OP-ED: Choosing the next-level leader for a family business
Imagine starting a business that specializes in building tiny houses. Potential new customers are contacting you daily. Two of your children have joined you, and the business has grown. So far, all business leadership aspects have been handled within the family; however, because the enterprise has grown so rapidly, no one really has the business acumen to take it to the next level. In addition, you are now 60 years old and wondering if the pieces are really in place for the tiny house empire to fund your retirement and continue to provide a means of support for family members.
This is a common problem for family-owned businesses in construction and other industries. It is not easy for many people running successful family-owned businesses to take those next steps because they don’t see a reason to break out of the mold that has brought them success. But regardless of whether the family’s intent is to position the business for an eventual sale or keep it in the family for years to come, succession planning is crucial.
A white paper published by Abbott Downing in 2012, “Preparing for Family Business Transitions,” evaluated successful transitions of family businesses and noted several key factors that they had in common. Owners of successful and sustainable family businesses realized the need for succession planning and began to develop a written business/succession plan at least three to five years before an expected business transition. They did not wait until the originating family member was on the verge of retirement. They communicated a clear vision and understanding of the succession plan with family members and other backers. The business owner evaluated all of his or her roles in the business and considered whether they could be absorbed by one person or should be assigned to multiple people. The families thought carefully about areas of possible conflict and developed methods of conflict resolution. Each family built a successful transition team and identified “next-level” managers able to move the business forward.
While all elements of these plans proved to be important, one key factor was the families’ choice of next-level managers. They are experienced individuals who have worked for entities at the next financial level and who understand what it will take to move a business forward. This is a difficult decision, especially when no clear choice exists for an individual with the business acumen necessary to advance the company. The best next-level manager or CEO may come from outside the family, and from outside existing management.
An option for a forward-thinking owner is to groom a family member or other manager within the organization to provide next-level leadership. One company that has been tackling these issues is Miles Fiberglass, a small family business whose next-level leaders are second-generation family members. Lori Miles-Olund, president and next-in-line CEO, and daughter of Lowell Miles, the company’s founder and current CEO, stated that succession planning has been one of the company’s greatest challenges. Miles Fiberglass is already working with third-generation family members to groom them for management positions in the company.
Making sure that leadership is passed to qualified individuals as opposed merely to family members who are next in line, getting the next generation ready to take over leadership roles, and viewing them as businesspeople with the leadership skills to do so (rather than as grown-up family members) can be difficult. Grooming younger family members for future leadership positions may involve providing them additional education or perhaps an externship with another organization to develop needed business skills.
Miles Fiberglass has a list of rules for younger family members before they can work for the company. They must have a four-year degree or an associate’s degree with two years of experience outside of the company. If the family member doesn’t have a degree, then he or she must have five years of successful work experience outside of the company. Family members cannot work for their parent, and younger members, regardless of their degree, must start at the bottom and work up.
Another company that is managing these issues is Interstate Roofing. Shelley Metzler and Brad Satran, sister and brother, purchased the company from their father, its founder, seven years ago. They grew up in the business and worked from the ground up.
Shelley worked for another roofing company while in college, and then for a manufacturing company that allowed her to gain insight into running a business. She served on the National Roofing Contractors Association’s board, and learned about an educational program called Future Executives Institute (FEI), which is a comprehensive educational course focused on leading and managing a roofing business. The extensive course offered through Northwestern University’s Kellogg School of Management includes course work in areas that are essential to running a small business operation, including management, leadership, strategic planning, human resources, financial management, sales and marketing, roofing industry issues, risk management, family relationship/succession and personal skills development.
Shelley attributes the educational opportunity to providing the groundwork that she and Brad needed to move into next-generation leadership roles in their business. Here in the Northwest, Oregon State University’s Austin Family Business Program provides education similar to what is offered at the Kellogg School.
In addition to choosing the next-level leader, successful and healthy succession plans for family businesses will also review the leadership pipeline for crucial lower-level management positions. These are key, difficult-to-fill positions in established departments. Miles Fiberglass has been working with Oregon Manufacturing Extension Partnership (OMEP) in its SMART Talent skills training program, in preparation for employees to take over some of the company’s lower-level management positions.
The reality is that many family businesses do not have viable family members to take over key positions at executive and other levels; help will have to come from outside of the family. Outside next-level leaders could become guardians while family members are groomed to eventually step into those roles. Thoughtful consideration now will strengthen a business and ensure that it is viable for future generations.
Column first appeared in the Daily Journal of Commerce on August 5, 2016.
- Jean Ohman BackOf Counsel