Some CEO's Get No Respect

This is the Golden Age of the self-made CEO. Michael Bloomberg, an up-from-the-bootstraps media mogul, was just elected mayor of New York City. Jack Welch, the General Electric CEO who trumpeted his working class origins even as climbed to the heights of power and influence, is a best-selling author. The business media loves stories of men and women who worked their way up from the proverbial mailroom to the corner office. Having broken free of the strictures imposed by birth, education, gender and class, they have thrived in the most competitive environments imaginable. They are the ultimate meritocrats.

For their troubles and their hard work, ace managers like Welch are richly rewarded, and lionized in the press. And so long as they don't screw things up too badly, the boards that oversee them gave them a great deal of leeway.

But in the past weeks, two of the nation's most prominent CEOs have found that the job isn't all it is cracked up to be. Especially when you work at a company that, while publicly held, is controlled or heavily influenced by relatives of the company founders.

ALL IN THE FAMILY

In the 19th century, of course, pretty much all businesses were family businesses. But throughout the 20th century, founders and entrepreneurs started companies, built them up, sold shares to the public, and then turned things over to professional managers if their children were either uninterested in or unprepared for the post. In fact, such outside professional management, separated from ownership, and overseen by a board, which is in turn elected by common shareholders, is a defining characteristic of modern U.S.-style capitalism. The arrangement is both democratic and meritocratic.

But events of the past week have shown that the more aristocratic modes of family businesses are alive and well -- even at multi-billion-dollar, multinational, components of the Dow Jones Industrial Average.

Last week, Jacques Nasser, the hard-driving CEO of Ford Motor Co., was unceremoniously cashiered. Since taking over in 1999, Nasser, a blunt-talking Australian native and 33-year company veteran, had a rough ride. He tried to engineer a new management culture, integrate large-scale acquisitions like Jaguar, all while grappling with a slowing economy and the Firestone tire public relations disaster.

Ford's woes caused the company to slash the dividend it pays in order to conserve cash. That action angered the many descendants of Henry Ford, who depend on such dividends for their subsistence.

SPECIAL PRIVILEGES

Most public companies are democracies -- one share, one vote. But at Ford, some votes count more than others. The Fords control a small percentage of the company's common stock. But the family owns a special class of stock that grants them effective control over 40 percent of the voting stock. Three Ford family members serve on the board of directors. And 44-year-old William Clay Ford, Jr., the great-grandson of company founder Henry Ford, has served as chairman of the board since 1999.

With Nasser gone, the young Ford is stepping into the CEO spot. Now, William Clay Ford, Jr., is by all accounts a smart and well-liked executive, who has spent most of his adult life at the family business. But the largest company unit he ever managed was Ford's Swiss operations. Were it not for his pedigree, he would not be anywhere close to such an august position. And in this time of crisis, he has assumed responsibility for an enterprise with 300,000 employees and $170 billion in sales.

FIORINA'S FUMBLE

Carleton Fiorina, the much celebrated CEO of Hewlett-Packard, is about to learn the same lesson that Jacques Nasser learned. Since taking over H-P in 1999, the controversial CEO has similarly tried to rework a legendary company. The Silicon Valley pioneer has most of its corporate eggs in low-margin businesses like printers and personal computers, and has been further hit by the slowdown in post-2000 technology spending.

Fiorina first tried to diversify, boosting H-Ps services business and attempting to acquire a large consulting firm. When such efforts failed, she tried a Hail Mary. Last summer, with the acquiescence of the board, which includes Walter Hewlett, the son of company co-founder William Hewlett, she proposed to acquire Compaq Computer Corp. in a stock deal then valued at about $21 billion.

From the beginning, some investors questioned the wisdom of combining two struggling PC makers. But Fiorina pressed on, supported by the board. Until this week, that is.

Yesterday, Walter Hewlett said, "The more I see about the deal, the less I like it." He announced that the Hewlett family would vote its 5 percent stake against the merger. Hewlett gave Fiorina only a few minutes notice before going public with his statement. Meanwhile, the descendants of Packard, who control about 10 percent of the company's shares, have sought outside financial advice and are signaling their displeasure with the move. (The Packard Foundation alone controls about 100 million H-P shares)

Unlike Nasser, Fiorina still has her job. But these highly public votes of no confidence for the deal on which she has staked her career don't bode well for her longevity.

SHORT LEASHES

This is not to suggest that having the descendants of families involved in the management of companies is always a bad idea. Frequently, it works rather well. At glass manufacturer Corning, Inc., five separate generations of the Houghton family ran the company, with each pioneering new innovations and growth. Four generations of the Ochs-Sulzberger family have helped turn the New York Times into the best newspaper in the world -- and a profitable one at that.

But some others haven't worked quite as well. Motorola CEO Robert Galvin, the son and grandson of Motorola CEOs, is struggling to regain the company's status as a technology leader. And department store chain Nordstrom's, currently under its third generation of Nordstrom family management, is likewise suffering.

Frequently, CEOs like Nasser are brought into family companies to warm the chairs until the next scion comes of age. But even when there is no heir apparent hovering in the boardroom -- as is the case at Hewlett-Packard -- they operate on short leashes. Executives like Nasser and Fiorina may circle the globe in corporate jets, grace the covers of business magazines, and earn the deference of employees. But at the end of the day, some CEOs of publicly-held family businesses are learning that they are just expensive household help.