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Branching out Featured

10:04am EDT July 22, 2002

On the surface, Richard DiPaolo Sr., president of RDP Foodservice, appears to have nothing in common with Pauline Chambers Yost, CEO of Tech International. He runs a local food-distribution company; she deals in tire repair internationally. Yet the two share a common bond. Having lived through the Depression, both are cautious in their business moves. They pay cash for everything. They aim for slow growth. They deliberate over each decision.

Still, they must strive to understand the wishes of their children and grandchildren, who share in their companies' management.

"The younger generation has a little different perspective," says 80-year-old DiPaolo Sr. "I've never borrowed a dime in this business. Everything I've done, I've paid for it."

Yost, at age 81, is in a similar situation.

"I've been there from the concept of the business, and I know what was successful and the mistakes we made, and I don't want them repeated," she says. "It's hard sometimes to get that across to your family members.

"I decided that I wanted my concept to be carried on through many more generations," she continues. "I have fourth-generation people working for me today. I would like to have that continue and have my great-grandchildren say, 'Isn't this wonderful? We have our eighth and our 10th generations working for us.'"

It may sound like a lofty goal, but already Yost and DiPaolo Sr.'s success contradict the norm.

Research shows that while one in three family businesses succeed from the first to the second generation, only one in 10 pass from the second to the third, says Thomas Davidow, a nationally recognized family-business expert and co-founder of Genus Resources Inc. in Needham, Mass.

"The biggest secret, if you will, is meaningful communication-and communication to me means two-way: talking and listening," adds J. Richard Emens, a partner with Chester, Willcox & Saxbe LLP, who, along with Davidow, declined to specifically comment on Tech or RDP.

"The fact that they are in the third generation shows that the people in the first generation were doing a lot of things right and they do know some things," Emens says. "There may be some very good reasons [why] they don't want to move as fast."

Closing the gap

Bridging the chasm caused by each generation's differing goals takes effort. Yost says one of the hardest gaps to close is the conservativeness that grew from her Depression-era upbringing.

"I know what can happen. I have seen it and I have lived it," she says. "When you come out of a private girls school and go to work for a dollar a day, it's quite a jolt."

Yost says she's comfortable with Tech's 10 percent annual growth rate, but she keeps a tight hold on the reins.

"We could have grown a lot faster if I had been willing to take a plunge," she says. "But that was not within my range of thinking. We have grown slow and steady, and I'm happy that we've chosen this route."

DiPaolo Sr. knows from experience how relationships between generations must work. When he worked in his parents' grocery store, for example, he was the one who pushed his father to expand the business.

"He was getting older and didn't want all of the headaches, [like] hiring more people," DiPaolo Sr. remembers.

Now DiPaolo Sr. has come full circle: His sons and grandsons are working to convince him that RDP needs larger facilities.

Although DiPaolo Sr. concedes that the company needs to grow, the three generations have not agreed on how to do it. DiPaolo Sr. is not comfortable with debt.

"I'm not one to go out and get into something we don't have to," he says. "The kids say, 'Why do you have to use your money when we could go to the bank and borrow?'"

Generational issues in any family business often boil down to what really amounts to business issues, says Davidow.

"Forget whether they're family members. They're two generations competing for capital: one to generate security for themselves after all these years, which is a legitimate position," he says. "But not only that, the next generation says, 'You've had your run at it ⊃ you have your sense of achievement and that's what's in front of me now. I want the capital to build the business for my opportunity to actualize myself.' These are not the words they use, but these are the issues that drive people."

The members need to realize, he says, that without communication or an outside facilitator, a business issue-lack of capital-can disintegrate into a family struggle between parent and child with typical issues of power, control and trust.

Moving forward

The family elders at Tech and RDP are adamant about their ways. That sometimes taxes the patience of the new generation.

"Whenever you have a family business and whenever you have family generations that hang on beyond retirement age, it makes it awfully difficult for the next generation to excel," says Michael Chambers, Yost's grandson and the company's executive vice president. "Family businesses are unique in some very positive ways, but there is also some negative luggage that goes with it."

He says he's eager to deal in the next millennium, planning 15 years down the road, while his grandmother's focus remains on reinforcing what history means to the company.

That's not all bad, he insists.

"We have a wonderful relationship where we're very open and honest, which is key to the relationship, especially with the generation gap being so strong," he says. "We are allowed to branch out and make decisions with the input of how things were 30 years ago so we wouldn't repeat the same mistakes."

To deal with the friction, he's learned to be conservative himself-to explain to his grandmother what the company needs and to forgo what may be luxuries-so Yost approves a majority of his requests.

Plus, knowing that she will be strict in her review of company decisions forces the younger generations to make sure they have an iron-clad presentation before they approach Yost with requests.

"It's a safeguard for our strategic plan to make sure Tech International does not go out and jump recklessly," Chambers says.

Yost's daughter, Cheryl Poulton, who is secretary on the company's board, sees herself aligned more with her nephew, Michael Chambers; his brother, Gary; and her own daughter, Nicole Layne, in reference to the generation gap between them and Yost.

Her mother is "definitely the matriarch of the family and the business," she says, but there are no apparent power struggles.

"I think we're extremely functional for the jobs that we have ahead of us. Naturally there's more pressure than on most families. But we don't fight and argue and not speak. If we have issues, then we just have to work through them," Poulton says. "We are learning, and I think that we are making great strides in separating business issues and family issues. That doesn't mean we all agree, but there's no three ganging up on one. We all respect each other's abilities."

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, suggests that any family business include on its board not only family members but also outsiders with experience in the business community.

"Sometimes you lose that feeling of objectivity when there is no one from the outside who is testing your decisions," Hertenstein says. "It's tough to be objective looking in the mirror."

That's why Yost and her management team consult with Davidow.

"He meets with us once a month, so he helps us close the generation gap," Yost says.

In the DiPaolo family, Paul says he and his brother, son and nephews simply have to be understanding of his father's experiences.

"He's come up the hard way, in a different era," Paul DiPaolo says. "Today is much faster-paced than what it was in his time. Sometimes you have to make decisions a little faster than he would like to make."

But still, it's his company and his decision.

"It's veto power, yes," Paul DiPaolo says of the procedure by which the three vice presidents discuss company business and then take their decision to Richard Sr. for his approval. "But he doesn't completely say, 'No, that's it.' He works with us."

For example, the elder DiPaolo eventually gave in on the 1983 decision to move the company from Reynolds Avenue to Indianola Avenue. But he took his time.

"He knows that we need new physical warehouse space, but he wants to weigh all the options. It took probably three to four months to make up his mind," Paul DiPaolo says. "We try to plan things a year or so in advance because it takes us a while to get it accomplished."

Emens, a founding director of Franklin University's Family Business Center, says older generations must remember that the younger members eventually will assume more responsibility to run the business.

"If the older generations really want to have the business continue ⊃ they will encourage and bring along the younger generation so that even though they have the veto power, they almost never use it," Emens says.

"If they're open to hearing the ideas of the younger generation," he continues, "they can then utilize the talents-and particularly the energy-of the third generation to grow the business."

Mark Mizer, RDP's vice president of sales and marketing and the first of the third generation to join the company, knows he's dependent on his uncles and grandfather to increase his role.

"With my uncles' support, they give me the opportunity to thrive and excel," Mizer says.

The senior generations are learning from the new, too.

DiPaolo Sr. remembers 20 years ago, when his son Dick wanted to buy a computer. The elder DiPaolo asked his son why such a great expense-$7,000 at the time-was necessary.

"I thought that was a lot of money. But today it's a good thing we got started with it," DiPaolo Sr. admits. "I realized that the younger generation, you have to listen to them sometimes-or a lot of the time."

Often that means compromising.

"The younger kids sometimes say, 'Let's go buy a semi.' Well a semi's $100,000," he says. "I'll say, 'Can't we find something maybe a couple of years old and get by with half of that, maybe $50,000?'"

An outside view

Stacie Rodriguez watches the DiPaolo family dynamics at work firsthand. As RDP's controller, she sits in on family meetings to talk about the financials and future of the business. Although all decisions go before the company president-"Richie Sr.," as the employees call him-she notices that family members work together rather than allowing one person to always have final say.

"Sometimes it's amazing," she says of the way the family works together. "When they're here, this is their business. This is their livelihood. They work hard to get it going."

Bud Fuller, RDP's director of sales, says in the 20 years he's worked with the family, he's seen DiPaolo Sr. command respect and also accept the new thinking of his sons and grandsons. Fuller feels his input is accepted as well.

"I think that's a testimony to the DiPaolo family. Even though they've been in business for an extensive number of years, they are keen enough to know somebody like myself might be their eyes and ears to what's going on in the marketplace," he says.

Davidow says one thing any family business has to offer nonfamily employees is the culture and values that exist within the family.

"If you have a family that is working together, then by definition, you have a culture where relationships are important," he says. "Consequently, relationships are not just important between and among family members; relationships are important everywhere-employees, customers, suppliers."

At Tech, many of the employees' parents and grandparents have also worked at the company. As such, each generation has grown to trust the family members who run Tech, Chambers says, and to understand their challenges.

"They have the luxury of turning Tech off," he says of nonfamily employees. "They know that's not a luxury with me, and there's a mutual respect about that. But on the other hand it's almost like a brotherhood as we work together. We all wear many ball caps here, and therefore we all respect each other."

That carries a lot of weight with employees like Gary Armstrong, who left a senior vice president position to join Tech after 15 years at Lord, Sullivan & Yoder.

"It's a very close-knit family that has a great deal of respect for one another and a great deal of confidence in each family member's ability to run this company," he says.

Sometimes there's too much confidence, Chambers says, pointing out that many employees hesitate to make decisions on their own, seeking the input of family members at every turn. He's found that a challenge to his own time, which is often spent responding to requests rather than managing his own tasks.

"It's very difficult balancing all the aspects of this company because it's family-owned," Chambers says. "But it's also so rewarding because it's family-owned."

Next month: Making plans to continue the legacy of ownership and management.