Family Matters
Insights into Family Business Planning
Suzanne H. Northington
August 6, 2007
Truett Cathy was facing one of his toughest business decisions. It was 1970, and the founding
father of Chick-fil-A was grappling with a bid by Morrison’s Cafeteria to buy out his company.
For Cathy, the consequences of the offer were staggering. Should he stick to his original
dream of creating a multigenerational family business, or reap the financial rewards of cashing
out? The offer was tempting, but was it the right decision? Unsure of his direction, the deeply
religious Cathy turned to his teenage sons, Dan and Don (“Bubba”) for their help.
Dan, then 15 years old, remembers the day vividly. “I remember my Dad asking Bubba and me to
get on our knees and pray about whether or not we should sell the business.” And pray they did,
night after night, until they believed that God had vetoed the idea of a Morrison’s buyout.
The incident proved to be a pivotal event for the future executive. “It had an enormous
impact on me,” says Dan, “that my father thought so much of me, a young kid, that he would ask me
to be involved in his business.”
For Dan, who today serves as its president and chief operating officer, this was an early
lesson in how God, family and Chick-fil-A would become inextricably linked. “It left an indelible
memory for me as a kid and made me realize that this business could be my life, my passion, God’s
calling in my life,” he recalls.
Truett and Dan Cathy
The idea of bringing children into the family business at a tender age is an old-fashioned
idea straight out of the early 20th century. Most family businesses today see such practices as
out-of-step with contemporary mores. But for the Cathy family, early indoctrination in the family
business — “from the sandbox to the boardroom” as Dan likes to say — is a cornerstone of their
succession planning strategy. For them, Chick fil-A’s very survival as a family business
rests on this idea.
Some 30 years later, Dan Cathy gave his own two sons the same early training in executive
leadership. “When my boys were in high school, I went to them and said, ‘Guys, we have the
opportunity to expand in Indonesia, where it might not be popular for us to be closed on Sunday. I
need your counsel as to what we should do.’ ” Thus, the Cathy teenagers functioned as consultants
to their father on whether to uphold Chick-fil-A’s now famous closed-on-Sunday policy, or risk a
culture clash in the predominantly Muslim country.
To be sure, succession planning is very serious business at Chick-fil-A, a company that the
Cathy family is committed to own and control indefinitely and where selling out is not an option.
But Dan believes that permanent Cathy ownership will not be possible without rigorous and
disciplined succession planning. “The whole subject of succession is vital to the long-term success
of our company. If a business cannot successfully transition into the next generation, then the
whole company can fall apart, like a house of cards.”
A research study led by Dr. Joseph H. Astrachan, executive director of Kennesaw State
University’s Cox Family Enterprise Center, lends credence to this idea. According to the 2003
American Family Business Survey, about 70 percent of family businesses fail to survive to the
second generation. The reasons for this phenomenon are complex, but the failure to successfully
execute a transition to the next generation is clearly a major factor.
At Chick-fil-A, it all begins and ends with the family itself. The family business is only as
good as the family that underlies it. That’s why the Cathy family places a strong emphasis on
teaching the younger generations to get along with each other, since these same kids will one day
be business partners, managing a huge corporation. “If they don’t get along as playmates in the
sandbox,” says Dan Cathy, “they won’t get along 40 years later in the boardroom.”
In an effort to foster leadership and communication skills in the latest generation of Cathys
—the grandchildren of Truett Cathy — the family has developed special groups, which are dubbed Gen
I, Gen I Plus, Gen II, Gen II Plus, Gen III, and you guessed it, Gen III Plus. This curious
shorthand represents successive generations of Cathy family members (the “Plus” is a designation
for spouses), who meet regularly for work and play. Gen III even has its own password- protected
private Web site — no parents allowed — where it can freely network, e-mail and blog each other.
Says Dan of this highly organized childhood business training, “We didn’t want to leave it to
chance that this next generation would figure all these things out.”
The family biz isn’t for everybody
But while a structured program of childhood involvement in the business works well for the
Cathy family and is even a model revered by other family businesses, it is increasingly less common
among family businesses today. Changing child-rearing practices since the ’60s have placed greater
value on letting children decide their own futures. Some parents even see forcing a child into the
family business as psychologically harmful.
Jean Mori, founder and chief executive officer of Mori Luggage & Gifts, did not groom his
children in the family business. “I never wanted my children to think they would work for Daddy
when they got out of college,” he says. “Nor did I have a vision in them working in our stores.”
Instead, Mori encouraged his children to pursue their own independent path. “Children should
first have successful job experience elsewhere to give them confidence that they can succeed in the
family business. They need to feel that they’re not dependent on Daddy, but can make it on their
own.”
Dan Cathy agrees children need to first accrue some non-family business experience. “Let them
grow up and make their mistakes elsewhere,” he chuckles.
Mori successfully transitioned the family business to his son, John Mori, in 1999. But John,
now the president and chief operating officer, came to this role almost by default. In fact, the
oldest daughter, Liz, was expected to take over Mori Luggage & Gifts. But in the Mori family,
nothing about succession was preordained from birth. Jean and his wife Betty, both Emory University
graduates, believed in letting their children decide for themselves. When Liz opted instead for
Harvard Business School and a career at Price Waterhouse, John decided to take a shot at learning
the family business. The Emory MBA–graduate had several years of management experience from Proctor
& Gamble.
But he didn’t start at the top. Instead, John served a 10-year apprenticeship at the stores,
learning the retail business from the ground up. Jean Mori says, “We felt it was very important for
him to work his way up through the ranks, proving himself at each point.”
Chick fil-A follows many of the same practices. Gen III members of the Cathy family are
expected to start at the bottom — in customerfacing jobs right in the stores. For example, Andrew
Cathy, son of Dan, first worked outside the family business as a high school teacher, before
becoming a franchise operator at a Chick-fil-A store in St. Petersburg, Fla.
Jean, John and Betty MorI
Complex family, complex transitions
How a family chooses to transition to the next generation can be as complex as the family
itself. No one knows that better than H. Inman Allen, chairman of the board of Ivan Allen Workspace
LLC, and now the 67-year-old patriarch of one of Atlanta’s oldest family businesses. The business
is now in its fourth generation of family leadership, starting with Ivan Allen Sr., the salesman
who co-founded the office supply house in 1902; to Ivan Allen Jr., the legendary Atlanta mayor; to
Ivan Allen III, a major Carter Center fundraiser, who led the business through a period of strong
growth only to pass away unexpectedly at age 53; to his brother, Inman Allen, the accidental CEO
who led the company through a major transformation to an office furniture and technical services
company; and, finally, to Louise Allen, 33-year-old daughter of Inman and current president.
Inman Allen says the successions from Ivan I to II to III proceeded smoothly, reflecting the
common practice of the times, whereby the first or only son was groomed to take over the family
business. When Ivan III, oldest son of Mayor Allen, came along, there was no question that he would
become the leader.
“It was a foregone conclusion that my brother would go into the business,” says Inman. “He
was groomed from an early age as the successor. But that wasn’t true of my younger brother and me.
We had no childhood experience in the business. Neither of us every really thought about working
for it.”
But unexpected events changed this simple succession plan. Ivan III’s sudden death in 1992
took the family by surprise. “My family frankly did not know what to do with the business at that
point,” Inman says. “We were like a deer caught in the headlights, and were seriously considering
selling it. But after a few years of deliberation, my father, who was still the patriarch at that
point, decided I would run the business.” Thus, the son who was never groomed for it and who had
never thought of working for it, became its CEO in 1995.
The story of the Allen family is typical of many family businesses, which must alter their
succession plans in the face of unforeseen events. Most importantly, it underscores how important
it is for families to have a plan B for succession. Whether or not the family business survives a
succession crisis depends largely on the underlying strength of the family itself. In the case of
the Allens, the family had both strong family bonds and the leadership skills of Inman Allen from
which to forge a new path for the company.
As the 20th century drew to a close, the need for change at the old Atlanta company was
evident. In a new age of warehouse stores and big-box retailers, Staples and Office Depot had
emerged as powerful competitors. By 1998, the Ivan Allen Furniture Co. was forced to sell off its
supply business to Staples. The son once presumed to be the next heir apparent, Ivan IV, left his
family’s business to work for Staples. By the early 21st century, and with no clear successor to
him, Inman Allen was toying once again with the idea of selling the family business.
Fortunately, for the future of Ivan Allen, Inman’s daughter returned to Atlanta from New York
at an opportune moment, and agreed to assume leadership of the business. What makes Louise’s
succession noteworthy is how this great-granddaughter of the founder has emerged as the
sole-remaining Allen owner after buying out her siblings’ interests.
“Family businesses can run into problems if they get too widely disbursed among too many
different branches of a family, and I recognized that,” says Inman.
Control issues
The Allen family has also made a concerted effort to place ownership control only in the
hands of the participating family member. The problems associated with non-participatory children
having ownership control are well known. Benton Express Inc., a 73-year-old Georgia family trucking
business, is currently grappling with this issue. The business assets were bequeathed equally to
Herbert “Chip” Matthews, its president, and his sister from their grandparents through a
generation-skipping trust.
But while this arrangement may have been beneficial from an estate tax perspective, it has
generated conflict in the family. That’s because the sister has no management role in the company,
but equal ownership. According to Chip, she disagrees with him on the future of Benton Express, and
like many non-participatory owners, would benefit more from selling it than keeping it.
Herbert "Chip" Matthews
Not surprisingly, Chip Matthews sees greater value in keeping it. And from this
experience, he has learned a hard lesson in succession planning. “When it’s time to pass the
business on to my three children, I will never split a business asset among them, especially if one
of them is not actively involved in the business.” He now believes in the old estate-planning adage
to hand down one asset per child.
Many family business executives share this view. But Jean Mori has approached the issue in a
different way. Believing that participatory offspring should have greater ownership shares than
non-participatory, but that the latter may have a legitimate interest in exiting the business at
some point, Mori has a buy-sell agreement in place. “It has provisions that allow John’s
(non-participatory) siblings to cash out their ownership in the future, if they want to use the
money for some other purpose.” The agreement is also for the purpose of preventing gradual dilution
of family ownership via small stock sales to outsiders, but if Mori’s heirs do decide to sell, it
gives them a way to do it.
Each succession story is as unique as the families themselves. The way a family chooses to
pass on a business invariably reflects their own unique family values. According to Dr. Astrachan’s
research, the data shows that rapid turnovers are as successful as long drawn-out ones.
But regardless of how succession is done — and there are no wrong ways to do it — it is
almost always a mistake not to plan at all. Most consultants recommend that family businesses
should have a succession plan in place by the time the current owners are in their early 50s.
Considering how high the stakes are, no family business can afford to ignore this advice.