th C principle, Compassion or “Love”, is used to solve the problem and create growth for the family business.

In addition to having a structured listing on the stock exchange, which is considered a tool that helps this family business grow rapidly, but the changes that occur from the economic situation, wars, and disasters of the world or the COVID-19 situation, the 6th C, Change, is something that family businesses must be ready to adapt to in time with what is happening.

Especially when conflicts arise between family members, the handover generation and the receiving generation, in a way that will drive changes in the new business model, we can only hope that the Estee Lauder family will be able to overcome the conflict by relying on the love of the family to eliminate conflicts in the future.

2. Business family Levi's USA

The founder of the Levi's jeans business was Loeb Strauss, who later changed his name to Levi, which was founded in 1872 by patenting the production of jeans using metal rivets to fasten them to durable fabric. Levi's jeans quickly became popular until Levi died without children and Levi left the business worth 6 million dollars to his nephew, who was unable to manage the business and almost closed it until an outsider, Walter Haas and Daniel Koshland, who were married to a descendant of Levi, came to manage in 1919 and became the president.

The Levi Strauss business became profitable after World War II because Levi decided to change the business model from a wholesale business to a clothing manufacturing business only. This change was life-or-death for the company, but eventually the Levi's business grew by using celebrities in advertising and these celebrities started wearing Levi's jeans. Levi's jeans became popular all over the world until the 2th generation heir decided to take the company public in 4.

By the fifth generation, the family business began to suffer because the structure was too complicated. In 5, the eldest son, Robert Haas, took the stock off the stock exchange by borrowing $1984 billion until the closure of the US factory in 1.7. The downturn continued into the 2003s. The company agreed to hire a professional executive, Chip Bergh of Procter & Gamble, to save the situation without any family members.

Under new CEO Chip Bergh, the business has been transformed, profitable, and debt-free, allowing the company to plan for the long term without having to change its strategy to meet the demands of stock analysts and other shareholders. The company was then relisted in 2019 to streamline operations, diversify assets and reduce risk among its 200 family members, who all hold more than 75% of the voting rights.

If you look at it, you will find that the three executives, Walter Haas, Daniel Koshland and Chip Bergh, who are not heirs or successors of the family, have turned the company around for more than 3 years by professional outsiders.

lesson learned

The first agreement to change the business model made the jeans business successful. Taking the company public during the boom was one option, but later it failed. Long-term changes were difficult, so it was necessary to delist the company from the stock market. Until a professional came in to manage it. When the situation improved, it was listed on the stock exchange. It can be considered an adjustment to keep up with the changes.

Family businesses must always improve, change and adapt according to the 6C principles; otherwise, it will be difficult for the family business to survive. Entering the stock market is one option for sustaining the business, including allowing professionals to help manage the business instead of having incompetent family members manage it, but allowing them to remain as shareholders until the company has lasted more than 170 years until today.

3. Family business Ford, Ford Motor Company of the United States

Henry Ford founded the business in 1901, then ceased the business, and the company became General Motors (GM) in 1909, until now, he entered the Ford Motor Company or under the name Ford cars again in 1903 and created a car in 1918 called the Ford Model T, which made Ford control half of the world's automobile market. He had an only son named Edsel Bryant Ford, who helped design and create prosperity for the Ford Model A in 1927. This son of Henry Ford is a person who is good at designing because he has a passion and talent for art.

Even though this son was appointed as the president of the company, Henry Ford did not let go and continued to play a role in decision making until his son, Edsel, gave up and separated himself until he died at the age of only 49. Later, Edsel's wife, Eleanor Clara, came in as a daughter-in-law, giving Ford an ultimatum to step down from the business and hand it over to Henry II, Henry's grandson and Edsel's son, to inherit the business, causing Henry Ford to give his power of attorney to his grandson to take over, and Henry Ford later died at the age of 84.

After that, the family business became a public company, listed on the stock exchange in 1996, allowing the company to have investors or shareholders from outsiders. However, the Ford family still controls the operation through voting shares, which are 40% more than common shares. Members of the Ford family have played a role in the business, starting from the third generation, Henry Ford II, until it was handed over to an outsider for 3 years. After that, Edsel Ford II, the only son of Henry II, was the chairman of the board until his retirement in 2, and the son of William, Edsel's cousin, also became the company's chairman and CEO.

Ford is currently being run by the fifth generation of the company, and Ford Motor is still a family business even though it is listed on the stock exchange. The family believes that if the family holds a large stake in the company, it will provide stability and when there is a problem, they will not let it happen. The Ford family business has grown for more than 5 years and has been successful because of the foundation of the founders, even though there were conflicts between father and son in the first generation.

lesson learned

It can be seen that family business management and handover planning are important. Having family rules and constitutions written in the search for successors and defining the role of the handover would not cause these problems. And if Clara, the daughter-in-law of Henry Ford, the founder, had not given an ultimatum to Henry Ford, the founder, to step down that day, today Ford Motor may not be in a position where a family member has run the business and flourished for 5 generations.

The structure of the listing in the stock market where the family still holds the majority of shares to fully oversee the business is a good lesson that listing in the stock market is beneficial. If the family still wants to control voting, a holding company may have to be set up to hold shares. In Thailand, it is not yet possible to make companies in the stock market have shares with different voting rights.

3 Family Businesses that are Successful and Lessons Learned, as examples of family businesses in the United States, that have been mentioned should be applicable to companies in Thailand. In the next article, I will bring lessons learned from the success of family businesses in other countries in Asia and Europe to learn more about the success of these family businesses.