Why IKEA and News Corp may fail

By Chris Owen

“Tis our fast intent to shake all cares and business from our age; conferring them on younger strengths, while we unburthened crawl toward death.” So declaims King Lear as he embarks upon perhaps the most misjudged succession plan in all literature.

But if the conception was flawed, the execution disastrous and the result tragic, his intentions were nonetheless admirable. To effect a smooth transfer of ownership, to avoid calamitous internecine conflict and to see his/her chosen successors prosper at the helm during their own lifetime is an ambition worthy of any family head. But often, relinquishing control is beyond their capacity.

Hakan Hillerstrom, who runs an independent Geneva-based family business advisory service, says: “Good entrepreneurs can have great difficulties in handing over to the next generation. Often they have worked so hard to build their business that they may have neglected their children. In such cases the real child is the business.”

Some entrepreneurs, like Bill Gates, are able to step into another world and hand over management to professional managers. “They may still be big shareholders but they free themselves up to take on other challenges, like philanthropy. For others the business is their real baby and they want to nurture it forever. They want to die with their boots on,” says Hillerstrom.

One such example may be Rupert Murdoch, who declares he has no intention of retiring from the global media conglomerate that he has built from the pair of Australian newspapers that he inherited from his father in 1952. In 2003 Murdoch said none of his children had yet proved themselves to be a suitable successor and he side-stepped the issue by saying that his deputy, Peter Chernin, would take up the reins in the event of his sudden demise. So when Chernin stepped down in 2009 it immediately sparked fresh questions about the family succession.

Although three of Murdoch’s adult children from his second marriage have held senior positions in his News Corporation empire, only one, James, currently remains involved – so succession may simply be decided on the basis of attrition. In 2000 his daughter Elisabeth departed News Corp, then, in 2005, the heir apparent Lachlan abruptly quit as deputy chief operating officer to return home to Australia.

Murdoch said he was “particularly saddened” by his son’s decision and thanked him for agreeing to remain on News Corp’s board. Elisabeth turned down an offer of a seat on the board in 2009, but speculation has recently risen that she might be the most likely successor, particularly if News Corp buys her production company, Shine.

Patricia Milner, a partner at law firm Withers and head of the family and business planning group, says: “There are no hard and fast rules on age. It might not be appropriate to start handing over value at 50 but, if an owner continues in full control beyond 70, then you have to question whether a business will be handed over successfully.”

The worst example in her professional experience was a first generation owner who was the sole director and gave no thought to handing over. When he died unexpectedly in his early sixties, his will was inadequate because it failed to provide properly for all his children. There was a court application with various children either defending or
challenging the provisions of the will. “There was, however, still a company to run, with employees and a book of business,” says Milner. “It was extremely difficult to find a third party director to pick up the reins because there was no agreement between the children.”

For Milner, successful transitions require a form of discipline rather than just putting the issue on the back burner. It is a question of how ready the controlling generation is to stand back and hand over. They will get nowhere unless they are prepared to give something up. Ideally there needs to be a shared vision for the future which takes account of family dynamics and can be adapted if changes occur.

In many cases this should be tied into retirement so that the financial expectations of the older generation can be managed and the new generation can be phased in, with perhaps a five to ten-year transition period. Care should also be taken to create a suitable non-executive role in the business for the outgoing owners, where they are freed from day-to-day involvement but can maintain a connection between the generations.

“You have to give the next generation the benefit of the doubt,” says Hillerstrom, citing the Swedish fashion retailer Hennes & Mauritz founded by Erling Persson in 1947, the same year his son Stefan was born. When Stefan was 28 he was sent to work for H&M in England where he could learn to manage the business without being under such close scrutiny.

In 1981, Stefan was called back to Sweden and a year later took over as chief executive. Erling stopped working on a day-to-day basis. Stefan repeated the process in 2009, passing the baton to his 34-year-old son Karl-Johan, promoting him to president and chief executive of the business.

The opposite is true of another Swedish business, furniture retailer IKEA. Founded four years earlier than H&M, it is still very much in the grip of its founder. Although Ingvar Kamprad has not officially been involved in the running of IKEA for years, he retains the title of senior advisor and, IKEA employees uniformly say, still makes the calls on big decisions. He has repeatedly resisted pressure to take the company public, feeling that it would slow its decision-making processes that have allowed its phenomenal growth.

In 1982, he established the Stichting INGKA Foundation, a Dutch charitable foundation whose stated purpose is to promote innovation in architecture and interior design, into which his fortune is channelled. By doing so, Kamprad in effect “disinherited” his three sons - Peter, Jonas and Mathias – all of whom work for IKEA.

According to Rüdiger Jungbluth, author of “The Eleven Secrets of IKEA’s Success,” this was intentional. Kamprad wanted, says Jungbluth, to avoid his sons one day fighting over his fortune. The succession at IKEA has been an openly debated question in recent years, but Kamprad has seldom shed light on the issue. At a family meeting in 2008 all three sons ruled out taking over. “As I see it, it is not an option. I do not think that any of them will do it. It would only happen if one of them had a radical re-think,” Kamprad said in an interview in Sweden.

The IKEA founder made clear in the interview that he understood his sons’ position and told of the sacrifices that he felt he made in the role as chief executive, a post he held until 1986. “I have said to the youngsters that if I was in their shoes I wouldn’t take a CEO job. I know that it is a very tough job,” he said.

“The difference between successful companies over generations is passing it on at the right time,” says Hillerstrom. “You have to trust and give power to the next generation. There may be a lot going on behind the scenes at IKEA but, because of the secrecy, it is very difficult to judge.”

Another example he provides is the Hartwall family in Finland. In 2002, the fifth generation of the family merged their beverage business, founded in 1836, into the UK-based brewer Scottish & Newcastle. The merger generated substantial wealth in shares for Hartwall family members, which were later sold to the Heineken Group.

“They asked the next generation what they wanted to do,” says Hillerstrom. “As a result, they formed a family office to operate as an investment manager for the whole Hartwall family, but also allowing individual family members to make personal investments. The power now lies with the younger rather than the older generation. Finding a way to empower the next generation should always be the first step.”

The oldest family business with which Milner has been involved is now in the hands of the eighth generation, and there are many relations with third, fourth and fifth generation families. They can differ radically in structure and approach. Some have swollen to over a thousand family members while others have cut out branches as the generations pass so ownership remains concentrated in small numbers. It all depends on how the family tree has been managed.

“A family business is very personal, particularly for a first generation. It is not easy for entrepreneurs to carve up the business they have created between the children,” says Milner. “The process should involve some form of fundamental agreement – a family constitution or a statement of beliefs. This should establish a core set of values that family members have bought into and provide a clear direction of travel so that, when issues arise, there is a journey to follow.

Milner adds: “A succession plan must address the ownership of the business as well as the management.”

Kamprad, who will be 85 this March, has been pulling the strings at IKEA for over six decades and remains chairman of the Stichting INGKA Foundation. Murdoch, who will be 80 this March, remains chairman, chief executive and controlling shareholder of News Corp. In both cases their success may be assured, but their succession is uncertain.