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The next season Featured

10:03am EDT July 22, 2002
Part 3 of 3

Pauline Chambers Yost has made careful plans to see that her company, Tech International, not only survives her but remains in her family.

She's grown the Johnstown-based business-with the support and help of her children and grandchildren, she points out-to the status of her dreams: an August acquisition of Truflex/Pang in Los Angeles made Tech the largest manufacturer of tire repair materials in the world.

Over the years, Yost has added company divisions so family members could move through the business and choose their own areas to run.

"We are large enough that each one can be a shining star in their own division," Yost says. "I expect each one of them to make that division grow. It is up to them how bright they want that star to shine."

Yost considers her grandson, Michael Chambers, her apprentice. He'll eventually take over Tech International as president and CEO. In her will, Yost, 81, has outlined her wish that the company's stock-held solely by her now-be divided equally among four family members actively involved in the business: Chambers; his brother, Gary; Yost's daughter, Cheryl Poulton; and Poulton's daughter, Nicole Layne.

"I made these plans while I was here so I could see how all four fit into their positions," Yost says.

Decisions such as Yost's are inevitable-and crucial to the continued success of any family business.

"Very, very few family businesses have explicit succession plans," says Thomas Davidow, a nationally recognized family business expert and co-founder of Genus Resources Inc., a consulting firm in Needham, Mass. That may explain why just one in 10 family businesses is able to succeed from the second generation to the third.

Tech, in its fourth generation, and North Columbus' RDP Foodservice, with three generations running the company, appear to be beating the odds.

Those odds are changing, says J. Richard Emens, a partner with Chester, Willcox & Saxbe LLP and founding director of Franklin University's Family Business Center. Recent studies indicate that once family businesses reach the third and fourth generations, they have a better chance of succeeding beyond that point.

Although neither Tech nor RDP has a written succession plan, other than Tech's ownership split detailed in Yost's will, the management at both companies says the founder's intentions are known amongst family members. Nothing, however, is scheduled to happen as long as the family leader remains active in the company.

"As far as my retirement plans, I've never figured to retire," says RDP President Richard DiPaolo Sr., 80.

Yost feels the same way.

"I'm going to work until I drop," she says, "and I hope I slump over at my desk."

According to a 1997 Arthur Andersen/MassMutual survey of more than 3,000 family businesses, nearly one in four hasn't completed estate planning. But nine in 10 believe their business will be controlled by the same family in five years.

The results indicate that succession issues will have to come to the forefront soon, with more than half the respondents expecting the CEO to retire within 10 years. Still, like Yost and DiPaolo Sr., 16.1 percent say the CEO will "never" retire.

Regardless of the fact that both Yost and DiPaolo Sr. will stay active with their companies as long as they can, they also want their businesses to remain family-run after their passing.

"I have had many opportunities to sell and many opportunities to go public," Yost says, "but I do not want that. This is my legacy to my family and to Johnstown."

Leaving the legacy

DiPaolo Sr.'s sons, Dick and Paul, say they plan to continue running RDP status quo after their father dies, and will continue to train their own sons and a nephew now involved in the business for management as well.

"What we hope to do is try to grow the business so here in the near future we-I-can step back and turn it over to the next generation," Paul DiPaolo says, acknowledging that he and his brother have different goals.

Paul DiPaolo is eager to have a hand in the business but turn over his share of operations to a younger generation, while Dick DiPaolo wants to stay with the company for a while.

"We don't think, at least at our level, in terms of who's boss," Dick DiPaolo says. "It's not a perfect setup. We just make it work. I'm not sure it's written in any business manual. The only people we really answer to are the customers, and that's the way it should be."

"Titles don't really mean a lot," DiPaolo Sr. agrees.

As it is now, his sons and one grandson, Mark Mizer, all of whom are vice presidents, make decisions amongst themselves or with him.

"It's difficult to name one person as the head guy, and I know that's not exactly kosher," DiPaolo Sr. says. "We never really thought of it in that manner, where, 'Hey, you're the boss.'"

So far, the company has not faced any major family challenges such as two relatives wanting the same position in the company.

"We're trying to make the business sizeable enough so there is plenty of room for people to be involved," Dick DiPaolo says.

The succession of actual ownership in RDP is still undecided, says DiPaolo Sr., who is meeting with attorneys to discuss the future of the company, owned by him, his two sons and his daughter, Rita Mizer.

Edward Hertenstein, an attorney with Kegler, Brown, Hill & Ritter and board member of the new Family Business Solutions program at The Ohio State University's Fisher College of Business, says ownership and management succession issues should be considered simultaneously.

"You can have all the business plans you want, but if it doesn't match up ownershipwise, when something happens to the founder or better yet during the transfer of ownership during the founder's life, [the one] who holds the marbles can make up the rules," he says.

Written business plans, he adds, must be in sync with the passing of company stock or ownership and should include provisions to pay or reduce estate taxes, which can range from 37 to 60 percent after federal exemptions.

Hertenstein suggests creating a team of advisers, including an attorney, accountant, investment expert and banker to help plan the business' succession.

Yost says Davidow, who declines to comment on Tech directly, played a role in planning the future of her company.

Family members meet with him individually and then as a group, she says, to resolve outstanding issues. Davidow says he won't work with a business unless every person in the family approves of working with him. The family members also meet monthly to discuss family interests, including the company's succession plans.

"Most families, in our experience, that get to the third or fourth generation and are successful have a [succession] plan whether it's in writing or not," says Emens. "The key to the success of a plan is whether it's communicated-even orally."

He says many business founders want to place ownership in a trust, but he cautions that such a choice could force the sale of the business, because unless directed otherwise, the corporate fiduciary will concentrate on running the business for a profit, regardless of how that profit is made.

"What I'm suggesting is that if the family business is left in trust, it really needs to be spelled out that trustees can and should continue to operate it as a family business," Emens says.

Any succession plan, he says, is better if it's in writing and approved by all involved.

"Once the original entrepreneur is gone, the next generations can have different understandings of what the plan was unless it's signed off on by everybody that needs to sign to make it happen," he says.

Yost, with advice from Davidow, has taken into her own hands the company's future in case Chambers does not, for some reason, take the reins.

She has asked an advisory group of six people-whom she will not disclose to anyone, not even her family, to prevent bias or lobbying-to watch over the company and select the company's leader should Chambers not want the post or be unable to take it.

"These people are of vast experiences and knowledge and have become very successful in their own business, and they know how to grade an individual," she says.

Even the advisory group members do not know who the others are; Yost will specify in her will how the group will convene. She says that if, upon her passing, Chambers is running the company, the group will have no reason to meet.

Yost says she's proud to see each member of her family involved in the business.

"It's a reason to get up in the morning just to see how my little trees have grown," she says. "And after all, that's what life is all about."

Beyond the family circle

Experts say family business owners need to keep in mind that, in order for the company to survive, they must consider the abilities of non-family employees.

Fairness and compensation issues are key in attracting outsiders to a family business, Hertenstein says.

"As businesses get larger, they will almost always require non-family members in key positions," he says. "A single family isn't going to be able to fill well all senior positions in the company."

Once recruiting efforts are successful, experts say, family businesses, like any other, need to concentrate on retention.

"One of the very important steps that needs to be taken with a person, a non-family member key person, is to spend extra time, effort and sometimes money making sure that they feel part of the team," Emens says. "Because otherwise they'll worry, 'I'm not a family member. If times get tough, I'm the first one to go,' and things like that."

Stacie Rodriguez, controller at RDP, says even her friends ask if she worries about the family issues and whether she'll be treated fairly even though she's not a DiPaolo.

"I think at first everyone thinks that. You start to wonder, 'What if someone's daughter decides to be an accountant?' But I think they look at your qualifications first," she says, adding that she is not concerned about job security or ability to advance at RDP.

At Tech, Mike Derenburger, director of purchasing, says communication runs both ways through the open door policies of Chambers and Yost.

"Even though they might not feel it is the right time, you're always given the opportunity to go in and say, 'We need to do this; I want to do this,'" says Derenburger, who has worked at Tech for more than 21 years, and, at age 52, is considering delaying his retirement because he's so satisfied with his job.

Weekly department-head meetings keep everyone up-to-date on activities in other areas of the company, he adds.

Emens says most family businesses he's worked with acknowledge the talented people they hire by promoting them as far as possible.

"I think family businesses are particularly alert to using underutilized talent," he says. "Part of the reason for that is most family businesses started out small, and they had to use the talents of whoever was there to get the job done."

He argues that employees at a family-owned business have advantages because their talents are recognized on a more personal level.

That's especially true because family businesses are emotion oriented, while non-family businesses tend to be task oriented, Emens adds.

"That can be a plus or a minus for each," he says. "The key for the family business is to have this emotion that's there be aligned so family members are working together and include non-family members in the emotion."

"Many family businesses don't acknowledge themselves as a family business," Davidow notes. "If they don't, they're going to miss some of the core ingredients of their business both in terms of the issues that may need to be addressed as well as the strengths that they're not taking advantage of."