Case Study: The Ex-CEO Contemplates a Coup

Harvard Business Review

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 resume control. 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.

(Editor's Note: This fictionalized case study will appear in a forthcoming issue of Harvard Business Review, along with commentary from experts and readers. If you'd like your comment to be considered for publication, please be sure to include your full name, company or university affiliation, and email address.)

Nutmeg and Palm Oil
My grandfather and his brother started their business in Indonesia shortly after World War II. Times were hard, but after the rise of Sukarno 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 eldest uncle was in line to succeed my grandfather as CEO, but he had enough self-awareness to sense that he wasn't well suited. This uncle favored my father. The youngest uncle, who took a casual approach to his job as vice president, was opposed to my father's getting the job — he worried he 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" he and my great-uncle had written. It stated that family members must work to maintain love, forgive one another when differences arise, 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."

After a long pause, my youngest uncle congratulated my father.

Family Friction
Growing the business was easy — my father vigorously expanded the company, acquiring firms that exported plywood and rubber — but following the guidance about family harmony proved more difficult.

My youngest 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. As a result, he insisted that Ricky be treated like everyone else when it came to promotions. But my youngest 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. My father called a family meeting. My grandfather was there too, ill and pale but still formidable. My father explained that his actions were for the common good and asked his relatives for understanding. My grandfather's presence had a powerful effect, and my youngest uncle caved and gave his approval.

Fred, Roy, and Bill never rose as high in the company as Ricky, who is now the chief operating officer. My eldest uncle's sons have also been unable to break into 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 youngest 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 my uncles 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." I can't remember who came up with that phrase, but he loved the poetry of it.

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 him 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 chemicals 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 think his relatives and employees were secretly grateful that he had 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, started complaining.

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 suffering under negative publicity from NGOs.

After a long search the firm hired Amin Tueni, a Canadian of Lebanese origin who had been the CEO of 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 me. 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 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 view of them 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.

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 I should do," 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 hedged.

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 midrecession 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 the past 14 years 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 all the highly regarded companies that are run by members of their founding families — companies like Purdue and SC Johnson. Although I suppose there are counter examples 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?

Question: Should Myra advise her father to retake the reins of the Martapura Group?

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