The 10-Year Transition

By Margaret Steen

In planning to turn over key roles in their snack-food company to the third generation, the Herr family took a long-term view.

The five children of J.S. and Miriam Herr grew up within 100 feet of the plant in Nottingham, Pa., where Herr’s potato chips were made.

“Sometimes we would get chips as they were coming out of the fryer,” recalls J.M. Herr, 70, past chairman of Herr Foods Inc., the family business that made those potato chips. “It was way before any real concern about safety, so we would run into the plant to see Dad or Mom working.”

Around the dinner table, there was often talk about the business, and occasionally a worker from the plant would stop by the house with a question.

The closeness of the family — to each other and to the family business — has continued, and Herr Foods will celebrate its 75th anniversary this month. A generational transition is now under way, and the Herr family has been working on its governance to ensure the process will be a smooth one.

Today the company makes snack products under the brand names Herr’s, Go Lite, Cheyenne Brand, Flavor Mill and Good Natured. Herr Foods generates annual net sales of about $300 million and employs about 1,600 people.

The COVID-19 pandemic has complicated the company’s business, though it hasn’t had a big effect on demand, since people have continued eating snacks at about the same rate that they did before. “We had to really work hard to be safe,” says CEO and chairman Ed Herr, 65, of safety measures implemented both for employees working in close quarters in the plant and for those who travel from store to store. “We have had no serious health issues, but it’s been a challenge. We’ll be glad when it’s past us.”

The second generation — the kids who grew up running around the plant — is now transitioning the company’s operations to the third generation. The family’s extensive work on corporate and family governance over the past decade is coming to fruition.

Fresh from the field

Bob Landis, who today is senior vice president of human resources, remembers seeing TV ads for Herr’s potato chips as a child, long before he knew the Herr family. He watched J.S. Herr in a potato field talking about the importance of quality ingredients and was struck by “how approachable and real and sincere” he seemed.

Herr’s potato chips are still made from potatoes fresh from the field. The company buys them from farms on or near the East Coast. Potatoes planted in Florida in January are ready in April, when the company buys them from Florida producers. The potato crop works its way up the East Coast, and by fall, the company is buying potatoes from New York and Michigan. These are high-quality potatoes that can be stored for use during the winter until the next Florida crop is ready.

Today, potato chips make up about 55% of the company’s business; the remaining 45% comes from other snack products such as pretzels, popcorn, cheese curls and tortillas. About two-thirds of Herr Foods’ sales are made directly to stores using the company’s own distribution system. The rest of the sales come from national and international accounts.

The company has come a long way from the Lancaster, Pa., potato chip company that James S. Herr purchased for $1,750 in 1946, with money he borrowed from his fiancée’s boss.

“It consisted of not much more than a couple black kettles to cook the chips by hand, a slicer to slice the potatoes, a 1937 Dodge panel truck that he could use to make deliveries, and some tins to put the chips in,” Ed Herr says.

After James S. and Miriam Herr were married, they built the company from the ground up, hiring a cook to make the chips so James could spend more time selling.

“They built a business around loving God and loving people, real big on culture and family and trying to do what’s right,” Ed Herr says.

In 1951, a fire destroyed the factory. Instead of rebuilding in the same place, they took the opportunity to move to Nottingham, Pa., where their church was starting an outreach church. The area’s arterial highways connected it to Philadelphia (about 50 miles away), which ended up becoming Herr Foods’ first major market.

Family connections

The five second-generation siblings remained close into adulthood.

“Our mom would make sure we always spent time together — family dinners, some pretty amazing family trips as far away as Africa,” says J.M. Herr. “And because of this, we knew each other better.”

Four of the five siblings ultimately raised their own families in the Nottingham area.

“We lived right beside the plant, so it was always part of our life,” says third-generation member Crystal Messaros, 47, who serves as executive assistant to the family and the Herr Family Council, as well as co-chair of the family council. Messaros, the daughter of Ed Herr, was already acquainted with many of the company’s employees when she started working there as a tour guide in high school, walking local school groups and tourists through the plant. Today, there is a visitor’s center, where in non-pandemic times visitors can watch the production process through windows.

Her cousin Troy Gunden, 43, a member of the third generation who recently became president of Herr Foods, remembers skateboarding through the company warehouse with his cousins when visiting his relatives in the early 1980s. He is the son of June Gunden, the oldest of the Herr siblings and the only one who did not stay in the area as an adult.

“We were all enjoying being together,” Gunden says. “We never thought of any of us actually running this – it was just cool that we could all be together.”

Today, there are 84 family members, including spouses. The oldest living generation is the second, with 10 members (the five siblings plus their spouses). The youngest generation, the fifth, has only one member so far.

Evolving corporate leadership

Herr Foods is owned by family members, primarily from the second and third generations, as well as the employee profit-sharing trust.

The five second-generation siblings are the trustees of the voting stock trust, making the high-level financial decisions and appointing the board of directors.

“The way we look at our governance, the trustees are flying the highest, at 30-40,000 feet, thinking more about financial issues like how much debt should we allow ourselves to have, or what level of dividends we should pay,” says J.M. Herr.

The board, which initially consisted only of family members, now comprises four family members and five outside board members.

The family is also involved in executive management. J.M. Herr led the company after his father, then turned over the leadership to his brother Ed.

In September 2020, Gunden became president as part of the transition to third-generation leadership.

Gunden is “a really good integrator,” Landis says. “When there are two groups of people in the business that see a situation very differently, he’s good at listening to both and getting both sides excited about integrating their ideas and coming up with a solution.”

Determining how to make the transition to the third generation was a process that took about a decade. Four members of that generation entered the leadership track, working their way up in different areas of the company. In addition to Gunden, two others have settled into senior leadership roles: Jim E. Herr as senior vice president of marketing and R&D, and Jeremiah Thomas as senior vice president of manufacturing. The fourth, Jonathan Herr, is currently in key account sales.

Part of the transition planning process involved formalizing both corporate and family governance. A key goal was for the company to remain family-owned. The family had learned that few businesses survive the transition to the third generation, so they sought help from succession planning and estate planning consultants.

“We were committed to passing this business on to the third generation and then to the fourth generation,” says Ed Herr. “We really like the idea of a private family business. We are the largest privately held, family-owned and -operated snack food business in America.”

Family governance

Family governance is handled by the family council, which is being handed off to the third generation and is led by Gunden and Messaros. The council focuses on the family constitution, the family employment policy, the stock sale policy, education for the family and plans for annual shareholder meetings.

The employment policy says that all family members are welcome to work in the business, but those who want to be on the leadership track must meet certain requirements, such as going to college and gaining outside experience.

“We want family members to learn to manage in a company that your parents don’t run,” Gunden says.

Gunden had not planned on working for the company until he told his grandfather, J.S. Herr, that he was considering starting his own business so he could build something that would last. His grandfather asked if he had considered building a legacy at Herr Foods.

“I hadn’t thought about it, but my wife and I liked the idea that we could work with our family and pass the company to the fourth generation,” Gunden says.

He moved from his midlevel management position at a bank to take on a series of jobs at Herr Foods. He started out driving a route truck — a sales job at the core of the business. He then worked in manufacturing, initially cleaning floors and working up to a management role. Then he moved to the finance department.

The family council’s current goal is to make sure the fourth generation learns about the business and what it would take to work at the company, as well as to help family shareholders who aren’t working at the company get more involved, Messaros says.

“We want to keep people engaged so that when they are ready to start working, they think about coming here,” Gunden says.

Now that members of the second generation are beginning to retire, the family is also considering how the trustees, board and family council should be constituted and how they will work together in the future. The board has a mandatory retirement age of 70, and trustees must retire at age 75.

Working together

As family members move in and out of roles in the business, they want to continue the good working relationships on which the company was built.

“My dad and my two brothers and I worked side by side in the office here for 30 or 40 years, and we never raised our voices, never used curse words, never went home angry,” Ed Herr says. “It doesn’t mean we didn’t disagree, but we handled it in a way that was very respectful and professional.”

Landis says the family works to ensure that disagreements on business matters don’t become personal. “They take the long view: ‘We’re going to be family our whole lives, so why would I do anything to create a rift with my cousins or my uncle?’ So they don’t. They are careful to tell each other exactly what they think, but it’s always respectful.” This sets the tone for the non-family employees, as well, Landis says, making it easier to build trust.

“If the company just made a lot of money selling chips and pretzels, that wouldn’t be enough for the Herr family,” Landis says. “They also want to go to sleep at night knowing that the way they did business was congruent with their values.”                FB

Margaret Steen last profiled Mayer Electric Supply Company for Family Business Magazine.

CALLOUTS:

The transition planning process involved formalizing both corporate and family governance.

As family members move in and out of roles in the business, they want to continue the good working relationships on which the company was built.

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