I would like to share the story of Dr. Wang, the founder of the once-mighty global giant and New York Stock Exchange (NYSE) publicly traded Wang Laboratories or Wang Labs. The latter was a computer company founded in 1951 and was successfully headquartered in Massachusetts. Long before Apple became a household name, the Wang group lorded over the technology landscape. At its peak in the late 1980s, Wang Laboratories had annual revenues of $3 billion and a dedicated workforce of 33,000 people. Sadly, three years later, in August 1992, it filed for bankruptcy protection. One of the major causes that contributed to the company’s failure was Dr. Wang’s insistence that his ill-equipped and unprepared son succeed him. 

In an excerpt from the book “Riding the Runaway Horse: The Rise and Decline of Wang Laboratories” by Charles Kenney, the author said, “it places much of the blame on the hubris of the man they called "the Doctor" and his insistence on naming his eldest son, Fred Wang, president of the company. The Chinese-born inventor-entrepreneur dearly wanted his two sons, first Fred and then the younger Courtney, to succeed him at the head of the huge enterprise based in Lowell, Massachusetts. Board members felt that Fred lacked the experience, judgment — and heft — to lead the company.” Ever since the middle of the 1980s, outside directors had made repeated efforts to persuade the founder to bring in a professional manager — to give Fred an impressive title if needed while avoiding the appointment of the young man in operational control of this sprawling, worldwide corporation in the thick of the most competitive industry on earth.” Dr. Wang would not yield. To the directors, he said: “He is my son. He can do it.” Some pages in the book also highlighted that the son obediently followed his father's plan, but more radical action was needed to rescue Wang Labs. With the company deeply in debt, Dr. Wang was forced in 1989 to fire his son. 

Every family story highlights nepotism as harmful to a company’s future. Dr. Wang saw his namesake company as a family business. That legacy mindset contributed to the demise. In one of his book interviews, Dr. Wang even remarked, “All other things being equal, my children should be more highly motivated than a professional manager because of their substantial stake in the ownership of the company.” To a certain extent, there is some truth to that assertion, but in a highly competitive business environment, it is a dangerous and irresponsible declaration with dire consequences.

As governance colleague Henry Foley remarked in his insightful Harvard Business Review (HBR) article entitled “Avoid the Traps That Can Destroy Family Businesses” that he co-authored with George Stalk, “Some proprietors of family-owned firms make their children feel obligated to join the company, which can backfire by creating a crop of managers who aren’t interested in being there. More often, though, we see parents emphasize that their offspring are free to join the business if they so choose. If the company is successful, those children are likely to have been raised amid wealth, which broadens their choices as adults. Generally, this situation translates into an unspoken promise that “there’s always a place for you here,” which can lead children to treat the business as a fallback option. We’ve encountered many companies that are populated by next-generation members who failed in other businesses or spent their 20s (and sometimes their 30s) as aspiring athletes, artists, or musicians before signing on to the firm as unprepared 40-somethings. Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.”

I couldn’t agree more! In Mexico, they have a saying for founders setting their family business up for failure, “Padre bodeguero, hijo caballero, nieto pordiosero,” which lamentably means “Father merchant, son gentleman, grandson beggar.”