Family business: When business is personal

How to maintain harmony among family members

Presented by Chase

Family business leaders can increase the odds their organization not only survives, but thrives throughout this generation and beyond by planning and thinking about the future. That includes getting the next generation into the right roles at the right time, whether that’s leading the company or being the owner.

A comprehensive study by Syracuse University’s Whitman School of Business identified the reasons why family businesses don’t last. Sixty percent of the failures were due to breakdowns in trust and communication within the family unit; inadequately prepared heirs caused 25 percent of the failures; and 12 percent were due to the lack of a family mission or purpose that clearly defines the use of the family’s wealth.

In the following article, regional family business leaders share their career experiences, understanding of the unique dynamics of a family business and what it takes to develop up-and-coming family members.

 

Considerations for transforming a family business into a legacy

A family business can take many shapes. It can range from a small mom-and-pop to a publicly traded behemoth in which sprawling third and fourth generations hold controlling shares.

Regardless of size, there are common challenges a business needs to address to survive past even the first generation. Indeed, the U.S. Small Business Administration reports that about half of new small businesses make it to the five-year mark, and only one-third survive 10 years or longer.

For those that beat the odds, passing the baton can be an even bigger challenge than starting the company. To help prepare the next generation and bridge any discord that could develop during a transition, it’s important to work out a concrete succession plan that factors in the challenges unique to family businesses.

Once you move past the first generation, the question of who controls the company and what positions they hold in the hierarchy can be particularly thorny territory. Closely held family businesses are more likely to succeed when family members who work in the business full-time hold all stocks, especially voting shares.

Maintaining harmony among family members is critical, especially when money is involved. Provisions should be put into place so that the business can reinvest in itself in good times, and potentially curtail disbursements during lean years. A well-articulated and transparent policy can establish distributions for family members who are active in the business and those who are not.

Above all, an important key to success is to retain the organization’s original entrepreneurial spirit. Complacency is a danger with a multigenerational business, and past success doesn’t guarantee its future. To remain vital, companies must reinvest in themselves.

While sustaining a business of any kind is difficult, the challenge can be met and a legacy can be built — if that’s what you and succeeding generations desire.

For more than 160 years, Chase has been intimately involved in the successful generational transitions of family businesses around the world. Our Pittsburgh banking team can help you and your legal, tax and business advisers craft a succession plan that honors the business you’ve built and transfers it so that it — and your future generations — may thrive.

Dave Schaich
Region Manager, Western Pennsylvania Middle Market
Chase Commercial Banking
(412) 255-6883
[email protected]

 


 

Tim Dunlap
President and COO
CentiMark Corp.

Tim Dunlap’s father, Edward B. Dunlap, started CentiMark Corp. in 1968, with $1,000 in the basement of their home. When Tim was 8, he did odd jobs in the warehouse on Saturday mornings for 25 cents an hour. Two weeks after graduating high school, Tim joined the roofing and flooring crews and never looked back.

Nearly 40 years later, the president and COO has been involved in almost every facet of CentiMark. Tim didn’t move to a new position every six months, either; he’d work for years in a role — and was held to a high standard.

“It’s even more difficult when the person that you’re following has been successful,” Tim says. “My dad successfully ran the business for 30 years before I started taking over the day-to-day in 2003. It was like ‘Oh no, here comes the kid. What’s going to happen with the company? Is he going to run it into the ground?’”

As succession evolves, there’s more and more pressure on the next person, especially if prior leadership was successful, he says. So, take advantage of every opportunity — recognize your strengths and work on your weaknesses.

Since 2003, Edward steps back a little every year as his son’s leadership matures. CentiMark also takes pride in its leadership and employees, such as the 120 who have worked there for 20-plus years, as well as new people with fresh ideas.

“Business isn’t all about one person. It’s about the team that you have underneath you and thank God throughout our 49 years in business we’ve grown a lot of great people and managers,” Tim says.

Right now the only family involved in CentiMark are Tim and Edward. (Edward has other businesses. His brother works for one of those.) They haven’t created a family succession plan, but Tim hopes between nieces, nephews and grandchildren, someone eventually steps up.

At the same time, Tim didn’t evolve into his current role without bumps. He says you need to be prepared for that. Be open about the business and your personal feelings.

“My dad and I have a great personal relationship,” Tim says. “We’re very close and all those times it was difficult and you might’ve had to bite your tongue, we were able to work through things.”

If two leaders disagree all the time, it sends a negative message to the workforce, he says.

“Sometimes you’ve got to shut the door. Sometimes you’ve got to bite your tongue,” Tim says.

 

Helen Hanna Casey
CEO
Howard Hanna Real Estate Services

At 97, Howard W. Hanna Jr. comes to the office to give out spreadsheets and memos, but his three children run the U.S.’s third-largest real estate company: Howard W. “Hoddy” Hanna III, chair of Hanna Holdings Inc., and Helen Hanna Casey, CEO, and Annie Hanna Cestra, executive vice president and COO, of Howard Hanna Real Estate Services.

Six children from the three families represent the third generation. But Hanna Casey says the fourth generation may require more structure.

“You stumble, you plan, you improvise and then you execute, as each generation goes on,” she says.

Hanna Casey and her siblings were licensed in real estate at 18. They went to college first and then worked their way toward joining the business. It was unusual for daughters to be involved, but Hanna Casey believes the balance is good and it continues today.

“I don’t think anybody thought the word succession. That wasn’t something you were thinking about or planning about,” Hanna Casey says. “We came in. We went to work. We built a business with our dad.”

Her parents allowed them to plan that future. That’s why the third generation is now planning for the fourth generation, which has 18 people so far. Both generations span about 20 years.

“I don’t think we, as my generation, can dictate what our grandchildren do,” she says.

Hanna Casey and her siblings had rules for their children. You had to be licensed and educated. You had to work hard and accept Howard Hanna’s mission statement. Your parent couldn’t determine your compensation.

“You have to prepare to understand what a senior job is, to know how to do it. I don’t think it comes naturally because of your name,” she says.

But one consultant in the 1970s reminded them Howard Hanna is a family business; that’s what it does best.

“It kills my sister that I call my father ‘daddy’ at the office at 68 years old, but I do,” Hanna Casey says. “We’ve always run it as an operation where we’re familial.”

Let your children understand early, she says. You can’t suddenly start talking about the business.

“We can say it’s good not to have the conversations at dinner, but you also can’t freeze out the rest of your family and expect that your children are going to be prepared and your grandchildren are going to be prepared,” Hanna Casey says.

 

Kurt Lesker IV
President and CEO
Kurt J. Lesker Co.

With his name, many people thought Kurt Lesker IV would join the family business, Kurt J. Lesker Co. He wasn’t so sure. But in 2006, he left his New York job to give it a try.

“I thought I have this opportunity that even if the business is not exactly what I want, if I work hard, I can evolve the business into what I want and something that I can be really passionate about. The more I learned about our technology, however, the more passionate I became,” he says.

At the forefront of technology, KJLC develops vacuum equipment for aerospace companies and works in nanotechnology.

Kurt’s grandfather lost his job and wanted to be his own boss. Since he wasn’t sure what his company would sell, the registration office suggested he use his name. Kurt Lesker III led the company for 36 years before his death in 2015.

Today, Kurt is president and CEO. His sisters are assistant controller and global HR manager. His mother is both board chair and vice president of IT.

“I feel lucky in the sense that my mother and father were very open with us. We had regular family planning meetings,” he says.

Those meetings continued after he joined KJLC. When his father got sick, his sisters and mother felt he was the best person to lead.

Being transparent with the immediate family, extended family and corporate family — 375 people in seven offices around the world — meant everyone knew what was going on during a difficult time. Nonfamily executives told Kurt “if you’re in, I’m in.”

“The more you can make people without the last name feel like they are part of the family, the more success that you’re going to have and the better ability you have to scale,” Kurt says.

His advice, working his way up through KJLC and learning from other family businesses, is to get younger generations involved with sales early. Understanding the products, how they work and why customers buy them is crucial. It’s also important that older family members avoid directly managing younger family members right away and that market data is used to determine compensation, Kurt says.

Kurt is an advocate for working elsewhere first, before joining a family business, like his sister did with Ingersoll Rand. A well-rounded family member will bring ideas back.

“A lot of the ideas that she learned over those five years, she’s brought into the organization in a very positive way,” he says.

 

David K. Miller
President
Miller Welding & Machine Co.

Miller Welding & Machine Co. has a plan to transition from a family business to a business owned by a family. As the second generation retires over the next decade, 12 family members in the company will become seven. The family retirements will create a need for professional managers to be brought in to take their places, says President David K. Miller.

David’s parents, David R. and Sara Miller, founded Miller Welding — they still come in every day in their 80s — and five of six children joined the family business. David remembers his first welding helmet was a cardboard box with a window cut for the “glass.”

Each son became the engineer his father needed — industrial, mechanical or welding — while two daughters went into accounting. The Millers grew the business to accommodate more family.

“When my son got old enough to go to college, he walked to my father and asked, ‘Grandpa, what kind of engineer do you need?’” David says.

David and his siblings get on well. With the seven in the third generation, it’s not the same; cousins are never as close.

“We’re getting to a point where we are looking to come up with some kind of formal succession policy,” he says. Questions, like how company stock can be handed down, must be answered.

One mistake his parents made was paying their children equally.

“You should pay the salary that the position demands, and not pay them a different salary just simply because they are family,” David says.

Groomed to become president, David and his brothers officially took over operations 15 years ago. His oldest son, Eric, is ready for his role. He got additional training as it became apparent he was the right choice.

Extended family also has worked at Miller Welding and David sometimes struggled supervising uncles and cousins. A friend didn’t hire relatives, which led David to wonder why they did.

“Dad looked at me and said, ‘What you’re telling me is that you would rather offer an opportunity to a complete stranger than you would to one of your family?’” he says.

The key is holding that family accountable. Guard against entitlement, David says. Miller Welding has had anywhere from 350 to 500 employees and senior managers aren’t all family.

“They watch. Is this guy doing his job? Is he accountable? Is he pulling his weight? And if he isn’t, they know it,” he says.

 

Steven Tack
CEO
Quality Life Services

Family business isn’t for everyone, but when it is, there’s nothing better, says Steven Tack, CEO of Quality Life Services.

His grandfather, father and uncle started the health care company that he, his sister and cousin run today. Both generations let their children know there was no expectation, only opportunity.

“There’s a real danger in kids feeling like they have to or that their parent’s approval and love is based on them joining the business. I don’t think that’s healthy,” he says.

Tack and his relatives worked their way up, wrestling it away from the earlier generation. Tack appreciates that. It promoted self-confidence and let nonfamily see it wasn’t handed to them.

When younger family joins a family business, be honest with yourself and them about their abilities, Tack says. Don’t let them feel entitled or put them in over their head; help them earn it.

“If you start them off and they have small successes, then you can keep building on that. They can also learn from small failures without getting too discouraged,” he says.

When their children were young, Tack’s generation created a succession agreement. So far, Tack’s daughter and son-in-law have joined the company.

“We used a trusted adviser to help us walk through it — someone who raised all those different questions, so that we could answer them honestly and then put the answers down in writing,” Tack says. “It’s been very helpful.”

The first generation was entrepreneurial, while the second generation is deliberate. Those skills have met the business’s needs at the right time, Tack says of the company that has over 1,300 employees today.

Tack and his sister worked elsewhere in the industry during their careers. At larger nursing home companies, they learned what to apply and what to avoid, but it wasn’t always easy to introduce change.

“My father and I had multiple disagreements over some of those things — some of them he relented, some of them I just had to bite my tongue,” he says.

Tack has since learned firsthand about dealing with the difficulty of change, but at the end of the day, trust is the most important part of a family business.

“When someone else comes in and does a job that you used to do, and they do it differently, sometimes you have to admit they’re doing it better and sometimes there’s just multiple right ways,” Tack says.

 

Lisa Allen
President and CEO
Ziegenfelder Co.

President and CEO Lisa Allen’s grandfather and father both worked at Ziegenfelder Co. Founded in 1861, it’s known for its Budget Saver Twin Pops. Her grandfather’s family slowly gained ownership and her father had full control by the 1980s.

While Allen and her siblings grew up working at Ziegenfelder, her parents pushed them into their own careers. In the mid-90s, Allen, a recently divorced mother, needed additional income. She asked if her father had work for her; he said no.

“He wasn’t going to hand me anything,” she says. “I think that’s one of the greatest gifts that my parents gave all of us: The path in life is never set. It’s yours to determine.”

So, Allen continued consulting, helping companies with organization, customer service and team development.

“Four years later, I came back to my father, and I said ‘you know, this might be interesting. I might be able to help you.’ And that’s when he was open to listen,” Allen says, adding that she learned a lot from waiting until she was ready for the right reasons.

Her father, 75 when she joined the company, died five years later in 2005. Their relationship was strong; their perspectives clashed — Allen saw opportunity, while her father focused on risk.

But with her father’s example, Allen didn’t feel obligated to hire family. He felt you should help family, but hire the right people, relatives or not. Allen’s new husband, the chief customer officer, went through an interview process first. The company, which refers to employees as tribe, also hired her husband’s son and son-in-law.

“There is no golden path, if you will, for family members,” Allen says. “You do a disservice to the family member and you do a disservice to your dedicated loyal tribe members by bypassing people because of blood or relations, rather than commitment and effort and integrity. If they’re good, they’ll get there,” she says.

Over the past 15 years, Ziegenfelder has averaged double-digit growth. More than 300 employees run 12 production lines in three facilities. Allen learned by looking in people’s eyes, sweating with them, asking their opinions and building trust.

“Was I prepared to be a CEO of a multimillion dollar business? Not just no, heck no,” Allen says, noting that experience proved to be the best teacher. “There’s very little of what I do on a daily basis, what my role is, that I could learn in a textbook.”

 

Consultant’s view on family business succession

Ann Dugan has spent decades working with family businesses. Today, she helps family enterprises as senior managing director of consulting at the Family Office Exchange, but she’s better known for her former role: founder of University of Pittsburgh’s Family Enterprise Center (part of the Institute for Entrepreneurial Excellence).

When she thinks about succession, a few mistakes come to mind.

First, family businesses don’t start the conversation early enough. They want the next generation to find its own way, but Dugan says you can involve them in ownership without pushing them to join the company.

“The idea of a thoughtful, consistent conversation earlier as a young person is developing their ideas for a career could go a long way,” Dugan says, rather than putting up a wall until adulthood. Plus, if the next generation isn’t interested, there’s time to make other plans.

Many believe you shouldn’t work for your family business immediately. However, she says research proves success depends on an individual’s preparation, experience and interest, not where it was gained.

As the senior generation ages, it needs to consider what’s next. This could be serving as a board chair or head of a special project like the international expansion they couldn’t get to as CEO.

“Formulating that vision of what they are going to earlier helps them to make a timely transition,” she says, using her own example of retiring in her 50s for something different.

Families also focus on minimizing taxes and putting distributions and stock into trusts for future generations, Dugan says.

“Families develop these very complex instruments that will be in place for the next 99 years, but I’m not sure it provides the focus for what’s happening in the shorter term in terms of family development, family collaboration, family impact on the community and so on,” she says.

Families should build the enterprise’s capacity using financial, intellectual and social capital. How do they educate family members, including those who marry in? What is the community impact?

Family members can move from consuming business assets to being producers. For example, a daughter didn’t want to join the family agriculture business. Because workers didn’t know how to access health care, she created a process to bring in physicians, dentists and ophthalmologists during an agricultural season.

“It’s thinking broader. What is it that you’re passionate about, or what are your interests? Then how do we come together as a family in education and learning, rather than just training everybody to wait for the check in the mail,” Dugan says.

How to reach: Ann Dugan, Family Office Exchange, (312) 327-1243, [email protected]