Education Q&A: Michael Sullivan

Dominant gene

How to find power in your family-owned business

by Beth Ewen   Family-owned businesses have plenty of advantages if their owners learn how to use them, says Michael Sullivan Sr. He has worked with companies large and small as an attorney with Gray Plant Mooty in Minneapolis, as CEO of International Dairy Queen, and as a director at Valspar, Opus and others. As interim director since last fall, Center for Family Enterprise at the University of St. Thomas in Minneapolis, he counsels owners to use their power. Upsize: Why have a center devoted to family enterprise?Michael Sullivan: I was at a conference recently, and the family business as an institution in Europe, South America, South Asia, is a lot bigger than here. The academic research and practical applications are more developed.But here in the U.S., family businesses dominate too. The size of family business, the dominance of family business, the percentage of the GDP and the job creation — even many of the Fortune 500 companies are still controlled by families. That’s the first thing.Two, the focus of most business schools is how to become part of a large, publicly held corporation. So much is focused on something that’s not dominant.Three, family business in reality, they’re basically better run than big businesses. The closeness of the investment to the ones running it has an impact. That’s not to say it’s simple working with family members, but you have the solidarity and continuity.Upsize: How does solidarity help?Sullivan: Here’s an example. There’s a major drug company in Belgium. They made the judgment that the so-called chemical drug business, which they were in, was on the decline, and the biological drug business was where you had to be. They made the decision to acquire a biological drug company, sell off the chemical one, in a relatively short period of time, with a relatively small group of decision makers.When you’re dealing with your own dollars, and working with people you know and trust, you can move ahead. You have total trust in each other and you can really get things done. Most family businesses think long term. They’re not thinking about just the next quarter. And it’s easier to acknowledge that you made a mistake than when you have to publicly disclose it.Upsize: Not using their own money—is that one reason why publicly held companies have seen such scandals recently?Sullivan: There’s no question. It’s different when you’re spending your own money. And we’ve seen the star system with publicly held companies. So much attention is on the moving ahead of the individual, the star CEO.Back when I was in the Navy there was always the fight between the deck people, the engineers, and the supply people, over who was most important. It’s the working together that matters. Some of the star system took away from that, and diminished the corporation.Upsize: You mentioned working with people you trust as a positive. But isn’t that the single biggest issue at family-owned companies — you work with them, you go home with them, you have Thanksgiving dinner with them?Sullivan: That and succession are the two hot buttons. That’s one of the principles of the center. You have to have a family counsel, or develop some other process where you discuss issues. Even if it’s not going to work, and you decide that and look to sell or have others buy you out, that’s progress. You can leave, or you can learn to live with it.If you can raise an appreciation among  family members of the significance of the business, its importance, if you can build pride in the business — there’s a way to take advantage of the positives of family business. If you can have a better appreciation of the assets you have, then you can be honest about liabilities. You can deal with them.Upsize: You say it’s important to build pride in the family business — why is that? Do younger generations have an inferiority complex?Sullivan: It’s a mixed bag. One thing is, a good number of them have never experienced anything else. They may have an exaggerated view of their own importance. Or some have a sense that what they’re doing isn’t quite as important as what others are doing.From my own perspective, and what I tell my own kids, who aren’t kids anymore, there’s real benefit in being at the beginning involved with something that has a solid structure, has systems in place. It’s great to spend some time away from the family business and develop your own reputation. I’ve heard many people be apologetic. ‘This is the way we’ve been doing it forever; this is the way Grandpa did it.’ And they’re wondering what it’s like at other places. They should read about and be exposed to other business. The center provides those kinds of opportunities.Upsize: You’ve had experience with many businesses, small and large, as an attorney at Gray Plant and as the chairman of International Dairy Queen. What lessons have you learned?Sullivan: My dad had a small roofing business. My mother kept the books. We kids picked up the shingles, and some of us worked on the roofs. I thought I was out of it, thought I’d go to the Navy and go to law school, but my dad started failing. None of the kids wanted in, or the in-laws. It was really a holding pattern. We ended up doing an exit, so I had some of the understanding of small business early on.Then I got into the practice of law, and had a lot of small businesses as clients. Many of them grew into large companies.The move over to Dairy Queen was in 1987. I was vice chairman of the board, so the board asked me to step in as CEO. I was there 14 years, until 2003. It was publicly held, then the last three years I was there Warren Buffett of Berkshire Hathaway stepped in as an investor. At Dairy Queen you dealt with a lot of family businesses. The warehouse, the distributors. So many of the products we had were manufactured by family business, the small dairies. There was a lot of exposure to the challenges and opportunity in small business.Upsize: It sounds as though you’ve always sought out more education during your career. Do you find that other business owners do that, or do they say,  there’s no way to learn this except by doing.Sullivan: A lot of that is true — you have to learn by doing. Being a lawyer you have to take continuing ed. In the business area there’s an awful lot of motivational courses that get a lot of attention. When I see how lacking lawyers are in the soft skills, like how to market or how to handle HR issues, that’s an area where business is pretty good.You’ve got a lot of aggressive younger owners who want to learn. There’s a greater appreciation of the things they don’t know. Upsize: The biggest family business story locally in the news is the Paulucci mess, where Jeno Paulucci’s daughter, Gina, is suing him, saying that he raided her trust funds to build his business. Is that a cautionary tale for family business?Sullivan: There's not a pattern to it, certainly. I remember at a Berkshire Hathaway annual meeting — you’ve heard about those, they’re a big production. Charlie Munger, who is Buffett’s business partner, they’re on stage and answering questions for hours on end. There were a lot of questions about the estate tax at the time, and they asked Buffett about it. He was known to be in favor of the estate tax. He said the womb shouldn’t dictate how well you do in life.So he turns to Munger and says, ‘What do you think?’ Munger’s a curmudgeon. ‘Oh, hell,’ he says, ‘Much ado about nothing. Give them two or three generations, and they’ll have lost it all anyway.’It’s a telling point there. But part of the focus of the center is, if people do decide their business is going to go on for generations, it’s not going to happen by accident. It’s going to happen by design.

[contact] Michael Sullivan Sr. holds the Opus Distinguished Chair in Family Business at the University of St. Thomas, and directs its Center for Family Enterprise in Schulze Hall in Minneapolis: 651.962.4252;  cb*@******as.edu;  www.stthomas.edu/cfe