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Keeping It All in the Family
September 1, 2007 By: Stephanie Skernivitz Paperboard PackagingConverters and financial advisors weigh in on the secrets to seamless family-oriented succession plans.
Carroll O'Connor, who played the famed Archie Bunker character on the long-running sitcom All in the Family, once said that a once-in-a-lifetime chance comes only once or twice in a lifetime. The Yogi Berraesque idiom may actually apply to another kind of family in the business sector.
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Board converters who find themselves in the midst of family succession planning may have just one shot to get it right. Fortunately, for some corrugated board converters willing to share their stories here, they appear to have hit the bull's eye on the first try.
Mark Mathes of Vanguard Packaging in Kansas City, Mo., is humbled by just how smooth the family succession planning transition was at his company, which was founded by his father, Jack, in 1979. Mark, who joined the company in 1981 and had been president and running the company for the last 12 years, purchased 100 percent of Vanguard from his father last January.
There was never a doubt in anyone's mind that Mark would eventually assume the business. "But that's no guarantee that it can work," he says.
"We're luckier than most (converters who go through the process)," Mathes acknowledges. "This situation is uncommon. Each independent has its own set of issues and family dynamics. Our transition seemed much simpler and much cleaner than most that I have heard."
 M. Mathes |
Give It Some Time
That's not to say Jack Mathes didn't need time to digest the ramifications of the transition, which took 18 months to complete.
"Remember, the founder usually has a much deeper emotional connection to the company than any other generation," Mark Mathes says. "I was not the founder of the company. My emotional attachment was not as deep."
As a result, Mathes was sensitive to his father's need to take things one step at a time. The two hired a third-party mediator to set up the valuation and mechanism by which the transition would occur. This enabled father and son to work through issues one at a time, until the elder Mathes was ready to proceed to the next step.
"The process itself can be slow, but in my case, it worked out well. By the time we finally signed the papers, it was incredibly anticlimactic," Mark Mathes says.
With the help of their consultant, a significant agreement upon which they settled was that Mathes' father would no longer be involved — it would be a complete severance.
"He had to personally deal with the reality that his career, in effect, was going to be over," Mathes says. Of course, that doesn't mean his father can't still have an office on-site. Jack still comes in five days out of 10, though he serves no official business function, according to Mathes. "Roger Stone once told me, that he may have married her for life, but not for lunch."
 Tips for Positive Succession Experience |
Don't Forget Siblings
Mathes, who has just one sister, had no intentions of proceeding with the transition without ensuring that his sister's expectations were heard and met. Turns out, she has never been involved with the business, nor did she want to begin to be. Nevertheless, siblings should be included in all discussions.
"She could've been an obstacle. Or she could've played a major role in facilitating this. She did the latter, because her feeling was this was a great situation for my dad to finally get away from the company and enjoy himself while he still had the decent health to do so," Mathes says. His dad is 73.
Like Father, Like Sons?
Mathes' wife, and three sons, who range in age from 23 down to 16, are not actively involved in the business. His eldest son, a college graduate, is currently enjoying the big-city life at a financial firm in Manhattan.
"When you're a young person living in New York City, Kansas City kind of looks like Hooterville," Mathes teases. "So far, none (of my sons) have outwardly shown an inclination to want to join this business. In many cases, you've been around it your whole life. You don't see it as special until you get older and you've been away from it."
 Prevent Succession Plans from Going South |
Speaking from Experience
Although Mathes is quick to assure he's no expert in the succession process, he hopes what he's learned can help others as they prepare to hand over the business to the next of kin.
"Other converters need to understand that the transaction is probably 30 percent business and 70 percent emotional and family relationship," he cautions. "You need to include all the members of the family — even the ones who have nothing to do with the business.
"When somebody in the process gets upset, you just have to remember the goal is to successfully transition the company to the next generation while leaving family relationships intact. If you remember that, the transition will take care of itself," he adds.
While he stops short of calling his a success story just yet, Mathes' call to his sister on the eve of his signing off with his father may be an indicator.
"The last thing I did was to call my sister one more time and asked if she had any concerns whatsoever. I said I didn't want an argument 20 years from now at Christmas dinner because she felt uncomfortable with the deal. To which she replied, 'For crying out loud, I've said repeatedly that I'm comfortable with this. This is the best thing that's happened to our father in years, why wouldn't I support it?'" Case closed.
 Bypassing the Traditional Route |
Transfer in Progress
The succession planning jury's still out at Royal Containers Ltd. in Brampton, Ontario, where the company is knee-deep in the transfer process.
Kim Nelson and her brother will be second-generation owners when the process is said and done, although they have not yet switched hats from "employees" to owners. Currently their father, Ross, who founded the company in 1980, remains president. The planning process is expected to take up to 18 months. Again, the company hired a professional "family advisor" who consults the father, son and daughter weekly.
To date, Kim says she's learned that succession planning is "indeed a good idea" and she would "absolutely recommend" the route.
"There are many business, ownership, family issues, tax implications and operational issues that will eventually arise, but by planning it through early, you can save on heartache and stress," Nelson says.
She believes the hiring of a professional advisor can guide the current and future leaders through a process that allows everyone to air their opinions on each of these issues.
"The advisor will use the process to get everyone thinking and understanding each other better," she says. "We all can use a little help when it comes to effective communication. This is especially true when determining company direction, maintaining or changing values, and developing strategies for growth. For a company to succeed from generation to generation, there must be an understanding of success among the new owners before they embark on the journey."
Sons, Let's Talk Stock Options...
John Allen of the four-generation Danbury Square Box Co. in Danbury, Conn., had a slightly different tried-and-true approach to the succession of the business to his two sons. Each year, he started giving them shares of stock and the maximum in gift contributions in the company, which was founded by John's grandfather in 1906.
After a number of years passed, he says all of a sudden they owned the 20-employee small business. "I don't know what you could do better than that," he says. Although one of the sons has since left the business, it remains strong under the leadership of Mike Allen.
Essentially, John bequeathed Mike, 41, with the company, but not the real estate (i.e., the building or the land). When Mike took over the company and had all the stock, John sold him the land and the building and John retains the mortgage on it. "I get paid for the real estate," John says. "I'm very happy with the way that we did it."
His ancestors, too, kept the business in the family under similar financial arrangements. John says that before his father got sick, he had agreed to sell John the business, based on a handshake deal. When he fell ill, John began paying him what became his father's income. His father continued to live another 14 years, and his son's payments kept him going financially.
Though John remains ceo in title, essentially, he comes to the office to assist Mike if he needs help with receivables, post office, etc., and he remains on the payroll.
"When I go, I'd like everybody to know it was a seamless situation," the 71-year-old says. "Nobody's going to get hurt. What I receive for the real estate takes care of me for life. After my son took over the company, we realized that the real estate was worth more than the company. I sold him the real estate four years ago, but part of that will be forgiven when I go."
Mike Allen says his dad was "very ahead of matters," by setting up insurance to pay taxes and gifting the business to Mike and his brother early on: "I give my father a lot of credit for planning ahead and thinking way in advance, for essentially giving up a lot of the control at an early stage."
