Planning for Family-Owned Business Succession

This article appeared in the May 2021 issue of MiMfg Magazine. Read the full issue and find past issues online.

Running a family-owned business is tricky. Transitioning from one to the next generation is even worse. Company leadership is, first and foremost, expected to do the necessary planning that will protect the overall health of the organization and its employees, while at the same time insulating their own family life from internal strife.

It’s a delicate balancing act with potential long-
lasting repercussions both professionally and personally.

Bob Jacquart, whose family founded Jacquart Fabric Products and now owns the fabled Stormy Kromer fashion brand, is well aware of this balancing act and has planned accordingly using outside consultants, with clear communications to employees and family members and taking steps to ensure the company’s stability after he leaves the company.

Bob’s primary motivation is to be confident in the fact that his life’s work is secure for the future of his family and employees.

“I will not consider myself successful if, on my deathbed, somebody in my family is still angry at me and isn’t there with me because of something that happened within the business,” says Bob.

He advises other business owners to rely on the guidance of outside consultants, corporate attorneys and accountants. But most of all, start planning early and often.

“I really would encourage that people go find companies or consultants that do this for a living,” says Bob. “And don’t be afraid of telling that consultant your dirty laundry because, if they do it for a living, they’ve seen every jealous cousin or dysfunctional son or whatever.”

The consultants helped Bob understand the importance of transitioning the assets of the company which now, for Stormy Kromer, live in a trust. Working with the consultants, they developed a sophisticated plan to transfer and manage the assets but then it was up to Bob to make decisions on leadership and other personnel.

For that, he turned to his two daughters, Gina and KJ. Gina Thorsen returned to the company in 2009 and currently serves as President. She will step into the CEO role when her father makes his exit and will work with her sister as part of the leadership team. Gina says she and her sister complement each other well.

“We managed to make that decision, that Gina will be the CEO and we had very few problems (because of that decision), so we’re in fantastic shape,” says Bob.

Having a congenial and collaborative transition from one generation to the next doesn’t always happen. In fact, it’s the exception to the rule.

“I think one of the things that my father always said is that he would love for family members to ascend to wherever is possible for them based on their skillsets and their competencies relative to the organization.”

— Christina Keller, President and CEO of Cascade Engineering

Donna Russell-Kuhr, President and CEO of PTM Corporation in Fair Haven, had to force the issue with her dad, Charles T. Russell, who founded the prototype, design and metal stamping manufacturer in 1972. Charles initially oversaw all aspects of the business running a one-person show. He remained heavily involved in operations throughout his years at the helm. So, when it finally came time to look to the next generation, the conversations were challenging.

“I was the one who said [to my dad] ‘Hey, can I sit in on that bank meeting? Can I sit in with the accountants?’” says Donna, the 2019 winner of the MFG Woman of the Year Award. “There was a lot of reflection when my dad passed away, and sometimes you have to be pushy, respectfully pushy. It’s essential to the company’s success to have those hard conversations.

“I would tell people who are somewhere in that food chain that sometimes you’re going to have to have those hard conversations.”

Donna strongly advises those in a similar position to be careful around egos and not let your emotions get in the way.

“I think if we can put our egos and emotions aside and really listen to our people, I think we can be better leaders,” says Donna. “With my dad, it was just his way or the highway. I’ve heard this from so many family businesses that argue and fight. It can be disastrous.”

Patrick Curry, President of Fullerton Tool Company and the recipient of the 2014 John G. Thodis Michigan Manufacturer of the Year for small tier, faced a similar situation in transitioning the family-owned solid carbide tool maker. The company is now under third-generation management but it took hard work and tough conversations directed by him.

“...Sometimes you have to be pushy, respectfully pushy. It’s essential to the company’s success to have those hard conversations.”

— Donna Russell-Kuhr, President and CEO of PTM Corporation

Patrick’s dad and uncle, who co-owned the business, had no succession plan in place and even balked at discussing their own eventual exits. Patrick, who has worked at the company in one capacity or another since his teens, was advised that he needed to force the issue or it may be disastrous for the business. So, he did.

“I started working together with our corporate lawyers and accounting firm to design a buy out,” says Patrick. “It took about two years to work out the game plan.”

Patrick ended up buying his dad out, and his cousin, Mat Curry, bought out his dad. Now they run the business as a 50/50 partnership, same as their parents and, by designing a sound and effective transition strategy, they have been able to grow the business starting immediately after the sale while also taking care of their parents in retirement.

“Because they were able to work with us on a good plan, we can afford to pay them for years to come but we can also afford to reinvest in the business,” says Patrick.

Like Bob Jacquart, Patrick also recommended to work with outside consultants, corporate lawyers and accountants to make sure all scenarios are vetted and the right documentation is in place. Going through that process was arduous, he admits, but well worth it.

“Planning is so critical,” says Patrick. “I think that the generation of my dad and my uncle, they just thought they would work until they die. Work was their life. So even starting to talk about that transition, those were difficult conversations.”

Working from the Outside In

Some companies have training and internship programs in order to cultivate family members for leadership positions. That was one of the requirements for Christina Keller, President and CEO of Cascade Engineering, who is the daughter of company founder Fred Keller.

The Grand Rapids-based plastic injection molding company has a long-standing policy in place that family members must work outside of the company for at least five years and, when they join the business, they must rotate between core aspects of the business for six months. This includes time working on the production floor.

“...Don’t be afraid of telling [a] consultant your dirty laundry because, if they do it for a living, they’ve seen every jealous cousin or dysfunctional son, or whatever.”

— Bob Jacquart, CEO of Stormy Kromer

So, after completing her education, undergrad at Boston College and an MBA from Cornell, Christina worked outside of the company for five years and returned in 2008 to start her rotational program. Having Christina take over the company one day was never enshrined in a formal plan. Instead, Fred Keller, recipient of the 2017 MFG Lifetime Achievement Award, gave his daughter the freedom to decide for herself.

“I think one of the things that my father always said is that he would love for family members to ascend to wherever is possible for them based on their skillsets and their competencies relative to the organization,” says Christina.

Donna and her husband Steve Kuhr from PTM Corporation have a similar, albeit less formal family integration policy. Helping to lead the company in various leadership roles for more than 30 years, Donna has learned valuable lessons about how to integrate family into the business.

“We made a rule,” says Donna. “Through your college years or the intern process, you can’t work for us. You need to go and work for somebody else.”

It comes down to having passion for the job, says Steve. Having family members work outside of PTM helps to establish that passion — or not.

“It doesn’t matter what your last name is, we’re going to give you the same opportunity as everybody else,” says Steve. “And if you don’t have a passion for what you’re doing, then we don’t want you here.”

What Not to Do

Sometimes effective succession planning can happen accidentally — but it’s not advisable. Take the case of Jeff Koeze, president of Koeze Company which has been producing gourmet nuts, chocolates and other foods since 1910. Jeff says his father, Scott, who ran the company from 1968 to 1997, had no plan for succession as far as he could tell and Jeff’s integration into the business was rarely, if ever, discussed.

That being said, Jeff says his father did several “smart things” in order to ease the transition when the time finally came. His father had already put together a good management team, and had stepped back from day-to-day operations. Additionally, a few years before Jeff had officially taken the reins, part of the business was sold to an outside investor which created a “much needed” liquidity injection.

“Because [our dads] were able to work with us on a good plan, we can afford to pay them for years to come but we can also afford to reinvest in the business.”

— Patrick Curry, President of Fullerton Tool Company

“If you think about it, that’s not a bad way to go about it,” says Jeff, “Going to build up my management, going to take a step back and going to create some liquidity for myself. In retrospect that could have been the plan! I’m just 100 percent confident that he wasn’t thinking about those things at the time.”

Most companies will typically have no succession/
transition plan in place, according to Vincent Mastrovito from MMA Premium Associate Member Prometis Partners. Much of his job as a Family Business Consultant, therefore, involves education about the process and examining options. Examining the company from a financial and personnel standpoint are equally important.

“Where a lot of business owners get hung up is that there are always two sides to every valuation [of the company],” says Mastrovito. “There’s your tangible side which includes your profit and loss and balance sheet, cash flow and so forth. But then you have intangibles to think about such as where is the company owner’s mindset, what is his relationship to the company itself, are there other family members involved. That’s a pretty important part of your planning.”

A surprising challenge that Mastrovito often runs into is successfully engineering the exit of the company owner. A survey conducted in 2012 indicated that 84 percent of businesses are considered “too dependent” on the business owner for the main functions of the company, whether that be sales, operations, management or likely some combination of multiple core aspects.

“So that statistic alone should tell people that most businesses are so dependent upon the owner in a lot of ways because he or she may not want to give up or relinquish those roles, or there’s no one there to take them,” says Mastrovito. “And that’s not a good situation.”

So Mastrovito and his team work on transitioning the company and also transitioning the company owner.

“You have to prepare a business and an owner to be able to successfully transition both of them away from each other,” he says.

Protecting Employees

As for Bob Jacquart, his retirement will be coming sooner rather than later. He’s very comfortable with that and comfortable with the transition plan.

The leadership team is in place. The financials are solid. The plan is ready to activate. Now, all they have to do is communicate with Stormy Kromer’s nearly 100 employees. Bob says that the basis of any effective transition plan is to have clear and consistent communication, which does have an impact on employee retention.

“There’s a lady on the floor who has been here as long as I have. I’m not worried about her, she’ll probably go within a few years of me going,” says Bob. “But how would you like to be a 30-year-old and right now thinking you have a career, but the CEO is 68 and they don’t talk about the business surviving after he goes. How long is that person going to be here?”

Bob summarized: “Gina and her team have worked really hard at the culture here in order to retain employees, and the labor pool everywhere is so short that we’re arm wrestling everybody for talent. I’m positive that the younger people have to feel really comfortable knowing [there is a planned transition]. I have to really think that gives them confidence that this place will go on forever.”

Get More Succession Planning Advice from Prometis Partners!

Five Key Steps to a Successful Transition See article for tips for creating a sustained competitive advantage.

Webinar: Succession in a Family-Owned Business Transitioning a family-owned business from one generation to the next is a delicate balancing act. Hear from manufacturing leaders who have pulled off successful transitions in this on-demand webinar hosted by MMA and Prometis Partners and learn how they created a sustained competitive advantage, boosted customer satisfaction and maintained family ties.

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