When it works well, a family business can be one of the most gratifying ways to earn a living. When it falls apart, not only the business is at risk, but also the family relationships behind it.
One of the flashpoints is succession from one generation to the next. But with planning, open communication and expert advice, the transfer can go smoothly.
Al Stohr was only 23 when his father, Albert Stohr., Sr., founder of Conveyer & Caster – Equipment for Industry, died unexpectedly. He had worked at the business for about two years, but the transition to leadership was abrupt.
So years later when his sons, Jeff and Trevor Stohr, said they wanted to work in the family business, he knew how he wanted to start the process of transferring to the third generation.
“I said before they start, they have to have some success elsewhere. I think if they came to work for our company directly out of college, they might have felt their success was because of me,” Al Stohr said.
Keeping in mind their father’s advice, both sons
|Family business: Keys to success|
• Give family and business members plenty of time to prepare for succession.
Most family business experts advise the process should be started at least five years before the actual transition. This helps to prepare legal and tax issues, but also junior's leadership and knowledge development, and senior's post-work activities.
• Develop employment policy guidelines for entering the family business.
This should include being hired only when a position is available that matches the strengths of the new family member employee; if possible, employment outside of the family business for two-three years before coming into the family business; proper education status (such as a college or technical degree appropriate for the position) for an incoming family member; salary structures that are commensurate with the job position, not the family position; and clear roles and responsibilities based upon position, with measurable outcomes expected.
• Have family meetings to discuss the business at least once per year.
Family business members sometimes never discuss the business with other members of the family.
These statements help to guide family members and business associates on the purpose of each of the entities.
Quite often, these statements overlap for the family and the business, and that's OK, but there should be some distinct differences.
These do not have to be elaborate, but simple statements that help to define why each system (family and business) exists.
• Do not assume that family members want to go into the family business.
The family businesses that employ the most effective leaders from the family are those that help each family member to pursue their dream, not the dream of the senior generation.
Source: Deb Houden, director, Family Business Center, University of Wisconsin-Madison
In 2002, the Stohrs began to plan for the transition from second to third generation. The transition was completed in 2004. In separate interviews, Jeff and Trevor outlined their goals and the roles they would like to have in the company.
But the most important move they made was to form an outside advisory board. Lawyers and certified public accountants can outline how to structure the transfer, but the advisory board helps with other issues.
The three Stohrs were joined on the board by four others, all from companies larger than theirs and some with unsuccessful experience in family business succession.
“I can’t tell you how important that board is to our continued success,” Al said.
The board still meets quarterly, discussing goals, performance and strategic planning.
“We are held accountable by our board. In 19 years of working together (with his brother), I think we’ve had couple of arguments, none of them public,” said Jeff Stohr, company president.
Trevor Stohr, vice president, said it helped the brothers are compensated equally and have separate roles in the company. Jeff focuses on sales and Trevor on operations.
“Plan ahead, talk to each other and get outside advice from people who don’t have a vested interest in the financial side of it,” Jeff said.
“Our customers, vendors and employees knew there was a transition happening, but really nothing changed day-to-day,” Trevor Stohr said.
Both sons had the work ethic needed in a family business, their father said.
“In a family business, the owner has to work twice as hard as anybody else,” Al said. “They have to work a lot harder than other employees.”
It’s not just the three of them that made the transfer successful, Jeff said, but other managers and employees put in place over the past decade.
Succession is “not just a one-time transferring of the assets, but transferring of responsibility, getting people in place, making sure roles and responsibilities are spelled out,” so people are held accountable, said Deb Houden, director of the Family Business Center at the University of Wisconsin-Madison.
Families need to be proactive and communicative about the future.
“It may be implicit: ‘Some day this will be yours.’ But that might not be what the individual wants, but doesn’t know how to say it,” Houden said.
There may also be underlying beliefs that the oldest or the male should run the place, when the youngest or female might be the better leader.
“There are all sorts of assumptions that we make that don’t match the talents of the individual,” Houden said.