Getting the Right People on the Bus - And the Wrong People Off the Bus - In a Family Business

Audio Transcript

I’m actually really glad that that’s the opening question. If I understand it right, it’s a fairly direct question: What if it’s a family-owned business, and you look around and there are some other people on the bus that shouldn’t be holding seats? What do you do?

Our research actually speaks to that pretty directly, because first of all, many of the companies in our research were family companies or are family companies. Walgreens is a family company. Abbott was a family company. And Marriott is a family company. I would put about a third of the companies in our research in the classic category of being family enterprises. But comparison companies were also family companies in a number of cases. So, it’s not that they’re necessarily family versus not; but really, how did the good-to-great or the great family companies answer this question differently from the mediocre ones?

In 1959, a chief executive, or fellow who became chief executive named George Cain, took over a sleepy family company named Abbott Laboratories. George was a fairly remarkable man. He was quiet. He was understated. But he had very inspired standards. His inspired standards were so severe that he just could not stand what the company had become. It was utterly mediocre.

Now, interestingly, at the exact same moment of history, another family company, Upjohn, also had a new chief executive. So, we have this almost perfect test tube. They were the same size, in the same business, with the same family history, with the same basic profitability, at the same moment in history, both with family leaders taking over at the helm. What was different in how they handled it?

Being a Level 5, George Cain was ambitious first and foremost for making the company great. And he said very simply, “I don’t care if you’re my brother or my cousin or my mom or any other family member. For the key seats on this bus, if you do not have the potential to become the best in the industry at your seat, you will not hold that seat.”

I’ve always wondered what Thanksgiving was like.

{Laughter}

George Cain spent ten years rebuilding the seats on the bus because it was a very difficult and arduous process for him. Not only did he change the management seats on the bus, but he also changed the board seats, which took him about ten years. And he said, “Unless I can get the best possible board in this industry, I’m not going to be able to make it. I need to do that, too.” Because of the family dynamics, it took him a decade to get it done, but he got it done.

When you go over to Upjohn, you found a very different pattern. The executive there, facing the exact same situation—I mean, identical—never had the will to say, “If you can’t potentially be the best in the industry at your seat, you will not hold that seat.” And he didn’t go through the ten years of very, very difficult transition.

From a family standpoint, I’d much rather be a family owner of Abbott stock than Upjohn. And in the end, the family prospered immensely, and people could go off and do other things with their lives. Abbott became an exceptional performer. Abbott outperformed Merck two to one, which is a remarkable performance. Upjohn doesn’t even exist as an independent company anymore. Nobody said Level 5 is easy.