The Minneapolis
/ St. Paul Business Journal: Panel Discussion
with Five Family Business Experts
The
Minneapolis/St. Paul Business Journal
held a panel discussion recently, featuring
five expert panelists to explore topics
about the issues and opportunities within
family-owned businesses.
Panelists included Frank Harvey, shareholder
at Larkin Hoffman; Jerry Bremer, managing
director at CBIZ MHM; Andrew Steiner,
owner and vice president of marketing
and customer operations at AmeriPride
Services Inc.; and Thomas Losey, partner
at Boulay. Tom Hubler of Hubler for
Business Families, served as moderator.
Hubler: To start, I want to hear
about the key challenges involved with
being in a family business. What have
you noticed?
Harvey: The main challenge is
succession planning. In my experience,
a company is founded by a matriarch
or a patriarch, and when they ease out
or pass, there’s an issue of who’s
going to take over, what’s the
corporate governance and how is that
going to fit in with the family and
the wealth that’s created by the
family. The other key issue is, once
the succession plan is underway, the
implementation of corporate governance.
My experience is family businesses are
often benevolent dictatorships rather
than democracies, and that next move
to an entity with corporate governance
is sometimes a challenge for the family.
Bremer: Regarding governance,
the patriarch or matriarch was likely
the sole governance. With second-generation
family members involved, governance
becomes more consultative to align their
interests with business interests. Third
and subsequent generations trend toward
committee approaches with voting on
strategic direction of the business.
There tends to be more committees as
the number of family governance members
increase.
Steiner: We have a fourth- and
fifth-generation business, and one of
the key challenges is around coordination
and alignment of shareholder expectations.
We’ve spent a lot of time discussing
expectations within our family, so that
the managers of the business can be
aligned with those expectations. It’s
a long-term approach that people need
to think about. If you don’t have
that approach, then you get into short-term
decision making.
Hubler: So, Andrew, what has your
family business learned over the past
125 years? Maybe some key lessons that
others could use to be successful?
Steiner: A couple of lessons
as we’ve looked back, maybe in
the past 25 years, is to have patience
and persistence. Back in the early 1990s,
the third-generation leaders started
a process of bringing family shareholders
together on an annual retreat, and we
have continued that tradition every
year. That’s been helpful to understand
patterns of communication, and to keep
people close and aligned. We spend three
days somewhere different every year,
and it’s about making sure that
relationships are strong. In terms of
patience, we think transitions shouldn’t
happen quickly. Whether that’s
a transition in management or of ownership,
we’re in it for the long haul.
Hubler: One of the things you mentioned
was keeping relationships strong, and
I’m curious to hear from other
panel members about experiences with
that, especially in regard to succession
planning.
Losey: Relationships are so
key to any business, and the challenges
of people working with their siblings
or cousins add yet another dynamic.
I think one of the most significant
challenges in any business is getting
the strategic plan aligned across all
stakeholders’ objectives. So often
in a family business there can be one
group or person that would like the
business to stay largely the way it
is. They’re most comfortable with
that course of action. Yet there’s
almost always someone else or another
group that’s interested in what
this business could become. They want
some significant growth or aggressive
change. Those two paths are so different
that I think they become the root of
conflict.
Hubler: How do you align the interests
of the business with the interests of
the family?
Bremer: First, it’s generational.
Usually, the person who started the
business is pretty well aligned because
they think of themselves as the business.
It’s the next generation where
sibling rivalry comes in, and other
issues about strategic planning come
up. If they were rivals growing up,
they become even bigger rivals when
they get into the business world. There
has to be a decision tree where the
matriarch or patriarch will be trying
to align the desires, and find out if
second generation wants to be in the
business. But in general, there’s
no magic answer about how you do alignment.
Harvey: I would much prefer
to be in a dispute with my worst enemy
than with a family member. I’ve
seen some of the bloodiest, ugliest
battles. These family wars can be epic.
And what causes them? I’ll tell
you: It’s who got the better Christmas
gift in 1958. All of the family stuff
comes out in disputes. And that extends
to who’s working in the business
and who’s not. Once you have a
business the size of Cargill that’s
professionally managed then you’re
out of the woods, but not before that.
Just because you have the last name
of the founder doesn’t mean there’s
a spot for you in the business. And
that can start disputes.
Bremer: I agree that we’re
dealing with deep-rooted history, but
there’s also the current situation
of direction and compensation. For example,
what if one sibling is the president
and the other is operations? Should
there be difference in compensation?
Obviously, that ends up being a rivalry.
Each family will have a set of issues
that cause a controversy.
Losey: I think another source
of conflict is that siblings know each
other so well, and can have less patience
for their differences. One sibling may
like to spend money and show their financial
status, and another is more frugal and
understated. These lifestyle differences
can be an irritant, that might extend
to differences in management style,
as well.
Hubler: From my perspective, one
of the biggest obstacles for succession
planning is lack of an expression of
appreciation, recognition and love.
It seems that people love each other,
but they take each other for granted.
How does that affect business?
Bremer: There is the emotional
effect that cooperation or validation
has, and if the ruling generation makes
a statement that only mentions one person
in the next generation, then there’s
the perception of favoritism. The parents
need to recognize the different qualities
of their children. Some are meant to
lead, some are meant not to even be
in the business. That recognition of
not trying to force a square peg into
a round hole is important. There’s
a lot of hurt feelings and animosity
created among the siblings because of
those issues.
Harvey: Kind of a corollary
to that, one of the key problems of
a family-held business is if you allow
the children to come late to work, take
time off, and generally not meet the
standards to which you hold other employees.
Where non-family members feel like they
can’t advance. Sometimes, it goes
the other way, where the parent is extra
tough on the child because they want
to show they’re not playing favorites,
but then that son or daughter doesn’t
feel appreciated. I’ve seen that
a number of times, where the children
just can’t relate to the patriarch
or matriarch because they feel they
can never satisfy them.
Hubler: Andrew, as a representative
of the younger generation here at the
table, I’m curious about your perspective.
Steiner: A couple thoughts.
Back to appreciation, if you think about
family members in a business, most folks
have joined the business at a pretty
young age, and if they’re working
toward succession, appreciation would
definitely come with that. How could
you work your whole career and not want
that feedback? You’re probably
doing this for the betterment of your
family, so it makes a lot of sense.
With regard to points about favoritism
or pushing the children extra hard,
I think the latter comes with the territory.
If you’re joining the business
as a family member and you don’t
have the expectation that you’re
going to have to work 120 percent harder
than everybody else, you’re mistaken.
You should come in with that expectation.
Because there will always be other members
of management who wonder if this kid
is getting promoted because he’s
a family member.
Hubler: How have you dealt with
that?
Steiner: One of the things that
occurred to me is that if you can get
to the point where you have a board
that’s independent and you get
away from it being a father or mother
promoting a child, the favoritism issue
becomes easier. When it’s a family
member making a decision about other
family members, that’s difficult.
We’re lucky to be mature enough
in our governance that we have an independent
perspective assisting with these decisions.
Hubler: Let’s talk about training
and leadership development. I’m
curious about what you’ve observed
with your clients about training family
members. What’s the best system
to do that? How do you prepare the next
generation?
Bremer: I’ve seen in at
least two instances that it started
before they got to be an adult. When
the kids were in their last years of
high school, they would be sent to educational
programs where they were instructed
on these issues. They were given ideas
to help manage those. That worked pretty
well in knowing how to succeed their
parents in the business, but it didn’t
eliminate the sibling rivalry.
Harvey: What I’ve seen
is successful family businesses would
never put a family member in a situation
where they’re unqualified. If you’re
going to be in management, you need
to know about it. Typical business training
is important. My clients have actually
shown diverse ways of getting there.
The children might start in the business
at 12 years old, sweeping the floor,
then at 16 they’re doing something
else, and they’ve lived the business.
Then I’ve seen where they send
the kids out to work for other companies,
where they can learn discipline, and
in my experience that’s been very
successful. They spend five to seven
years with a corporation, learning management
and governance and bring that to the
family business.
Steiner: I think that’s
a great model. If a young person can
see success in another organization
and have some wins, I think it verifies
for the rest of the family that this
person is a good candidate to bring
into the organization, rather than straight
out of school.
Losey: I agree that giving a
family member exposure to other businesses
is extremely helpful. I think experience
outside of the family business allows
them to think about whether they want
to be in the family business. Maybe
they get exposure to other companies,
and then feel like they have a choice
about whether to be part of the family
business. Feeling like they have a choice
can be powerful, as opposed to having
it be assumed.
Bremer: I think there’s
a benefit, too, because they bring fresh
ideas that if they were to incubate
in the family business, they might not
have.
Hubler: That brings up an interesting
point, about incubating new ideas into
the family business. I’ve seen
many situations where the younger generation
comes back with all these ideas and
they’re ready to use them. But
that brings up the whole issue of risk.
What are your observations about how
you manage that threshold?
Losey: I think there’s
a generational risk element here, in
that the very patriarch who had to take
a lot of risk to get the business started
sees his appetite for risk diminish
as he’s becomes more comfortable.
They can be concerned when younger generations
want to leverage the business, and they
do a couple acquisitions to get this
thing growing. Certainly, there are
also differences between siblings or
cousins because they may have different
ideas. To deal with this, I’ve
seen family-business consultants be
very helpful. It may just come down
to talking to the patriarch and asking
him to remember the need for taking
risks. Maybe there needs to be a compromise.
Outside consultants can be effective,
in getting issues on the table so family
members can talk about them.
Harvey: I have seen an 80-year-old
business destroyed by a family member
who took over and killed it in less
than a year. He bought a bunch of equipment,
because they were going to meet the
future, but the business wasn’t
there and the company went under. A
more common scenario is to get stuck
in a rut. Dad’s been dead for 30
years, but people are still running
the business the way dad did.
Hubler: That brings up a good point.
How do those in the younger generation
emancipate themselves from the myths
and stories about their parents, and
develop themselves in their own right?
How do they stay out of the rut and
develop their own sense of leadership?
Bremer: I think a successful
transition from one generation to the
next has to be mutual. The senior generation
has to understand it might not be how
they did it. I think it has to be a
collaboration. That is the most successful.
Harvey: Another way to get out
of the rut is to have an independent
board of directors that is knowledgeable
about the business. Seek outside advice.
It’s sometimes tough to get interested
people to serve on the board of a family
business, though.
Steiner: Back to the risk discussion
for a moment, I think one place a business
can start is rather than getting to
the point where we’re arguing about
a specific proposal or a specific deal,
is to talk about how much risk are we
willing to take on in general. Then,
we can have a framework to use that’s
helpful for when we’re evaluating
an acquisition or a major initiative,
rather than focusing on the individual
deal or proposal.
Bremer: That is really important,
the preparation, presentation and background
information about a strategic decision.
That framework of quantifying the risk
is also quite important. Also, if we
reach our risk tolerance, what would
be the exit strategy? Not all deals
go well, so having the framework and
an exit strategy is the way to go.
Hubler: Let’s talk about the
complications of a founder or owner
letting go of the business. I’ve
had founders say to me that they know
they should do it, but it’s the
hardest thing for them. What advice
would you give for that transition?
Harvey: I see it and deal with
it every day. It’s a key issue.
This is their baby. They gave birth
to this, and also, they love what they’re
doing. They love going to the office
or factory, it’s what they’ve
always done and they can’t imagine
life without it. But it’s like
when my mother got into her late 80s
and still wanted to drive. I had to
say, “Mom, you’re going to
run into a family and hurt someone.
You have to think about others.”
And she stopped driving. So, I think
you have to convince the entrepreneur
that if he or she isn’t prepared
to keep the company going, they should
sell.
Bremer: Unfortunately, if that
planning wasn’t done prospectively,
they may have lost value in the business
or not gained the full value of the
business, because of the risk of management
not being deep enough or structurally
sound. By not making a decision either
to pass it on to family members with
a plan or by selling it, you may not
have been maximizing the value of your
business.
Losey: I find that the family
can sit in a room and decide it’s
time for the son or daughter to become
the president of the organization, and
everybody can make a logical decision
about that. But if the founder or owner
is in the office, and starts taking
the reins again by answering questions
for management, instead of deflecting
them to the new president, this can
be damaging to the whole process.
Steiner: One of the things that
could help is role definition. The departing
founder or owner should think about,
“If I’m not leading the company,
what is my role as a shareholder versus
that of a day-to-day manager.”
It’s important to really delineate
those responsibilities up front. My
experience is that when a role is written
down on paper, it serves as a strong
guideline.
Hubler: What would you recommend
or suggest for family businesses?
Bremer: I think education and
communication are the two key issues
in having a successful transition from
one generation to the next in a family
business.
Losey: Another idea I might
suggest, is we have been talking about
the family business like it’s one
business. But I’ve seen families
that have dealt with appetite for risk
and growth by having multiple ventures,
and it has worked well. Someone wants
to move the business in a new or different
direction, so they create a new entity
to do that, as opposed to all initiatives
having to be done inside the original
entity.
Harvey: What I’ve taken
from this discussion is the importance
of planning and education, and I want
to add the emotional quotient. Expressing
appreciation, acknowledging the emotional
baggage, that’s what I’ve
learned.
Steiner: I attended a seminar
recently where one thing I took away
was “plan for the inevitable.”
People are going to die, they’re
going to retire, and unfortunately there
may be a divorce. You have to plan for
it, so get started early and plan as
much as you can.
Tom Hubler is owner of Hubler for
Business Families, a Minneapolis-based
company that addresses family-owned
business needs in the United States.
He has helped colleges establish family-business
institutes and works directly as a family-business
consultant for hundreds of clients.
He helps families develop a shared vision
for the family and business, identifies
individual talents, tackles any unspoken
issues, and creates individual and organizational
strategies to ensure a personally and
financially rewarding business. He also
assists families with wealth preparation
plans.
Frank Harvey is a senior lawyer in
Larkin Hoffman’s corporate practice
group. Over the years he has represented
entrepreneurs and business owners in
diverse industry groups, including medical
devices, plastics, packaging, biotech,
banking, leasing, financial services,
manufacturing and real estate development.
He acts as outside general counsel for
businesses ranging from startups to
those with hundreds of millions of dollars
in revenue. His expertise includes financing,
raising capital, employment, distribution
and supply, and corporate governance.
Jerry Bremer is a managing director
at CBIZ MHM. He has over 40 years of
business, financial and tax consulting.
He is an expert in forensic accounting,
business valuation and economic damages
in financial litigation. Additionally,
he is highly versed in mergers and acquisitions
transaction consulting, structure and
due diligence. Bremer has worked with
a variety of family-owned businesses
— small to large — helping
them succeed and grow to their full
capacity.
Andrew Steiner is a fourth-generation
family owner of AmeriPride Services,
one of the largest textile rental and
supply companies in North America. Steiner
is responsible for all marketing and
customer operations functions for the
company. Prior to joining AmeriPride
in 2001, he was the founder and owner
of Blue Link Innovations Inc. He has
an MBA from the University of Chicago-Booth
School of Management and a BSE degree
from Princeton University. He also serves
on the boards of Quetico Superior Foundation
and Minnesota Center for Environmental
Advocacy.
Tom Losey is a partner at the Boulay
accounting firm. A former CEO of a national
energy consulting firm and partner at
a national accounting firm, he has 30
years of audit, tax and business advisory
experience.Tom leads client engagements
for privately-held and owner-managed
companies in the professional services,
retail, manufacturing/distribution and
construction industries. With his financial
and operational expertise, he helps
clients face challenges and grow the
value of their businesses.
