When US businessman Gideon Hixon started his lumber business more than 160 years ago, little did he probably know that his family wealth would grow across two World Wars, face potential ruin on numerous occasions, sustain and challenge six-going-on-seven generations and diversify into exciting and unexpected avenues.
Frank Hixon Foster, chairman emeritus of Hixon Properties and managing general partner of the Gideon Hixon venture capital fund, has seen first-hand the ups and downs of managing multi-generational wealth and has come through the other side with a clarity of vision that will help keep his family on track for many years to come.
In taking Gideon Hixon’s entrepreneurial spirit and shepherding his family through a (nearly) devastating financial crisis, Frank – who also serves as managing director of DFJ Frontier, a Draper Fisher Jurvetson-affiliated venture capital fund – has established educational programmes for his family and beyond (including helping to establish the Legacy Center at Pepperdine Graziadio Business School, an institution dedicated to the education, development and training of next-gen talent in family enterprises), thereby ensuring that whatever predicaments come his family’s way, they’re more than prepared to overcome them together
Here, in his own words, Frank talks about lessons from history and teaching for the future…
The family story starts in the 1860s with Gideon Hixon, who was a successful lumberman in Wisconsin. The business really took off 20 years later when, in the build-up to World War One, there was great demand for crates, and his lumber was very good for that purpose.
So, his business expanded and he moved as far south as Chicago, where he had set up offices in the early 1940s. There, he met two young consultants, Edwin Booz and Carl Hamilton, who are now better known as the founders of the consulting firm Booz Allen Hamilton. They had identified a technology to connect wires without solder and, in the period after World War One and before World War Two, marine and aircraft technology was extremely significant – so any enabling technology was adopted very quickly and this technology was a breakthrough.
In a classic venture style deal, the Hixon family invested the start-up capital into the company called Aircraft Marine Products. The company grew rapidly through the Second World War, but after the war, as tends to happen, the government reneged on all its contracts for the technology. Subsequently, with more financing from the Hixons, the company identified a whole new world of emerging electronics, and they pivoted the technology to make connectors that would go into the electronics industry, which then exploded with the rising age of the computer.
Aircraft Marine Products was renamed AMP and the company went public in 1956. The Hixon family, having benefited from AMP, then chose to diversify into real estate, oil and gas and venture capital, with my father orchestrating the different branches.
The Hixon family suddenly faced the potential of seeing 90% of their core wealth destroyed, having done nothing themselves wrong at all.
THE TYCO CONUNDRUM
Things became a little surreal in the late 1990s, when Allied Signal made a run at taking over AMP. Nobody wanted to work for the guy running Allied Signal, so they were sent into the arms of a company called Tyco, which was run by Dennis Kozlowski, who, at that point, turned everything he touched to gold. Kozlowski was acquiring companies and building this conglomerate, so the Hixons supported AMP in selling the company for $11 billion in stock to Tyco.
In the early 2000s, everything was going well, until Kozlowski threw a $2 million party for his wife with company money, attracting scrutiny. He then got caught shipping his New York-bought art to Tyco’s New Hampshire headquarters and then trucking it back in the middle of the night to avoid taxes. A short seller based in Texas realised that something wasn’t right, and they were able to uncover systemic accounting fraud in the company.
When the fraud was announced, in the wake of the Enron scandal, Tyco’s stock went from $60 to $6, in six weeks and the Hixons suddenly faced the potential of seeing 90% of their core wealth destroyed, having done nothing themselves wrong at all. It was a big panic for the family.
I had graduated from business school and was working in international private equity, when I returned to help everyone figure out what we were going to do. We really had a moment of questioning if we were going to stay together as a family business or not.
This was the fourth generation of Hixons at that point and the fifth generation was young. We were looking at the circumstances and asking if it made sense to have a family business anymore or should we just be selling? So, I came back and led, with the head of our real estate company, a tour around the family where we starkly said ‘This is what it looks like if you sold everything right now. Or if we stay together, this is what it's going to look like… but we’ve got to decide, as a group, are we in are we out?’
Fortunately, 100% of the family said they wanted to stay in. Tyco’s stock price rebounded, and my cousin Dylan Hixon and I launched a successful shareholder lawsuit against Tyco whereby we recovered all of the trading losses that family members experienced selling under duress. By staying together, our businesses were able to grow as projected and it has been a happy ending to a scary story.
INVESTMENT IN FAMILY
In the years after the Tyco lawsuit, I was elected Chairman of Hixon Properties and managing partner of the Gideon Hixon Fund, our venture capital arm. As a family, we got to see what it looked like if there was a real threat of the wealth going away and discovered that the current generation had been overly dependent on inherited wealth, didn't really understand the family businesses and needed to improve how we worked together.
So, at that point, I said if we want to keep this going as a family, we've got to double down on the training of our next generation. We want young family members who are able to support themselves independently, to have a strong understanding of what our family businesses do and to be aligned for the future.
We did everything… We set up advisory directorships for young family members who could participate at the board level; we paid for summer business programmes; we set up an internship program for any young family member to shadow me in the venture capital business for a year; and we started to build our own curriculum and training and development.
I also set up a specialised annual meeting, just for the younger family members, who wouldn't have the pressure of their parents being present and allowing them to learn independently and together as a group. In this meeting, our Next Gens worked closely with the young, non-family management, building important relationships, and understanding for the future.
We have had 15 young family members go through our venture capital training program and more than 30 participate in the other family programs. We now have the first of the Next Gens coming onto the boards of the family companies with a strong pipeline of future members. The whole initiative has worked beyond what we could have imagined – now our new mission statement is to become the world's largest, closest family business.
I think we've always been close as a family, but as they say, “It's easy when it's easy...” During the Tyco crisis, family members were scared, they had a pretty nice lifestyle they feared might go away. Coming out of it, I think we're going to be better positioned than ever to work together for the future.
When it comes to sustainability, we want our young family members to know we get it.
FAMILY FIGUREHEARD BECOMES A BRAND
We also decided to invest in the culture of our family companies. When we formalised our venture capital efforts as the Gideon Hixon fund, that gave us an opportunity to focus on Gideon as a brand for the family. We took Gideon’s better qualities, somebody who was entrepreneurial, who was famous for investing in people and was honest and straightforward, and turned him into a value-driven inspiration who could transcend the generations… If you look at our logo, he may have morphed a little bit to look like Abraham Lincoln, but it has offered a real chance, particularly for our young family members, to know they’re part of something important that they should pass on as well.
PREPARING FOR THE FUTURE
I have a concept called the “Triangle of sustainability” for a family business… Obviously, there's the business itself, which has to be healthy; then you have the family in which we have to invest time and effort on education and communication; finally, the third part of the triangle is the greater good, if we don't pay attention to things like climate change, social justice, income inequality etc, as a family then the other two parts of the triangle may not matter.
When it comes to sustainability, we want our young family members to know we get it. The greater good part is important, but it's a triangle. Unless you're willing to invest in the business and the family as well, we're not going to get to the greater good. My job has been to make sure that education was balanced and that our young family members know this a core part of our shared values… But if any of these things get too far out of whack, the whole thing falls apart.
This is part of the reason why I wanted to endow the Legacy Center at Pepperdine Graziadio Business School to create a world-class, accredited program for the education, development and training of next generation members of family enterprises. It has been a privilege as the leader of a family business working alongside our young family members to support the Pepperdine Graziadio professors to develop the first accredited masters level programme in Family Enterprise. I envision this as an institutional long-term solution for a family like ours – because this will transcend me very quickly – to have our young family members educated alongside members of other families by exceptional, professional educators. They have developed a unique program that combines personal development, communication, purpose, fundamental business skills and experiential learning working in a venture fund. All these elements combined, we think provides an environment for a young family member to understand themselves, business fundamentals and how to prepare for the responsibilities ahead of them – and we look forward to a first class in the Fall of 2025.
BALANCING RISK AND RETURN
When it comes to deciding if a young family member should learn their trade within the family business or, as is more traditional in Europe, work for an external company, we think that just “Shipping them off” creates too much uncertainty and risk.
It’s not that they shouldn't have these outside experiences, but we want to make sure we have some ability to affect that direction as well. It is a very important decision to choose who you trust to train your future leaders. Our choice was to be part of their training but not be insular about it. That way, we know they've been trained in a way we, as a family believe in.
Going to a top college or working at a prestigious investment bank is great, but doesn't necessarily prepare you for returning to a family business… If you're trained by the wrong person, you can learn to be extremely mercenary. You need to make sure that family members are taught a little humility and respect for their situation, that’s something you don't always get from the outside.
We've been very conscious to say to Next Gens, ‘We want to be part of your journey. It doesn't mean we expect you to come back and work in the family business, nor should you expect that you are entitled to work in the family business… But we want to know, at the very least, you're going to be a good shareholder and good stewards for the future.’
The Next Generation of Wealth Holders In The United States 2022, a report by Campden Wealth and BNY Mellon Wealth Management, found that Next Gens show a higher risk appetite [with 34% reporting that switching to a more growth-oriented investment strategy will be their top priority when they assume control of the family business]. I love that the next generation feels that way. You want them to do so much more than just sit on the egg. And that appetite for risk only doubles the importance of investing in the next generation and giving them good training early – which as we have found, is transformative and critical to the future legacy of our family.