The Ex-CEO Contemplates a Coup

HBR’s fictionalized case studies present dilemmas faced by leaders in real companies and offer solutions from experts. This one is based on research by William C. Kirby. It’s after midnight, and Myra Wanandi is writing in her journal in the Jakarta home she shares with her husband: I’m tired, but I have to concentrate. My father is relying on me for one of the most important decisions of his life. What’s scary is that I’m sure he’ll take my words to heart. He always does. But this time I’m really stuck. I pray that an insight will come to me as I write. He’s expecting an answer tomorrow. The situation is simple. My father, Jaya Tan, retired three years ago as the CEO of our family’s business, the Martapura Group, relinquishing control to a nonfamily CEO to ensure that the company would regain its strength and grow. But the business is having a harder time recovering from the recession than anyone expected, and some of my cousins have now asked my father to come back. He’s tempted. Retirement turned out to be a bore, and when he talks about returning, his eyes gleam. But Ricky, my brother, is shocked that my father would even contemplate a “coup.” He says the family is obliged to follow the governance rules it created. Otherwise the business will fail. I wish I knew which side was right. Nutmeg and Palm Oil My grandfather and his brother started their company in Indonesia shortly after World War II. Times were hard, but as Sukarno rose, their little business selling vegetables began to grow. They were soon shipping food to Singapore and Australia. My grandfather ran the exports, while my great-uncle managed the palm plantation. My father began working in 1961, at the age of 12. He says his childhood smelled of nutmeg—he carried it by the boxload onto the boats. He was at least as strong as his two brothers—one older and one younger—and soon proved to be the most capable businessman of his generation of Tans. In the 1970s he pushed the company to expand into palm oil and helped create a chain of food stores. My bookish elder uncle was in line to succeed my grandfather as CEO, but he had enough self-awareness to know that he wasn’t well suited for the role. He favored my father instead. My younger uncle, who took a casual approach to his job as vice president, was opposed to this plan—he worried that my father would shake things up. The question festered until 1979, when my grandfather summoned his sons, along with the other family members. Sitting in his living room, he brought out a “constitution” that he and his brother had written. It stated that family members must work to maintain love, forgive one another when differences arose, and put the company’s interests above their own. There wasn’t a lot of love between my father and his younger brother after my grandfather’s next words: “My middle son, Jaya, will succeed me as CEO.” But after a long pause, everyone shook hands. Family Friction Growing the business was easy; my father vigorously expanded the company, acquiring firms that exported plywood and rubber. Following the guidance about family harmony proved more difficult. My younger uncle seemed to think the Martapura Group existed solely to serve the family. My father wanted it to become the best in the world in each of its businesses, and as a result, he insisted that his son—Ricky—be treated like everyone else when it came to promotions. But my younger uncle worked behind the scenes to make sure that his sons, Fred, Roy, and Bill, were given executive positions in the operating units despite their obvious shortcomings. Most of the time my father tolerated this behavior. But when the head of the grocery stores division died unexpectedly, leaving Fred in line to succeed him, the blatant nepotism could no longer be ignored. My father acted swiftly to replace the full leadership team, enraging my cousins and their father. He called a family meeting, explaining that his actions were for the common good and asking his relatives for understanding. My grandfather was there too, ill and pale but still formidable, and his presence had a powerful effect. My younger uncle caved and gave his approval. Ricky is now the chief operating officer, but Fred, Roy, and Bill never rose as high. My elder uncle’s sons have also been unable to break in to leadership positions. As for me, I’m happily uninvolved! When I was getting my MBA at Stanford, I met and married the wonderful Daniel Wanandi, and we now run a language school in Jakarta. I’m content to be on the sidelines, with my father relying on me for advice. Some of his friends tease him for listening to his daughter, but he just laughs back. Bold Action After my grandfather passed away, my uncles became closer, and there were rumors that my younger uncle had convinced his oldest brother that my father’s value as CEO had run its course. I’m sure both uncles were thinking about their sons, who were looking for positions of greater authority. And Southeast Asia’s financial crisis was crippling Indonesia’s growth; perhaps they also sensed vulnerability. One afternoon my father sat in my courtyard and poured out his worries about the rumors and the economic downturn. I pointed out that he had never gone wrong by taking bold action. He liked hearing that and became excited thinking about how to take advantage of the crisis. Over the next three hours I helped him formulate a plan to place the company on a more professional footing so that it would last “seven more generations.” The Martapura Group would be listed on the Jakarta Stock Exchange, which would require transparency and accountability. All the companies in the conglomerate would have to measure themselves against global industry benchmarks. My father would put more professional managers in key positions. Anticipating opposition, he established a board of directors. He also promised to retire in eight years. I laughed at that one. I couldn’t imagine him retiring that soon, nor did I think it was a good idea. But the provisions worked: The prospect of being on a board and seeing my father give up the CEO position was irresistible to my uncles, and they agreed to the whole package! Dramatic growth followed. As the economy improved, the company expanded into machinery and chemical imports. Nonfamily managers were elevated to executive positions and invited to become shareholders, although family members still owned the majority of shares. My father won the Star of Mahaputera for service to Indonesia. I truly think my father was so immersed in his work that he didn’t realize when eight years—then nine, then 10—had passed. I also think his relatives and employees were secretly grateful that he stayed on, because he was doing an excellent job. It was only in 2008, when the worldwide recession started, that my uncles, and then their sons, began to complain. Again my father came to me. Foreseeing a deeper downturn this time, he said he couldn’t in good conscience leave the company just then. I felt strongly that he should adhere to the rules and step aside; if a nonfamily CEO couldn’t manage the firm, he could always return. To counter any accusations of hypocrisy, he could argue that he had made a good-faith effort to abide by the new governance system. I reminded him that bold action was his trademark. He smiled. The recession was in full force by the time he decided to leave. The export and import businesses were struggling, and the palm oil business was hit by negative publicity from NGOs. After a long search for a new CEO, the firm hired Amin Tueni, a Canadian of Lebanese origin who had previously run a Toronto-based food company. Upon Mr. Tueni’s arrival, my father reminded him (as I had urged him to) that all executives were subject to replacement if they didn’t meet expectations. Mr. Tueni said he understood perfectly well. Retiring from Retirement? A month after my father retired, we took a glorious vacation—he and my mother, my husband, my children, and I. We visited places we had only read about or seen on television: Rome, Paris, Berlin. But back in Jakarta, my father found that he didn’t have enough to do. He bought an expensive boat, but it didn’t interest him. Meanwhile he watched helplessly as the firm declined. Occasionally he would come over with a notepad and a red Sharpie to sketch out recovery plans. But now he was just another shareholder. “I’ll never have an impact unless I can get my brothers and nephews to vote with me,” he said. “And that won’t happen.” He was wrong. My cousins were upset that Mr. Tueni hadn’t achieved the expected turnaround. As speculators in Hong Kong real estate, they were feeling the pinch of lower dividends and were worried about defaulting. Whatever my father’s shortcomings (in their view), their dividends had been reliably high during his tenure. And Mr. Tueni’s opinion of my cousins was apparently even more negative than my father’s, so they had been marginalized. “Professional” management hadn’t worked out quite as the family had hoped. Growing the business was easy. Maintaining family harmony proved more difficult. Last night over dinner at my house Fred, Roy, and Bill made their case to my father. They realized, they said, that the company had grown so large and complex that only a person with his extraordinary strength of mind could manage it. My father beamed. He had waited a long time for such a compliment from them. They added that Mr. Tueni seemed cautious and indecisive. “He is no Jaya Tan,” they said. Finally they put the question to my father: Would he consider coming back? I was thrilled. My father needed to be back at work, and the company needed his talents. And hadn’t I suggested that his retirement might be temporary? He told my cousins he would consider their suggestion. But after they left, he turned to me in frustration. “They make it sound simple,” he said. “I walk in, thank Mr. Tueni for his hard work, and take over, backed by enough family members for a majority of shares. But it’s not so simple. I can’t be objective about this, Myra.” He said we should meet again, on Thursday—which is tomorrow. “I want you to think about it—think hard—and tell me what you believe the right course of action is,” he said. He looked at me warmly. “I trust you.” A Second Opinion Today Ricky visited me at my school, accompanied by Amin Tueni, whom I had met just once before, at a dinner in his honor. Seated in my otherwise empty boardroom, Mr. Tueni seemed much less impressive than he had at the reception. Ricky explained that my cousins’ proposal was already common knowledge. They were trying to build support for it among other family members, and many seemed amenable. “But you must persuade him not to accept,” he said. “He makes his own decisions,” I replied, hedging. Mr. Tueni spoke. “Jaya Tan is revered in this company, and for good reason. But we face challenges on all sides, and we must move forward, not backward.” “My father has plenty of ideas for moving forward,” I said, remembering the red Sharpie. “Sell the palm oil business. Divest a few other underperforming assets.” “I’ve heard all that,” Mr. Tueni said. “And I appreciate his ideas. But a recession is no time to divest. The businesses would have to be sold at rock-bottom prices. Our markets have taken a beating. But once they recover, we will be well positioned.” He had a point about divestitures, of course. But I could almost hear my father saying that standing still is no strategy. “It’s also a governance issue,” Mr. Tueni continued. “In Canada, and in Indonesia, too, there are branches of government that keep one another in check. Your father established a system that keeps the family in check, balancing its wishes with the judgment of professional managers.” “It’s not a system, really,” I said. “It’s just a family constitution that says we should live in peace and harmony.” Ricky jumped in. “Myra, for more than a decade the firm has been run according to one idea: that it’s a professional company with professional managers. Father’s return would be a repudiation of all that. A coup could be devastating to our reputation with analysts and outside investors, not to mention the morale of nonfamily executives, who might question whether they have a future at the company.” Mr. Tueni nodded. “The professional managers don’t want him to take over,” he said. He added, sounding apologetic: “I include myself in that.” I wanted to rattle off the names of highly regarded companies that are run by members of their founding families—companies like Purdue and SC Johnson. Although I suppose there are counterexamples, too. Isn’t News Corp. trading at a discount because of the Murdoch fiefdom? “Please, Myra,” Ricky said. “Help him see that the best thing he can do for his beloved company right now is nothing at all.” This morning I was certain what my advice would be. I was looking forward to seeing my father get back to work. But tonight I’m completely confused. Why won’t a clear answer come? What Would You Do? Some advice from the HBR.org community Jaya Tan should return. But maybe it could be done diplomatically, by creating a co-CEO or similar position for Amin Tueni; that would probably minimize disruption and backlash. Randall Arnold, editor in chief, post404 Amin Tueni makes a valid point about the damage Jaya Tan’s return might cause to nonfamily executives. Nepotism in Indonesia has already caused a talent drain: Many bright people who have left the country have no intention of coming back to a system that does not reward merit. If Tueni is deemed to be incompetent, the family can replace him with another nonfamily executive. Petrus Bosa Layarda, student, New York University Abu Dhabi Myra should recommend that her father seek the counsel of her brother, Ricky. A demonstration of faith in him might give Ricky the inner strength to help Amin Tueni turn around the fortunes of the company—and maybe even to succeed him in due course. David J Foster, managing director, Rally Strategic Should Myra’s father retake the reins of the Martapura Group? The Experts Respond Les Trachtman is the CEO of Force 3, a Maryland-based company that provides video, mobility, and teleworking solutions for industry and government. He has served as the CEO of several other technology companies. Jaya Tan’s brothers and nephews are right in one respect: The professional CEO needs to go. That’s hard for me to say, because several times in my career I’ve been the professional CEO running a family company. But Amin Tueni has failed to meet the family’s expectations. I’m not talking about his inability to turn the business around quickly; I don’t fault him for that. Nor do I blame him for his supposed lack of vision. I’m talking about a failure to recognize his duty to carry on the family’s legacy and culture. This aspect of the CEO’s relationship to the family isn’t explicitly stated in the story, but I’ve seen over and over how important it is—even if it’s unarticulated. After a family founds a business, members see the firm as embodying their identities and values, and they want to feel good about not just its performance but also its impact on its stakeholders. Tueni doesn’t seem to understand that. A third-generation family company I know well hired a nonfamily executive and is grooming him to take over as CEO. Although this executive had no prior experience in a family company, he has just the right temperament for the job. He’s a strong decision maker with a very soft, human touch. He’s sensitive to the culture that existed prior to his arrival and to how the company is viewed by the community. He has become a close confidant of the current CEO but also realizes that change is needed. He understands that he must support the family legacy. He’s clear about balancing the stakeholders’ short-term cash expectations against long-term value creation. Amin Tueni needs to go. But the company must keep its commitment to professional management. Notice that the company not only found the right guy but also gave him a long runway. He has already spent five years getting acclimated, and the family members and employees have had plenty of time to get used to him. The Martapura Group, by contrast, seems to have thrown Amin Tueni into the CEO job without a proper transition and with little or no support. He’s probably unable to see why the family is unhappy with him. No one explained the importance of the family’s legacy and culture, so he thinks his job is just about financial performance. He might be salvageable as CEO, but my guess is that he just doesn’t have the right temperament. Even so, the Martapura Group needs to keep its commitment to professional management. It would be a mistake for Jaya to return to his job. Nonfamily executives have been led to believe that the company really is modernizing. I’m also not sure Martapura needs Jaya’s skill set right now. Jaya’s brothers and nephews seem to think their business can somehow go back to the way it used to be, but a lot has changed. I believe Jaya should become chairman of the CEO search committee. That will placate the relatives who want him to be more involved. After a successor is chosen, Jaya should create an environment that enables him or her to succeed. The company must find a way to ease in the new leader so that everyone becomes comfortable. And it’s critical that the family back the new CEO wholeheartedly. That way no one will think again about staging a coup. Lilli Friedland, the founder and president of Executive Advisors, counsels leaders in family firms, other privately held businesses, and public companies. Jaya Tan should retake the company’s reins—if. If he gains self-awareness. If he learns to pay attention to others’ feelings. If he makes an effort to build family cohesion. And if he and the family agree that the business must be run professionally, with an independent board. Jaya Tan could be the Martapura Group’s next great CEO. But unless he meets all those ifs, his return could drive the company, and the family, into the ground. Anyone who has worked with family businesses has known a Jaya Tan—the great brain for business, the huge ego. The Martapura Group would not be what it is without him. But no one ever helped him see his weaknesses as a leader: He created no structure to allow the company to prosper with someone else at the helm. Amin Tueni was given no criteria with which to define or measure success. He didn’t establish a leadership-training program for younger relatives and nonfamily managers. Allowing incompetent nephews to be promoted didn’t build their skills—and it didn’t help create an effective succession plan. He never instituted a process for managing conflict and communication. He failed to establish a system for educating family members about the business. In families that have grown dependent on the income from a company, members not in the business need to be taught the value of long-term investing. Successful multigenerational business families such as the Fords, the Pritzkers, and the Rockefellers hold regular meetings to this end. He overlooked his brothers’ and nephews’ discomfort and failed to promote family values such as loyalty and commitment. He failed to create an environment in which family members felt safe speaking their minds to him. Every CEO needs a board that will provide an honest perspective. If Jaya returns as CEO, he will need to put his ego aside, recognize his shortcomings, and focus on the family as well as on the business. He will undoubtedly need the active participation of his relatives and of an outside adviser who can help him discover his blind spots. If Jaya returns as CEO, he will need to put his ego aside and focus on the family as well as on the business. Because he’s a man of action, it’s possible that Jaya could jump in too quickly. He needs to gradually establish credibility with each family member, demonstrating a genuine interest in his or her career. And he and his brothers need to build bridges of understanding and trust. With his brothers, he should institute a process to evaluate each family member’s strengths, passions, and leadership style and to build needed competencies. A nephew with great people skills might be steered toward sales; one who’s good with numbers might be a natural for finance. Jaya also needs to bring the family together regularly and rally it around common purposes—philanthropic efforts, perhaps. He might create a video history of the family and its business to emphasize values such as determination in the face of adversity. This could inspire the current generation to increase its commitment and help ensure that future generations are part of a continuing legacy. There’s a reason why some version of the saying “Shirtsleeves to shirtsleeves in three generations” can be found all over the world: It’s because the family part of a family business tends to receive insufficient effort. Jaya can succeed as his company’s next leader only if he pays closer attention to the people at the heart of the business.

The Ex-CEO Contemplates a Coup

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