Blood And Business: How D'Addario Fine-Tuned A Family Enterprise That Avoids The Drama...
It’s no secret that blood is thicker than water. But family businesses can often find the ties that bind to be either a shot in the arm or a pain in the neck. (watch the Forbes Video interview here).
In the business world family is, at best, a source of trust, support and undying reliability and goodwill. At its worst it’s a breeding ground for venomous spite distilled within enemies that know you well, understand how to hurt you and aren’t easy to get rid of. Just ask publishing juggernauts the Pritzkers, or the wine-producing Gallos. Business and blood did not mix well either for the Sarkis restaurant empire in Boston, Canada’s Irving oil dynasty or India’s favorite feuding brothers, Mukesh and Anil Ambani. It’s a special kind of family that grows a successful enterprise without imploding in a flash of lawsuits and love-loss.
One family business that seems to have found away to play in harmony is New York-based D’Addario, purveyor of musical accessories—mostly instrument strings. The family claims a lineage of string-making that goes back to 17th century Salle, Italy. Once goat herders, they used their animals’ entrails to keep instrument makers and musicians stocked. It’s only in the past 50 years or so that the family decided to get serious about it: upping production, embracing new production technology and incorporating under its own name. Last year D’Addario netted a FORBES estimated $12 million on $169 million revenue selling musical accessories worldwide, enjoying over 6% growth per year over the past decade.
With a leadership history now four generations deep, the D’Addarios have more than 30 stakeholders in the family – a dozen of whom work at the company – who receive income distributions proportionate to their ownership. In 1997 the family has installed a formal set of rules which they call their “Family Constitution,” meant to maintain lines of communication and set ground rules for the enterprise. “It’s a matter of everybody understanding that we’re working toward the same aim,” says John D’Addario Jr, former CEO and grandson of founder Charles D’Addario.
The D’Addario decree dictates that the family – and stockholders – assemble once a year for several days of fun, family business, company news and strategy. There is an official council elected by the family that tackles issues and projects, as well as bridges the company and the stakeholders. The constitution also sets rules for joining the company: one must have a college degree to reach the higher ranks and outside professional experience is encouraged before joining the family enterprise.
Music appreciation and business courses are also strongly encouraged. Rules dictate that no family member will have a position created for her and only the most qualified worker – family or no – will hold a job. The family-wide rulebook even lists email etiquette to keep messages within the D’Addario network clear and respectful. “We share openly all of the major decisions that we’re making about the company and I think that open dialogue and that transparency really helps,” says Jim D’Addario, the company’s current CEO. “A lot of times perception is reality and if you’re not talking about something and really getting to the truth of a matter, people perceive it incorrectly and then the wrong feelings start to germinate. The next thing you know you have a problem.”
A formal structure can neutralize drama brought on by the complexities of growing families and the development of greater wealth, says Fredda Herz Brown of Relative Solutions, the D’Addario family advisor since 2004. “You move from just having individual family dynamics to having branch family dynamics.” New children also need an orientation and connection to extended family, she added, lest they lose touch with the origins of their own legacy. “John and Jim, no matter what, have stayed committed to the idea that this family will stay together as a whole – not just John’s branch or Jim’s branch,” Herz Brown explained.
New blood is on the rise. John D’Addario III, who became company president in January, could be poised to take the reins when his uncle Jim lays down the CEO mantle. The 43 year-old John III – know to some as J3 – grew up working at the factory every summer, spending time in shipping and receiving, engineering, product development and PR work. In that time he came to accept that his last name . “To this day, when I walk in the door here I know I’m under the microscope and every subtle thing that I do is closely looked at. Whether it’s how I present myself to how I treat people.”
Progeny are fuel for a family business and D’Addario enjoys a glut in that department—18 grandchildren, by last count, and at least some will undoubtedly join the enterprise, says John Jr. “There’s a whole bunch of them down the line that are interested.”