In 1937, and in the darkest days of the Great Depression, Albert and Frances Lundberg moved from Nebraska to Richvale, in Butte County, to escape the Dust Bowl and start their rice farm. The couple later handed the farm down to their children, then their grandchildren.
Eighty years and four generations later, Albert and Frances’ grandson Grant Lundberg now sits at the helm as CEO of a business that employs over 350 people, harvests rice from roughly 20,000 acres and (by their estimates) sells more organic rice than any company in the U.S.
Yet growth can cause problems. As the company grew in size and scale, the generations soon had different thoughts on how to run the business. In 2005, for example, the farm still used a fleet of old workhorse tractors from the ‘60s and ‘70s. The tractors were beloved and sturdy — yet slow, plodding.
“Our younger generation saw the need for speed,” says Tim Schultz, president of Lundberg Farms, and son-in-law to Homer Lundberg (still active in the company), who is the youngest son of Albert and Frances. “We wanted a newer fleet that would be faster, which would give us a tighter planting season.” The new tractors in question had GPS tracking and were less likely to break down.
“In business, the currency is money. In politics, the currency is power. In family business, the currency is control.” Kurt Glassman, founding partner, Leadership One
The older generation balked: Why waste money on an unproven technology? Why should we trust the new tractors’ whiz-bang claims? The old fleet is tested. Proven. The decision to revamp the fleet could make or break the company — and on top of that, if handled poorly, could bruise egos, hurt feelings and poison familial relationships. It’s already difficult to keep a family business afloat for as long as the Lundbergs have: Only 30 percent of family businesses make it to the second generation (G2), only 12 percent to the third (G3).
The Lundbergs faced a problem that confronts every long-running family business: the generational divide. This divide can wreak havoc on financial management, succession planning and operations. And regardless of where the tension arises, the root of the issue remains the same: control.
“In business, the currency is money. In politics, the currency is power. In family business, the currency is control,” says Kurt Glassman, founding partner of Leadership One, a Sacramento-based consultancy that focuses on family business.
Keeping It In the Family
Younger generations, in many cases, don’t have the same values as their grandparents. Younger employees tend to want more flexibility and independence, and of course millennials are notorious for job-hopping. Centuries ago, it might have been easier to bank on junior taking over the family business — there were simply fewer options available. So how can older generations entice their progeny when the competition is that much stiffer?
Robert Rivinius, executive director of the Family Business Association of California based in Sacramento, says this is one key reason why family businesses fail: “The son or daughter just might not be interested.”
Happily, there’s one very specific thing a company can do to boost the odds of a smoother transition: Send the young’uns away. “The trend now is to have the next generation go and work somewhere else for two years, and then come back to the family business,” says Stella Premo, executive director at the Capital Region Family Business Center, based in Roseville. “Less and less people are being told, ‘You’re going to work in the family business.’” Sure, this comes with the risk that the kids might go to grad school and get wooed by another company, but there’s also the chance they will return with new skills, reenergized and better equipped to be groomed as CEO.
Working elsewhere also helps the younger generation learn the value of what their ancestors have built. Maybe dad’s construction company wasn’t interesting to a high school grad, but after some time away to explore other environments, “they might develop a deeper appreciation for the business model,” Premo says.
A hiatus from the family shop can be so rewarding, in fact, that some companies now compel their children to leave the nest. “Some firms insist that family members spend five years doing something else before working for the company,” Rivinius says. “There’s real value in having them see the outside world, and not getting too jaded by the way their company does this or that. It also helps enforce good values: Don’t expect to start with a corner office and BMW.”
And to get all the generations on the same page with family values, it can be beneficial to give the younger generation an early dollop of leadership. “Provide them with a clear development path. Support it with resources and training. Give them exposure to other jobs and roles,” says Arne Boudewyn, managing director of Abbot Downing’s Planning, Family Dynamics and Education division, an arm of Wells Fargo that focuses on family businesses. “Identify your emerging talent, and give them more to do.”
All About the Benjamins
Our attitudes toward money evolve as we age. So it follows that when a firm grapples with a hard choice about money — like how to allocate a cash windfall or, more often, how to deal with the crushing costs — the older and younger generations might not see eye to eye. Glassman says the secret is to “have those discussions before the money is on the table. If we have a huge windfall, what are we going to do? If we have to reduce our annual distributions, what are we going to do?” By squarely addressing these scenarios before they become a reality, this helps tamp down the emotions.
More specifically, Glassman says that it’s crucial to negotiate exactly what the funds should be used for, as opposed to just assuming the other generation is on the same page. “Parents should talk about the distributions openly,” says Glassman, and clarify what they expect the children to do with it. A retirement fund? Spending money? Whatever the purpose, it’s better to be transparent. “This way the parents won’t be surprised or disappointed,” he says. ”
When the younger generation — like Tim Schultz — tries to convince the elders to funnel resources into a new investment, they should try and “bring the older generation into the project,” Premo says. “Sometimes when we’re young and ambitious and we have this great idea, we get into our own little bubble, and we present this beautiful thing — the best invention since sliced bread — to the older generations, and they won’t buy into it.” Instead of presenting the investment as a fait accompli, the G3s or G4s should loop in the older folks from the beginning. “Articulate what the benefits of that investment are. Help the older generation understand why,” Premo says.
That’s what Lundberg did with the tractors. Schultz and the G3s (in their 40s) argued that each year the spring season was growing shorter (partly due to climate change) and that because of this tighter window to plant seeds, they needed faster tractors. The G2s (in their 70s) didn’t buy the logic; they were also skeptical of climate change. (“That was a generational issue,” Schultz says.) So instead of getting into a shouting match or a passive-aggressive clamoring for control, they decided to let the facts decide.
“We said, ‘Let’s go out and rent the equipment and test it side by side,’” Schultz explains. “One field with the old equipment, one field with the new equipment.” The results? With the old 1960s-era tractors, it took six to eight weeks for a cycle of rice. “Now we can get the crop in two to three weeks,” Schultz says. During a wet season (like this past year), that can make the difference between a triumphant season and a catastrophe. The G2s were convinced. They bought the new fleet.
But what if the younger, hungrier generation wants to steer the company in an entirely new direction? Or even something more simple, like launching a new product, or unleashing a risqué new ad campaign? Again, it helps to get the older generation onboard as early as possible, but sometimes that’s not enough. Sometimes the generational divide is more like a chasm, and it’s time to bring in the cavalry: a board of directors.
“One reason for failures in family business is that they don’t have a functioning board,” Glassman says. He says that every family business that makes the jump from G2 to G3 (except tiny mom and pop shops) needs a board of directors. This allows an independent, outside voice to help arbitrate the generational divide.
For the younger generation: Glassman says that whether you are pushing changes to the operations or to the firm’s strategy, it can be helpful to frame the argument in how the plan will help preserve the family values. “If the older generation hears that we need to change to a new software platform because, without it, we will no longer be able to achieve our historic values of great customer service, that’s a powerful argument,” he says.
In terms of advice for the older generations, Boudewyn, of Abbot Downing, says it’s crucial to remember that the spunk, hunger and innovation of the younger generations is what helps a firm survive. “When you look at 100-year family enterprises, the ones that last are the ones that adapt, change and grow,” he says. “We see so much that’s positive in the younger generation — the enthusiasm of the millennials. That sense of, ‘Anything is possible.’ That kind of visionary thinking can be just what the business needs.”
Take the law firm of Rediger McHugh, a small, Sacramento-based shop that focuses on labor, employment and class action defense. Bob Rediger hired his daughter, then his son and then his other daughter as the firm’s associates. (It helps that he has been teaching them law all their lives; they learned the basics of collective bargaining agreements via negotiating their weekly allowance.)
Rediger’s children bring more than just companionship and a friendly work environment — they bring new skills. His son, Justin, suggested a new case management software which was more efficient. The three kids update the firm’s website with new blog posts. And they all speak in a conversational shorthand that gives a competitive advantage.
As Glassman says, “When it works, it works. When the family is in harmony, and when there are shared values, trust and a common vision, it’s just an awesome place to be. Everything is in a rhythm. It’s like being in a special relationship.” Suddenly work is about more than quarterly results, boosting the value of the stock or even crafting a great product — the job becomes, quite literally, a labor of love.
Rediger is a believer. So are his three children/associates. “There’s an extra buy-in element, from a teamwork perspective,” says his daughter Candace. “There’s a greater sense of responsibility to make sure the firm has a good reputation, and succeeds.” (In other words: No one wants to be the family’s weak link.) It’s one thing to flub your annual performance review, it’s another to disappoint your father. You step up your game.
So will the Rediger firm recruit any offspring Bob’s three children may have? They consider the question as a group — then laugh, and chime in together: “We’ll see.”
There are good reasons to focus on the special challenges posed by family businesses, like how to keep family resentments from turning to business rivalries and avoid nepotism that results in the wrong people working in key positions. But for some Sacramento immigrant family businesses, blood ties have been the key to survival.
You may not know them by name, but their successes have defined Sacramento’s culinary scene: Thanks to brothers and native Sacramentans Mason, Alan and Curtis Wong, the energy on a two-block spread of L Street comes to a rapid boil on game nights, weekends and holidays — that is to say, most nights of the year.