When Junior lacks the family royal jelly

FINANCIAL POST

'You can hire better than you can sire,' says one successful entrepreneur

When Junior lacks the family royal jelly

BY THOMAS WATSON

TORONTO - If the Eaton family had sent the boys to an industrial psychologist, the 130-year-old retailing empire may not have ended up in the hands of Sears Canada, according to an expert who specializes in testing people behing groomed to take over family run businesses on both sides of the Canada/U.S. border.

In fact, all entrepreneurs who have built successful companies should subject their offspring to psychological testing before considering whether or not they will hand over the corporate helm to their children, says Dr. Richard Wolfe, a Rochester, N.Y.-based industrial psychologist with 18 years' experience in the offspring-testing business.

If they don't, Dr. Wolfe says, the "handing down" of power fails at least 50% of the time because children of successful entrepreneurs often lack their parents' drive, passion, commitment and willingness to sacrifice.

Much like being responsible for the family car, a kid simply does not care as much because he did not pay for it, he says.

"They weren't the ones who created the business, they weren't the ones who built it, they weren't the ones who had to keep it afloat. They may have benefited from it, but they didn't have to do it... It's not their baby."

The trials and tribulations of Canada's family run businessers is the stuff of which books are made, especially with the fall of so many high-profile companies such as T. Eaton Co. in recent years.

In his book, In the Blood: Battles to Succeed in Canada's Family Businesses, author Gordon Pitts makes much of the infighting that comes hand-in-hand with living in a successful household. He interviewed troubled entrepreneurial parents such as Alfred McInroy Cuddy, founder of Cuddy International Corp., Canada's largest turkey breeder, who apparently thinks "you can hire better than you can sire".

Family businesses dominate some of the largest sectors of the Canadian economy. They employ about six million people and generate about $1.3-trillion in annual revenue.

Dr. Wolfe says psychological testing helps determine if a corporate kid actually wants to be put in charge of Family Inc. and whether or not they have what it takes to do the job - successfully.

Simply put, Dr. Wolfe conducts a series of interviews and test to measure cognitive ability, motivational makeup and behavioural tendencies. He then compares the results to his assessment of the talents and personality of the company founder, looking for reasons why his clients may not want to "pass the business along".

Doug Robbins, president of Robbinex Inc., a Hamilton-based mergers and acquisitions consultancy, which markets Dr. Wolfe's services in Canada and the United States, says sending "heir presumptives" to an industrial psychologist has certainly helped many of his clients define "appropriate roles" for all concerned when the head of a family business steps down.

Mr. Robbins says his firm often encounters situations in which parents simply assume their kids have what it takes to do the job, recalling a ma-and-pa shop that was preparing to hand down the reins to two daughters until they were told: "They'll make great housewives, but they'll never have what it takes to run a company."

Psychological testing, however, can work both ways, he says, pointing out that the founder of a Waterford, Ont.-based farming equipment business was convinced to pass control to his son after testing found him to be equal, if not superior, to his father in motivation and ability.

Dr. Peter Hausdorf, an industrial psychologist with private sector experience who now teaches at the University of Guelph, has doubts about the services being offered by Dr. Wolfe.

Dr. Hausdorf says "similar skill profiling" is a common practice as a general approach in the selection field of industrial psychology. But while he considers Dr. Wolfe's services to be reasonably priced, he has a problem with using personality testing, which he thinks "has its drawbacks," to judge how offspring stack up to an entrepreneurial parent.

"What's he's trying to separate is the contribution of heredity from the contribution of environment. It's such a complex thing. In some cases you have entrepreneurs who have entrepreneurial offspring, and in some cases you don't," says Dr. Hausdorf, who is not aware of any evidence to support a 50% failure rate in the handing down of power within family businesses.

'HANDING DOWN OF POWER FAILS AT LEAST 50% OF THE TIME'

Industrial psychology works better for executive search firms and the HR departments of major companies, Dr. Hausdorf says, because they test thousands of candidates for similar jobs and can assess their "hit rates" over many years, something that can't be done when making a single call on an individual's ability to take over a family firm.

Dr. Hausdorf also points out that businesses, especially family run start-ups, often benefit from being run by someone who is completely different from the founding father.

"The profile of your entrepreneur may not be the best profile [of the person] needed to keep the company going," he says.

Rather than conducting a bunch of tests, "a better approach would be to let offspring spend some time running the business under low-risk conditions while the entrepreneur is still in the background, because past behaviour is the best indicator of future behaviour," Dr. Hausdorf says.

Dr. Wolfe, however, says it is a motivational issue. Letting children test drive a fmily run company may not indicate the kind of job they will do in the long term because children have a natural tendency to want to please their parents.

"If you want to get real clinical about it, there is a process of identification that occurs early in life that makes someone think they want to grow up just like mom or be just like dad."

These are highly skilled kids, often better educated than their parents, he says.

"They'll have the MBA, they'll be knowledgeable and emotionally involved in the business. But they'll often discover at some point, maybe in college, maybe later, that there is something else that they find personally more appealing."

Either way, when it comes to letting an outsider inside the psyche of a family business, Dr. Wolfe has observed some interesting cross-border differences.

Canadians, he says, are much better at calling in the services of a business doctor, while Americans typically wait until a management crisis already exists.

In the United States, "it's kind of like the Eaton thing - I often get called in when there is already a problem" caused by brothers who really don't have what it takes to carry on a company as a team, he says.

And when Dr. Wolfe concludes someone's offspring does not have what it takes to carry on the family business, things get uglier south of the border, where entrepreneurial families apparently have a harder time taking their corporate medicine.

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