When Mom and Pop Go Corporate

TIMES STAFF WRITERS

Family businesses have a special place in the American imagination, be they mom-and-pop grocery shops, friendly roadside diners--or the Los Angeles Dodgers.

When these firms sell out to wheeler-dealer investment syndicates or faceless corporations, a sense of loss frequently strikes employees, customers and the community at large. Just ask Dodger fans how they feel about the plans announced by the O'Malley family this week to seek a new owner for their fabled team.

But what really happens when a family firm is gobbled up by a large corporation? It's often not as bad, or as simple, as you may think.

At their best, family businesses possess "a very special culture," with "values that typically include great respect for the individual, trust and empathy," said Ann Ehringer, director of the Family & Closely-Held Businesses Program at USC.

And in a world where brutal corporate downsizing and multimillion-dollar executive compensation packages seize headlines, big impersonal businesses inspire dread while family firms can project wholesome, comforting values.

The fear when an admired family-run organization such as the Dodgers is on the selling block "is that maybe those values won't be so important any more," Ehringer said.

Yet not all family enterprises are as praiseworthy as Malden Mills--whose owner, the grandson of the founder, kept paying employees their wages and issued Christmas bonuses after the company's plant burned down in late 1995.

There also are shoddily run businesses where the incompetent brother-in-law of the owner gets an inflated salary to shuffle papers, or where blacks and Latinos need not apply. In those cases a corporate takeover can be a vast improvement.

When bottom-line-driven companies take over family firms, employees' jobs may be swiftly slashed in the name of efficiency, and the personal touch can disappear from the workplace. For fans of sports franchises that change ownership, ticket prices can shoot up. But buyouts of family firms also may mean higher salaries, better benefits and more opportunity for career advancement for employees who once had been outside the favored family circle, as well as improved service for customers.

The conflicting big business-versus-family business images belie the fact that it's often tough to draw a clear line distinguishing the two groups. In between the corner meat market and General Motors are many big companies that essentially are hybrids: their shares may be traded on the New York Stock Exchange, but they remain under control of a single family.

Family business experts, in fact, estimate that roughly half of the nation's publicly traded companies--including the Wal-Mart and Nordstrom retailing chains, along with such publishing empires as Times Mirror Co., publisher of this newspaper--remain substantially under family control. In fact, more than 90% of all American firms are believed to be owned by families, individual proprietors or small closely tied groups, making it difficult to draw sweeping generalizations.

The Dodgers are a case in point. With the team's high profile and cachet, it is hardly a typical family firm. Otherwise, though, it has some of the classic traits. Among other things, its management was handed down years ago from father Walter O'Malley to his son, Peter, the current team president.

Even in terms of its size, the Dodgers are in line with many other family firms and far behind the corporate juggernauts. The Dodgers' estimated annual revenue of more than $70 million is less than the amount of cash taken in every year by, say, a string of four typical Ralphs grocery stores.

For employees, there are about as many drawbacks as advantages to working for family firms.

While statistics on how well family firms pay are hard to come by, there are reliable figures showing that small firms--which tend to be family-owned--generally provide lower wages and fewer benefits than big companies.

"The larger the company the richer the benefits package," said Ken McDonnell, an analyst with the Employee Benefit Research Institute.

"It's solely a matter of economy of scale. General Motors can afford to give a richer package of benefits than a mom-and-pop store."

Small family firms, when they are not professionally run, also may have casual hiring and employment policies that open the door to discrimination and other abuses.

Sometimes "they're too cheap to hire the talent" to run the personnel office properly, said Joseph Posner, an Encino lawyer who represents workers in disputes with employers.

"They'll take someone who's been a personnel clerk . . . and then say, 'You're the personnel director.' "

All told, Posner said, most family firms do not intend to violate the law, but when it happens, "it tends to be really extreme." As an example, he recalled the case of a client who won a settlement from a family firm after the owner repeatedly used anti-Semitic slurs against him.

For Paula Kurtz, human resources director of a Portland, Ore., optical lens manufacturing company that passed from family hands to a succession of corporate owners, the changes from the old ways have brought pluses and minuses.

Before 1984, when the firm was sold by the family that had founded it in 1962, employees were assured of holding onto their jobs and their full 40-hour weeks whether business was busy or slow. Under corporate ownership, Kurtz said, management has avoided big layoffs but has instead cut hours when there aren't enough orders to keep the full staff busy.

Still, Kurtz said, workers readily accepted that change. Employees "knew what was going on. They knew people were standing around with nothing to do. They realized it was the logical thing to do."

With corporate ownership, the business has become more professionally managed--a development that also has its good and bad aspects. Kurtz, 45, recounted how in the early 1970s, during a hiatus she took from the firm, one of the family owners called her and made a personal appeal for her to come back.

The owner "told me to name my price and my hours," she recalled. "I thought it was wonderful, but I don't know what the other employees thought."

Today, Kurtz said, the firm would formally post the job opening before making such an offer, to make sure everyone interested got a fair shot at the position.

Perhaps the most unsettling difference, Kurtz said, is the insecurity that has crept into the organization. Now people ask every year whether there will be a holiday party, flu shots and raises--benefits once taken for granted. The insecurity, she said, "permeates everything," although she acknowledged that that could have happened in today's economy even if the founders never sold the business.

Madison Avenue regularly tries to exploit the American public's warm and fuzzy feelings about family businesses and related affection for firms with colorful heritages.

Chicken was a commodity product until Frank Perdue appeared in television commercials in the 1970s pitching his roasters. His tale incorporated family values: hard work and a commitment to quality. With his bald head and sharp nose, he even looked like a chicken, landing him a place in the popular culture of the time.

"We told people about the man behind the name, and his beliefs and standards. We had people pay more for his chicken, or leave stores when they couldn't find it, because they perceived it to be a better product," said Ed McCabe, the New York advertising executive who developed the campaign.

Heritage is so effective a tool that some marketers invent a past for their products. Nissan is running ads in which a grandfatherly Asian actor stands in as the company's aging founder, who in reality was a politically savvy post-World War II industrialist. Dean Witter, formerly a unit of Sears, Roebuck & Co., is airing commercials of footage made to look as if it came from company archives. They show an executive espousing the brokerage's philosophy toward customers.

Experts say such ads can be effective, even when consumers see through the imagery.

"I think the audience is sophisticated enough to know when there is an actor," said Chicago marketing consultant Joe Marconi. Citing the Dean Witter spot, he said: "The grainy footage is there to say that the company has a history and it started with a principle and it is being used today."

Even so, some marketing specialists say that if the Dodgers are acquired by a firm that has no appreciation for its history or the institution, it could undermine fan loyalty.

"In changing ownership, that is a big piece of heritage going by the wayside," said David O'Hara, creative director at Hal Riney & Partners, which creates ads for Saturn autos. "It is an L.A. institution that people have counted on. It will be difficult for the Dodgers to convince people that they are still the Dodgers."

Not that family business experts blame Peter O'Malley for putting his team up for sale. In the life of a family firm, there often are pressures to sell out, and the Dodgers are no different.

The need for more capital to compete effectively, a desire to diversify the family's assets and concerns about estate taxes all are common, albeit solvable, problems that eventually prompt such firms to decide to sell out.

The most common reason of all is the threat or emergence of a succession crisis. Maybe no one in the next generation of the family is qualified or capable of running the business, or maybe the family is divided over who should assume the helm.

And a succession issue along those lines, many family business experts surmise, is the most likely reason for the O'Malleys' decision. Between co-owners Peter O'Malley and his sister, Terry Seidler, there are 13 children to consider.

"It's almost stereotypical of what you see in family firms," said Alan Carsrud, chairman of the UCLA management school's family and closely held business program.

"I've got a sneaking suspicion that out of 13 children, none of them wanted to run the business," he said, or perhaps O'Malley and Seidler couldn't agree on a successor. In either case, a sale "is a way to solve that problem," Carsrud said.

All told, when an organization such as the Dodgers or another family operation falls into corporate hands, it doesn't necessarily mean an unmitigated disaster.

Kurtz, the Portland human resources director whose company went from family to conglomerate ownership, advises people going through similar circumstances not to pass judgment until well after the deal is done. The companies doing the buying, she said, "are run by human beings, too. . . . I wouldn't be too quick to say that because the family is going to be gone, that it's going to be bad. But there's going to be a huge change."

Times staff writer Bettijane Levine contributed to this report.

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All in the Family

An overwhelming majority of U.S. businesses are owned by families. These companies also make a significant contribution to the nation's gross domestic product. A look at family-owned firms and the contribution they make to the U.S. economy:

U.S. business that are:

Family-owned: 90%*

Partnerships and professional corporations: 10%

****

Where nation's GDP is produced:

Family-owned businesses: 50%

Government: 36%

Non family-owned businesses: 14%

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Fact Sheet

Family-owned firms account for about 60% of the nation's employment.

Only about 30% of family-owned businesses are passed on from one generation to the next without being sold, closed or liquidated for tax purposes.

About 77% of all new job creation in the U.S. comes from family businesses.

Firms run by families comprise about one-third of Fortune 500 companies.

* Includes single proprietors and small groups and some small partnerships.

Sources: Joseph Astrachan, professor of management at the Family Enterprise Center at Kennesaw State University in Georgia; Alan Carsrud, chair of the Family and Closely Held Business Program of the Anderson Graduate School of Management at UCLA

Researched by JENNIFER OLDHAM / Los Angeles Times

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