Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How SC Johnson Kept the Family in Charge for 140 Years
Transcript
- Lucas: There's a company in Racine, Wisconsin that's been owned and run by the same family for 140 years. Five generations. SC Johnson. The cleaning products giant. Luna: The one with the Goldfish cracker connection? Wait, no, that's a different Johnson. SC Johnson is floor wax and cleaning sprays, right? Lucas: Right. Floor wax, Pledge, Scrubbing Bubbles, Glade, Ziploc — that whole portfolio. The company was founded in 1886 by Samuel Curtis Johnson, a parquet flooring salesman who started making his own floor wax. And the family has never given up control. Not once. Luna: That's rare. Most family companies either go public, get acquired, or the family sells out by the third generation. Statistically, only about 3 percent of family businesses survive to the fourth generation. Lucas: Exactly. And SC Johnson is well past that. The current CEO is Fisk Johnson, the fifth generation. He took over in 2004. And the company is still 100 percent family-controlled — no outside shareholders, no private equity. So the question is: how did they manage that? Luna: I imagine it's not just luck. There have to be structural things they put in place early. Lucas: Two big ones. First, they established something called the 'family constitution' in the 1950s. It's a written set of rules governing how family members can enter the business, how ownership transfers between generations, and what happens if someone wants to sell their shares. Luna: Was that unusual for the time? I feel like most family constitutions are a more recent thing. Lucas: Very unusual. The Johnson constitution dates back to the 1950s, which makes it one of the earliest formal family governance documents in American business. And it did something critical: it restricted the sale of shares to outside parties. If a family member wants to sell, they have to offer the shares to other family members first — at a price determined by a formula, not market value. Luna: So that prevented the kind of situation where a disgruntled cousin sells to an outsider and suddenly you've got a private equity partner you didn't choose. Lucas: Exactly. The second mechanism is ownership structure. SC Johnson has multiple classes of stock — voting and non-voting. The family keeps the voting shares tightly held. So even as the company grew, they never had to dilute control to raise capital. Luna: They funded growth internally? Or through debt? Lucas: Both. But they also had a policy of retaining earnings rather than paying big dividends. That meant the company could finance expansion without needing outside investors. It's a classic approach for family companies that want to stay independent — but it requires discipline, because the family doesn't get large cash payouts. Luna: Right. So the family wealth is largely tied up in the company. That's a bet. If the company stumbles, the family fortune goes with it. Lucas: And that almost happened in the 1970s. The fourth generation — Sam Johnson, Fisk's father — had to make a tough call. The company was struggling. There was pressure from some family members to sell to a larger competitor. Procter & Gamble was reportedly interested. Luna: I remember reading about that. Sam Johnson decided not to sell. He restructured the company instead. Lucas: He sold off non-core businesses, focused on the cleaning and home products lines, and invested in innovation. That's when they launched the Edge shaving gel — which was a big hit — and expanded internationally. By the mid-1980s, the company was back on solid footing. But that moment was a real test of family resolve. Luna: It's interesting that they didn't just take the check. Most families in that situation would have cashed out. But Sam Johnson had a strong sense of legacy. Lucas: He once said something like, 'We're not just building a business, we're building an institution.' And that's a different mindset. He also put in place something else that mattered: a rule that only one family member per generation could be CEO. That avoided the problem of multiple cousins competing for the top job. Luna: But that also means you might miss out on talent. What if the designated heir isn't the most capable? Lucas: That's the risk. And the Johnson family has addressed it by being very deliberate about grooming the next leader. Fisk Johnson, for example, has a PhD in economics from Cornell. He worked outside the company for several years before joining. He also served on the board before becoming CEO. So it's not just birthright — it's preparation. Luna: Still, there's a tension there. You're limiting the talent pool to one bloodline. That's a constraint most public companies wouldn't accept. Lucas: Absolutely. And the compensation structure reflects that. Fisk Johnson's total compensation as CEO is relatively modest by Fortune 500 standards — around 2 to 3 million dollars a year. That's not nothing, but it's a fraction of what a comparable CEO at a public company would earn. The family wealth comes from the value of the shares, not the salary. Luna: That aligns interests. If the company does well, the family's net worth grows. If it doesn't, they feel it directly. Lucas: And that leads to a long-term orientation. SC Johnson has a reputation for being very employee-friendly. They were one of the first companies to offer profit-sharing, in the 1920s. They also have a strong environmental record — they voluntarily phased out CFCs from their aerosol products before regulations required it. Luna: That's the kind of thing that becomes easier when you don't have quarterly earnings pressure from Wall Street. Lucas: Precisely. But it's not all rosy. There are real challenges for the fifth generation. The cleaning products market is more competitive than ever. You've got Clorox, Procter & Gamble, Unilever — all with huge R&D budgets. And consumer preferences are shifting toward natural, eco-friendly products. SC Johnson has been investing in that direction, but it's a slow transition. Luna: Also, there's the issue of family unity as the family tree grows. The fifth generation has more cousins than the fourth did. More people with a claim on the company, more potential for disagreement. Lucas: That's where the family constitution becomes crucial. It's been updated over the years, but the core principles remain. There's a family council that meets regularly. There's a family office that manages the wealth for all members. And there's a clear process for resolving disputes without going to court. Luna: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. Lucas: Yeah, listener support is what allows us to dig into these kinds of stories without a commercial break. So if that matters to you, buy me a coffee dot com slash fexingo. Really appreciate it. Luna: So back to SC Johnson — what about the next generation? Is there a sixth generation already being groomed? Lucas: Fisk Johnson has five children. But he's said publicly that the next CEO will be chosen based on merit, not just birth order. He's also said that the family constitution might be amended to allow a non-family CEO if no suitable family member is available. That would be a major shift, but it shows a pragmatic streak. Luna: It's an interesting model. Keep control in the family, but don't let family sentiment override good business sense. Lucas: Right. And there's one more mechanism I want to mention: the SC Johnson Foundation. A significant portion of the family's wealth is held in a philanthropic foundation that owns company shares. That provides a buffer — even if individual family members sell their personal shares, the foundation keeps a core block of stock in family-friendly hands. Luna: That's smart. It's like an extra layer of protection against dilution. Lucas: Exactly. And the foundation is active in environmental and community causes, which also reinforces the company's brand. So it serves a dual purpose: philanthropy and governance. Luna: Are there other companies that have done something similar? I'm thinking of the Cargill family, or maybe Mars. Lucas: Mars is another great example. They also have a family constitution and a private ownership structure. But Mars went further early on by creating a family trust that holds the voting shares for all family members. That prevents any individual from selling a controlling stake. SC Johnson's approach is a bit looser — family members do own shares directly — but the restrictions on transfer are very tight. Luna: So it's a spectrum. Some families go full trust, some rely on contracts and culture. Lucas: Exactly. And the right approach depends on the family size, the level of trust, and the legal environment. SC Johnson's model has worked for 140 years, but it's not one-size-fits-all. Luna: One thing I wonder: does the family's involvement in the business actually add value, or is it more of a hindrance? There's academic research suggesting that family-run companies outperform non-family ones in the long run — but only if the family is actively involved in management, not just passive owners. Lucas: That's the 'family effect' literature. A study by the Boston Consulting Group found that family-controlled companies outperformed public companies by about 6 percent annually over a 20-year period. But the key factor was that the family had a long-term horizon and was willing to invest for the future rather than chase short-term profits. Luna: SC Johnson fits that profile. They've been investing in sustainability for decades, long before it was fashionable. That's a long-term bet that's paying off now. Lucas: And they've also been able to weather crises better. During the 2008 financial crisis, SC Johnson didn't lay off employees. They actually increased investment in R&D. That's the kind of decision a private family company can make. Luna: But there's also the risk of complacency. Without the discipline of the public markets, a family company might become too comfortable, too insular. Lucas: That's a real risk. And SC Johnson has had periods where it seemed to lose its edge — the late 1960s, early 1970s before Sam Johnson took over. But the family constitution and the presence of outside independent directors on the board help. SC Johnson's board includes non-family members, which brings fresh perspective. Luna: How many independent directors do they have? Lucas: As of the most recent disclosure, the board has twelve members. Six are family members, six are independent. So it's evenly split. That's a healthy balance. The independent directors can push back on family decisions if needed. Luna: And they have a family council that meets separately, so family issues are discussed before they reach the board. Lucas: Exactly. Multiple layers of governance. It's not just one person making decisions. The family council, the board, the executive team — they all have distinct roles. Luna: So what's the biggest challenge facing SC Johnson today? Is it competition, or succession, or something else? Lucas: I'd say it's a combination of competition and the changing retail landscape. The rise of e-commerce and direct to consumer brands means SC Johnson has to compete with nimble startups that can pivot quickly. They're also dealing with rising raw material costs and supply chain disruptions. But the long-term challenge is maintaining the family commitment. As the sixth generation grows up, will they want to stay in the business? Some will, some won't. The family constitution allows for that — it doesn't force anyone to work at the company. Luna: That's probably wise. You don't want reluctant family members in key roles. Lucas: Right. And the family has created opportunities for members to be involved without being employees — serving on the board, participating in the family council, or working through the foundation. That keeps the family engaged without forcing everyone into the corporate structure. Luna: It sounds like they've really thought this through. Most families don't plan that far ahead. Lucas: Most don't. And that's why most family businesses don't last past the third generation. SC Johnson is an outlier. But their story shows that with deliberate governance, a shared sense of purpose, and a willingness to adapt, a family business can endure for more than a century. Luna: It's a good reminder that 'family business' doesn't have to mean 'small business'. SC Johnson has over 13,000 employees and operates in more than 100 countries. Lucas: And it's still headquartered in Racine, Wisconsin. That's another aspect of the legacy — the family has kept the company rooted in the community where it started. That's rare for a company of that size. Luna: I think that's a nice note to end on. The idea that a company can be global and still local, modern and still traditional. Lucas: Yeah. It's a balancing act. And the Johnson family has been doing it for 140 years. We'll see if the sixth generation can keep it going.