Adding independent directors takes your board to a new level

Soon after a family business recruits the first independent directors to its board, the business owners commonly marvel, “I am impressed that such remarkable and accomplished people would join our board of directors.” Within twoyears the same owners often remark, “Adding independent directors was the best thing we have done in our recent history.” The upgraded board has become an extension of management’s capability and a source of confidence for shareholders. 

When asked if they were concerned about sharing control of the company with independent directors, owners say, “It was a concern right up until I started interviewing the candidates. The good ones wanted two things: a chance to help us take advantage of their experience and the opportunity to mix it up with other smart people and learn something they can take back to their own shop. Neither is threatening.”

Family business owners who recognize the value of an independent board and want to establish one have some basic implementation questions. What are the considerations? Are we ready for independent directors on our board? What do we need to change to become ready? What will this mean for family members who currently serve on our board? Will some be displaced? If so, how do we do that without hard feelings? And where do we find independents?

Getting buy-in from the family
Common situations before independent directors are recruited are an inactive board (one that exists “in name only”), a board composed solely of family members or an “all-insider” board made up of family members, non-family managers and/or one or two advisers to the business. The challenge is, how does one convince directors on these boards to step down and make room for new independent directors no one knows? Some business-first family leaders will bite the bullet and directly ask for resignations. Most will want a more family-friendly solution they can sell.

A board chairman and his CEO nephew had successfully served on their board for many years with six of the chairman’s siblings. One was the CEO’s mother. Considering what was needed for the third generation of cousin owners, the chairman and the CEO envisioned a future board configured with three independent directors and four shareholder directors. Rather than focus on who must leave the board, they presented the board with a plan to take the total number from eight to 11.

They requested two things: First, accept and work with independent directors; second, agree to an orderly, honorable and respectful transition to three independents and four owner directors over five years. The plan was, “Let’s get the best independents we can find and work with them for a while. After the experience of their participation and contribution, we agree to reduce our number from eight family directors to four. Assisting us will be natural age-related retirements, making room to add third-generation members, and the development of qualifications to replace current branch representation.” The most powerful influences were alignment on their stewardship purpose and continuity vision, and agreement that an independent board would benefit their children. The plan was called adding without replacement.

Another way to persuade family owners to adopt an independent board is to present it as a way of avoiding threats to the family. For example, independent boards can help prevent:

1. Bitterness between generations, e.g., the younger generation wants to apply accountability to the senior generation, whom they see as retaining control and not listening.

2. Bitterness or alienation between branches, e.g., one branch of the family feels left out and their solution is to load up the board with their own family representatives.

3. Struggles over leadership, e.g., a senior leader dies suddenly without preparing the next generation, all of whom immediately collide with one another trying to fill the leadership vacuum.

Fully preparing for an independent board requires changes the family will be reluctant to accept, such as sharing financials and opening up about private family matters that impact business operations and ownership alignment. Beyond that, preparation for an independent board includes a willingness to consider not-invented-here ideas and the discipline to respect the divisions among shareholders, governance, family and management. 

Savvy business leaders take key family members to governance seminars to expose them to other family business owners who might dispel myths, provide perspective and directly address concerns. Some leaders invite speakers to join a family meeting; others individually approach influential family members to persuade them to support an independent board. 

Minimizing the perceived threat of independent directors, emphasizing the expected benefits and naming the pitfalls to be avoided can be useful in combination. However, for some business families all it will take is to explain how an independent board will help avoid the regrettable experiences endured by members of the previous generation.

Design the future board and independent director profiles
Adding without replacement is a tactic that works well for high-trust business families. For those with lower trust, what’s needed for the tactic to work is a vision of the board’s ultimate or target configuration. Many owners will enhance trust among shareholders by specifying that the future board will have more family seats than independents. Then, there should be an explanation of what independent skill sets and backgrounds will support the transition to the future board. As a result, more specific profile details are possible. 

What backgrounds and competencies do we want our independent directors to have? Many answer this question by considering business needs, the strengths of the management team and what the owner group brings to the table. A young group of business owner-operators may primarily look for independent directors who will add strength in particular areas such as finance or marketing, as well as a CEO who has successfully dealt with deep-pocketed competitors. A business that will soon undergo a leadership and generational transition may want at least one director in a family business that has been through it.

The project of finding good independent directors
An independent director prospectus will be needed for circulation to business and family owner networks. The prospectus describes the business, its history and family owner situation, what is expected of independent directors, how the board will work, what the board is expected to accomplish/contribute, the ultimate vision of the board if there will be transitions, the desired profiles of independent directors, meeting schedules and compensation.
Writing the prospectus is a most valuable exercise. It is not only a candidate recruitment tool but also a family owner alignment and consensus-building tool.

Many family business leaders have learned from trial and error that it is not enough to list only the desired characteristics; also important is a private list of what to avoid. Common on these lists are candidates who cannot in all situations be independent, those with outsized egos, those who will make the board their new job because they are retired and miss the action, and those who can’t handle the mixture of family and business. Culture fit is paramount.

A copy of the prospectus should go to anyone who might know individuals who fit the desired profile. The targets are referral sources. Well-networked sources will need more than a prospectus. They will also need follow-up. These busy individuals won’t read the prospectus carefully, and many won’t immediately interpret what is desired and what is not. Some will have experience with independent directors on family firm boards; most will not.

Recruiters have found that conversations with well-placed individuals are most productive and effective in producing the “I think I might know someone” result. Once a referral source understands, they can be encouraged to tap their own networks. For some family businesses it is possible to circulate a request for candidates from networks within the same industry. Many cannot. Family businesses that are outside of one’s industry, yet share the same strategic challenges, are a potential source of good candidates. 

Often after a robust recruiting process, family firms find that if they are looking for one director, they have a choice of three who fit. If they are looking for two or three, they have five or six who qualify. That’s ideal and opens the door to the opportunity to ask, “What if we added more now?” and, “What are the different possible combinations?” 

Recruiting, assessing and selling
After initial screening, the next step is a visit and interview. Just as with recruiting talented employees, it will be necessary to recruit and assess at the same time. The interview is also an opportunity to get greater family buy-in by including others. Using the private list of characteristics to avoid along with the desired trait and background profiles, multiple family members can participate.

Homework before interviews involves preparing answers to some questions on the minds of the most perceptive and best candidates:

• What is your business strategy, what goals do you want to accomplish and what tools and processes do you use?
• Can I trust you to take my contribution on your board seriously?
• Are you capable of managing the management, governance and shareholder boundaries?
• What is the condition of the family and its dynamics, and what’s the history? 
• What family dynamics present challenges to the success of an independent board?
• How committed is the family to an independent board?

Not all of these questions can be answered in a first interview. However, the best finalists will want them answered before they accept. Materials available to candidates making their initial interview visit may include the following:

• The prospectus
• Marketing and sales materials
• Written historical accounts
• Public relations materials
• Media mentions

During initial interviews, the task is to give enough verbal information so that candidates may effectively judge whether they can make a valued, engaging contribution. So that those invited will say yes, the interview should also include promoting the family, its culture and purpose, with examples of why the business is better because it is family-owned. 

A final consideration
As business owners pursue the steps to acquire independent directors, motivations will differ. Business leaders may want independents to assist with business topics and to help keep the non-operating shareholders confident. Young owners may want independents because it will help their elders listen. Non-operating shareholders may want oversight of management, their voices to be heard and assurances of fair application of power and privilege from those working in the business.

Independent directors can help with all these interests as they keep the peace through their objective positions on all matters and through the support provided by a business family that is committed to the success of an independent board.  

Steve McClure, Ph.D., is a principal consultant with The Family Business Consulting Group (

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact    


Steps for developing family directors

Your board has evolved over the last few years, and now there are retirements of both family and independent directors on the horizon. Looking at the family, you may see the desire to serve, but not necessarily the depth of experience that is required.

Your board may have started out fairly narrow in scope and nuance. With time, energy and focus it has grown so that questions are probing but not in the weeds, the packet is robust and timely, the agenda is tight and relevant, and the directors are thoughtful & balanced. In other words, 10 years ago you wouldn’t make the cut for the board you have today.

What can your family enterprise do to develop the experience, mindset and temperament for board service? Here are five things to explore and implement now, so you can grow family directors over time. 

1. Transform your family enterprise into a learning enterprise. Establish a curious and adventurous culture within the family. Encourage educational achievement. Celebrate educational milestones, engage in conversations about current events and discuss general business principles. Allocate funds for education on family enterprise dynamics, governance, financial literacy and industry specifics. With a budget and a list of programs, family members can cycle through various learning experiences over time. The goal is to make learning and development something that is prized and celebrated. 

2. Base board appointments on merit. Let everyone know what it takes to be an effective director. Create a list of work and educational experience, skills and mindsets that are the hallmarks of a strong director. Knowing the requirements enables the family enterprise to identify what development and education work is needed, and gives individual family members a way to gauge themselves. Provide coaching to family members on effective use of the required skills, and where they may need further development. For example, someone may see everything through a financial lens and ignore strategic thinking. That individual would seek out ways to cultivate their ability to formulate strategy. If someone has a strong sense of urgency but struggles with ambiguity, they would find ways to be coached on living with uncertainty.  

3. Share opinions and learn to debate productively. Create an environment where different views can be shared openly. When the family gets together, share opinions and respond to differences with dialogue that is respectful yet challenging. The free flow of ideas and constructive debate is the lifeblood of every board. Setting a tone within the family enterprise that viewpoints are interesting and not threating cultivates the skills and temperaments necessary to share thoughts, revise positions and find common ground. 

4. Demystify your directors. Introduce your independent directors to the whole family shareholder group. Invite a director or two to the family meeting and ask them to share their backgrounds. Have them stay for a family dinner and make it easy for family members to get to know them. If the independent director has a strong CV and solid experience, family members will take note. They’ll appreciate the level of achievement and the demeanor that is prized in the boardroom.  

5. Make director selection as objective as possible. Use external search firms to find your independent directors. Create a nominating/governance committee so there is a solid process for appointing family directors and formal criteria for the role. The more objective and transparent the search and slate creation for family directors, the better. If your voting mechanisms are informal, look to tighten them up. Is there a way to have a slate presented and voted on annually, or every two to three years? Is your process in line with your shareholder agreement?

A word of caution: Going from a very informal way of choosing family directors to a more objective process can be fraught with tension. The old ways of doing things take a while to undo. Go slowly, and try not to alienate anyone when implementing a new, more transparent process for electing directors.

The transition is worth it. Everyone will know the process, and that “power” and “politics” are not a dominant force in board selection.  

A fresh start

If you’ve ever bought bread from a grocery store, you’ve probably noticed the plastic clip that closes the packaging. You may not realize that a family business — Kwik Lok Corporation, founded in 1954 and based in Yakima, Wash. — originated the closure. According to family legend, founder Floyd Paxton, an engineer, invented the clip during an airplane flight by carving it out of a credit card. He started out selling the clips as a secure way to close bags of apples.

In 1968, Floyd retired and was succeeded by his son Jerre. When Jerre died at age 76 in 2015, ownership of the business passed to his three daughters, Stephanie Paxton Jackson, Kimberly Paxton-Hagner and Melissa Steiner.
Jerre had not prepared his daughters for their responsibilities as owners of a company that today employs more than 330 people, operates six global factories and sells its products in more than 80 countries.

Stephanie, 52, the eldest, joined Kwik Lok’s board about a decade before Jerre passed away. “But I really was there just for, I’d say, checking the boxes of having a family member on [the board], and I did a lot of listening,” she says.
“I didn’t even know what some of our machines were called or exactly how they worked.”

Much has changed since then. Today, all three sisters serve on Kwik Lok’s board, which has evolved from a group of advisers with little say to a fiduciary board. Three independent directors serve along with the three owners and non-family chairman John Rothenbueler.

Under the mentorship of the independent board members, the third-generation women are developing as owners and directors. With the sisters’ support and encouragement, Kwik Lok has launched sustainable and tamper-evident product lines to meet the demand of today’s marketplace and has positioned itself as a values-first business. It released its first Corporate Sustainability Report in September 2018; the report is posted on the company’s website.

“It’s great working with them,” says non-family president and CEO Don Carrell. “They’ve got a long-term vision, which I share with them. Being synchronized in long-term planning is key.”

Carrell joined Kwik Lok as chief operating officer in 2017 and was appointed CEO in April 2019.

Professionalizing the business
Floyd Paxton originally owned a company that made nailing and labeling machines sold to distributors of Washington apples, then packed in wooden boxes. After World War II, apple packaging shifted from boxes to bags. The Kwik Lok clip was a sturdier alternative to the wire and tape that had been used to close apple bags.

Jerre, Floyd’s son and successor, ran the business as an autocrat. “He didn’t share much information with anybody, including the board,” Rothenbueler says.

Rothenbueler had been a partner at the accounting firm of Alegria & Co. in Yakima. Kwik Lok was one of his largest clients.

“While [Jerre] allowed us to help him design a very effective estate plan, he did not want to hear anything about management succession,” Rothenbueler recalls.

Around the time of Jerre’s death, one executive left the company for health reasons and another announced plans to retire. Rothenbueler, the executor of the estate, became chairman and CEO of Kwik Lok.

In 2015, Rothenbueler added Stephen Westby, a retired Boeing manufacturing executive, to the board. Paul Barbeau, an international business attorney from Vancouver, B.C., was named board secretary in March 2015.

Another independent director, retired insurance executive Alan Cottle, joined in 2017. Kimberly was appointed to the board in 2017 and Melissa came on in 2018.

Stephanie remembers her father telling her, “When I die, sell the business.” He had created a file of prospective buyers.

“That was about as much as our father planned for that occasion. My sisters and I hadn’t collectively talked about what all of our feelings were” about keeping or selling the business, she says.

Kimberly, 50, who was a graphic designer in Kwik Lok’s custom label department from 2012 to 2015, is the only sibling who ever worked in the company. Stephanie is a health and wellness coach who previously owned a women’s clothing store. Melissa, 47, was working part-time as an apparel and fashion merchandiser and buyer before she joined the board.

Kwik Lok informed its employees, customers and suppliers that business would operate as usual. But the way business was done needed to change.

When Jerre was at the helm, “there wasn’t even a business plan,” Rothenbueler says. “The first thing we did is start to develop annual business plans, and then use that to manage the business by.” He engaged a consulting firm to develop a strategic plan for the future.

“I give credit to the daughters — they were really pushing to have a strategic plan,” the chairman says.

“Probably about a year in, as we were cleaning up things and making sure that the business was able to do everything it needed to do and starting to evaluate what changes may be needed to make it even stronger, we started to have conversations with John Rothenbueler about what [Kwik Lok] could look like,” Kimberly says. “Where we could have a part in it. How we could manage to keep it and continue on as the third generation. Because that really was where our heart was at.”

The sisters often use the word “heart” when speaking of Kwik Lok.

Rothenbueler advised the women to keep an open mind about all possibilities as the board and management worked to strengthen the business.

“That gave us enough time to have conversations and think about what this meant to our future,” Stephanie says. “[We] came to the conclusion that this is such a unique and special opportunity. We had a lot of loyalty, a lot of employees that loved doing what they do. And that meant something to us.

“It really caught our hearts at another level, because now we were invited in, and we actually could think about it being an option.”

Kimberly and Melissa studied board materials and learned more about the business before they started attending board meetings. The gradual transition enabled them to clear their schedules in order to devote more time to Kwik Lok.

Melissa says she had “no interaction with the company” before Jerre passed.

“I actually had pretty much no idea about the business, as our father kind of put us on the sidelines. And so for me it was extremely overwhelming — but in a good way,” she says. Board meetings were scheduled every other month, which helped expand her comprehension.

The independent directors have been “great at helping us fill in our knowledge gaps” during board meetings, Kimberly says. “Stephanie is the best at saying, ‘Can we bring this down to terms that we can understand to make sure I get the whole concept?’ ”

“They had a lot to learn, but they’re three bright ladies, and very caring,” Rothenbueler says. “They’re striving to grow and learn as much as they can and surround themselves with competent board members and outside advisers.”

Stepping up
In late fall 2017, Rothenbueler took the three sisters to a family business awards dinner presented by Seattle Business magazine, where they interacted with other multigenerational family business owners.

“That was a wonderful night,” Stephanie recalls. “One of the things I remember that really stuck out to me that night, listening to all the different family stories, was the humility that most of these family members had, and just how blessed they felt to be part of the family business — [even] with its challenges.

“And that definitely ignited a spark in me of just how special this opportunity is. And I would say if that was John’s plan for me, it worked.”

“It was probably about that time period, too, where layers of understanding were happening for us,” Kimberly says.
They were beginning to understand they could be owners without being owner-operators — “we could be board members and be involved at that level, and still do right by Kwik Lok, and be able to oversee what’s done, make sure that our family values are expressed and our employees are taken care of,” Kimberly says. “That was something that really didn’t come to my awareness until after my father passed away.”

They also learned they could play an important role in promoting Kwik Lok as a family business. “We just didn’t realize that we would necessarily have a place alongside the CEO and the leadership team to help make connections,” Kimberly says. “That was a bit of a surprise to me, and a fun one, to be able to be useful to the company in that way.”

To further edify themselves, the sisters attend industry trade shows as well as Kwik Lok’s annual corporate retreat, which brings together top management from Kwik Lok’s facilities around the world.

“We’re just getting more and more educated and comfortable,” Stephanie says. “Of course, there’s still a learning curve, which makes it so interesting and fascinating.”

“Maybe by default, because Stephanie’s the oldest, she seems to be the most outspoken,” Rothenbueler says. “She unabashedly tackles any issues she thinks needs to be talked about.

“Kimberly’s a little more reserved and thoughtful. She thinks about things — you can see that she’s processing — and asks very thoughtful questions.

“Melissa is a little more reserved and quiet, but she’s starting to learn. When she does speak, it’s thoughtful and meaningful.”

Most important, Rothenbueler adds, is that “all three get along exceptionally well, and they’re very supportive of one another. You know, the worst thing that can happen is a situation where the owners don’t get along, and I don’t see that. I can’t imagine them getting along any better. And if there’s some issue that’s as much family as it is business, they talk among themselves, and they come to a consensus.”

At the 2018 corporate retreat, the sisters announced that they intended to continue Kwik Lok as a family business and pass it to the fourth generation.

“That, to me, was a real crowning moment,” Rothenbueler says. “And I think the employees and the management are very excited.”

New mission and values
In 2018, Kwik Lok launched an initiative called “Fresh Start,” a name that refers to the new ownership as well as “our promise to continually improve, innovate and support our community,” as the company’s website notes.

The core of the initiative is the company’s pledge to hold itself accountable by issuing a Corporate Sustainability Report. Four sustainability strategies were announced: opportunity, well-being, protection and innovation. (See below for details.)

Kwik Lok’s board created a corporate social responsibility subcommittee, which provides oversight for the sustainability initiative. The human resources director, Shelby Willette, also holds the title of global diversity coordinator.

“We have, right from the get-go, shown where we’re leading from,” Stephanie says. “It’s hugely about lifting up our employees, first and foremost, because they are our family. When you make them feel valuable, heard and seen, they are going to go to bat for you. And we believe that wholeheartedly. We’re about being inclusive.”

Were he around today, Floyd Paxton might be surprised at his company’s emphasis on corporate social responsibility. In the 1960s, Floyd was national president of the John Birch Society, an anti-communist organization that opposed the civil rights movement and economic interventionism. Floyd ran for Congress four times, losing each time.

Jerre and his first wife, Nancy — mother of the G3 owners — divorced when their daughters were 8, 6 and 3.

The sisters lived with their mother after the divorce. Stephanie says it wasn’t until she was around high school age that she learned her grandfather had run for office and heard a reference to the John Birch Society. “It never has been, for Kim and Melissa and I, anything that we have been aligned with,” she says.

“My dad was just a small part of our lives as we were under my mom’s roof,” Stephanie says. “Then, as I got older and got to choose my own relationship with him, I would listen to his views and just go, ‘That’s interesting,’ and then pick my own views.”

She says she and her sisters “have a joint value and standard of doing the right thing by the people in our lives, with Kwik Lok, our customers, our employees, their families, the communities that we’re in. And so that’s where we are, taking this next journey with our company as the third-generation owners. That’s our approach.”

Stephanie says her grandfather and father, with “their engineering minds,” had great success building the company. “Kim, Melissa and I bring another side to being in business. And we have seen that our employees and our leadership and our customers have been waiting for it. It brings some new energy — like we say, a fresh start to our company — and it’s been really wonderfully received. “

Innovative initiatives
In May 2019, Kwik Lok introduced the Eco-Lok, a closure made of renewably sourced, plant-based polymer that will naturally degrade. (Both the Eco-Lok and the plastic Kwik Lok closures are recyclable.)

Before he joined Kwik Lok, Carrell had become familiar with BioLogiQ Inc. of Idaho Falls, Idaho, which makes NuPlastiQ, a renewably sourced, plant-based polymer. When he arrived at the company, he led a collaboration between the two companies to develop the Eco-Lok.

“It took quite a bit of R&D investment to get where we’re at today,” Carrell says. “But we’re doing it for the right reasons, and the leadership team and the owners really saw an opportunity here to differentiate ourselves in the market.”
Kwik Lok had developed an Eco-Lok prototype before consumers started demanding alternatives to plastic, Rothenbueler notes. “The sustainability push has all of a sudden really become in the forefront of consumers’ minds. And we have a solution.”

The company’s Kwik Link technology binds together bunches of produce (such as carrots or asparagus) and then adds a closure and label. The process results in less packaging and a smaller carbon footprint.

Carrell says there was “synchronization of thought” between management and ownership on moving away from plastic. “It lined up well with what [the owners’] true values are, and so it was easy to chart a path going forward.

“What was more difficult was, we were ahead of the curve, so we were taking a little bit of a gamble when we started this process, because there was no guarantee that that’s what the market wanted.”

Another innovation is the development of a machine that produces tamper-evident laser stitching on a bag. The bag doesn’t tear when opened by the end user and can be reclosed with a Kwik Lok closure.

“Our solution was quite different than anybody else’s solution for creating a tamper-evident machine for the bakery industry,” Carrell says. “It’s really exciting to see it taking off, and the acceptance that it’s getting globally.”

The owners understand the need for continual innovation, Carrell says. “And when you’ve got a willing ownership that sees that [R&D] investment as a way to be competitive, it really makes it fun.”

“Innovation has always been one of the key components to our success,” Kimberly says. “And so for innovation to really have an opportunity to grow, we know that we have to create a culture where innovative minds can feel safe to express ideas, and that we [might] make mistakes along the way to that wonderful new idea.

“So we just are excited to always be driving the industry in a way that is valuable, as well as getting all our employees involved in creating new products.”

Looking toward the future
There are two members of the fourth generation, both of whom are nearing their 20s. Their moms, Stephanie and Kimberly, made sure they visited Kwik Lok before they started college. Although they had been to the company headquarters as children, their moms wanted to make sure they had a chance to see the facility as young adults.
“They sat down with our CEO, and could ask him any questions,” Stephanie says. “And we could see a little spark of interest. So the seed’s been planted.”

The sisters are considering inviting the G4s to serve as board observers after they graduate from college. “We’ve said, ‘This could be your future, and it can look a variety of ways,’ ” Stephanie says.

Carrell says the development of a strong board with a committee structure was essential to ensuring the continuity of the business. “I would credit the owners with having the vision to see the importance of a fiduciary board over an advisory board,” he says.

“We wanted to always be aboveboard and run with high governance,” Stephanie says. “Because I think that provides transparency, and very clear values and missions. So you can really get the most out of everybody, because it’s clear how we want to run.”

In late fall 2018, the three Kwik Lok owners, along with the rest of the board, returned to the family business awards dinner presented by Seattle Business magazine. This time, they weren’t there just to listen and learn. Kwik Lok was honored at the event as the recipient of the Business Transformation award.

Kwik Lok’s four sustainability strategies

Kwik Lok’s first Corporate Sustainability Report states, “We recognize that with a global footprint comes extraordinary responsibility and an incredible opportunity to drive change. We fully understand that as a plastics company, we must transform our business to minimize our impact while continuing to be cost competitive. We must and will lend our voice to finding solutions for the plastic waste so prevalent in our environment.

“We believe the most effective way to achieve sustainability is through responsible and accountable stewardship. We have instituted a sustainability planning, governance and reporting system so we can hold ourselves to the highest standards. We are also working to unlock opportunities for our workers, families and communities while protecting their health, safety and well-being.”

The report lays out four corporate sustainability strategies, developed in alignment with the United Nations Sustainability Goals:

1. Unlocking opportunities through education and economic success. Initiatives include providing on-the-job training and employee learning; the company’s longtime collaboration with Perry Technical Institute in Yakima, including scholarships; paying well above minimum wage; offering light-duty assignments to workers injured on the job to reduce the number of days they miss work; and providing family leave.

2. Improving the health, safety and well-being of all people. Initiatives include a commitment to providing affordable and comprehensive health insurance; a worker health and safety committee consisting of 43% management and 57% staff; a wellness program; a sexual harassment training program, implemented in 2017; affirmative action policies and programs; installation of improved lighting, a gym and a larger lunchroom during a 2015 headquarters renovation; and clearly defined ethics and cultural norms.

3. Protecting people, places and the planet. Initiatives include a food safety management system; a three-year-long voluntary groundwater testing and soil sampling effort to clean up contamination uncovered at Kwik Lok’s facility and ensure compliance with state and federal laws; plans to reduce water use and reduce or eliminate waste; and continued innovation to lessen the impact of Kwik Lok products on the environment.

4. Fostering innovation in food safety, access and manufacturing. Initiatives include environmentally sound product management and promoting reuse and recycling of Kwik Lok products.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact    



Does your board of directors have an old boys'/girls' club problem?

The board selection process in family companies at times can appear rigged to perpetuate incumbent directors. Is this a good or a bad phenomenon? That depends on many factors.

Imagine the frustration of a family shareholder who believes the company’s board is not functioning well but feels powerless to effect change. Though such feelings sometimes reflect sour grapes about a past issue, not being selected for the board oneself or a family squabble, they can also arise from legitimate worries about the board.

The problem is much more prevalent in the family business world than most people realize. I have witnessed it several times in my family business experience, and whether the issue is real or perceived, it is very troubling. Loss of faith in board selection causes serious rifts in families, as well as in boards and companies.

On the bright side, addressing this problem or perception has many ancillary benefits. Taking action can not only help increase board effectiveness but also lead to greater family harmony and a stronger, more open relationship among family, board and company.

Root cause of the problem
Shareholder votes for directors are simple and not very democratic. Owners vote on a presented slate or on individual directors in an up-or-abstain manner. There are no alternatives. Without alternatives, any affirmative vote for a director, even much less than a majority vote, results in his or her election to the board. (This is why in public companies, disgruntled shareholders wage proxy battles with alternative slates.) Furthermore, the slate of directors is chosen by the board itself, usually via its governance or nominating committee. The risk of self-perpetuation is obvious.Unhappy shareholders can gripe at the annual meeting, but they can do little to impact board composition without a groundswell of support.

As I’ve seen several times in different families, shareholders get frustrated when they feel the board has become a self-perpetuating old boys’/girls’ club.

Board selection of slate: The benefits
Although board self-perpetuation can present problems, there are several advantages to this system. The board knows best which directors perform well. If a director is not prepared or not effective (and it happens), the other directors know it. Board members are also more experienced in management oversight than typical shareholders in a family-owned company and should, in theory, be better judges of effectiveness. Furthermore, boards know the skills needed for the company. Well-functioning boards often have a matrix of skills and experiences desired to ensure board composition is well-balanced and manage the selection process accordingly.

These are good reasons for the traditional system of board selection, but there still exist risks of mutual back scratching that could lead to underperforming directors and frustrate shareholders.

Avoiding the pitfalls of board selection
I’ve seen several interesting strategies to avoid the old boys’/girls’ club problem (or the perception of a problem).

Using professional recruiters to find directors. Most midsized-to-large family companies use professionals to help find and evaluate independent directors. This helps comfort family shareholders that outside directors will be well-qualified and not rubber stamps for management. The approach is highly recommended but not without shortcomings. First, recruiters usually do not evaluate prospective family member directors. As a result, they can’t prevent old boy/girl tendencies among family — and family director selection can be the source of huge strife.

Second, heavy CEO involvement in outside director selection can bias the board toward directors hesitant to challenge the CEO.

Though using recruiters is highly beneficial, in every case where I’ve seen the old boys’/girls’ club issue arise, the company was using professional recruiters for outside directors. This is because once directors are on the board, recruiters are no longer involved in evaluating them. Directors can become too cozy with management or each other, or fail to adapt to the company’s changing needs. In addition, the potential for family shareholders not on the board to resent family board members grows, whether over board fees or influence. Recruiters have no bearing on this.

Using the family council or a non-board member family leader. Involving representatives from the family council or other non-board family leaders in slate development serves two purposes. First, it increases trust in the ultimate slate. If non-board family representatives understand the selection process and endorse it, other family members will likely be satisfied. Second, if the slate nomination process is not working objectively, the family council or leader can voice objections to the board or alert the family.

This tool is very situational. It generally is not needed with a relatively small shareholder family or one where a very trusted family leader participates in the board selection process.

Requiring board members to receive a majority vote. Another technique is requiring directors to resign if they do not receive a majority vote of shareholders. Keep in mind that in most corporate elections, unlike political ones, there are no alternatives, so any affirmative vote technically results in victory. Even a majority vote is a low bar, since director approval in family companies is usually unanimous or with an overwhelming majority. However, requiring a majority vote makes shareholder votes potentially more meaningful, causing more discussion among shareholders, sharing of concerns, and full and honest voting. I’ve seen it work very effectively in a family where there were perceptions of unfair board selection. It gives solace to shareholders that if they object to a director, they have a simple recourse. If the family wants a higher percentage than a simple majority, they can request it.

Giving shareholders a vehicle to nominate additional directors to the slate. A new innovation that I’ve seen in a progressive family business is allowing shareholders to nominate additional directors to the slate if there is sufficient support. To make this effective and avoid undermining the board’s nominating process, companies should set a non-trivial threshold of support to add a candidate, such as 50%.

Adding a nominee turns the election from an up-or-down choice on the slate to a vote of the top candidates, with the candidate who receives the fewest votes losing.

Developing family members for board service. In many family businesses, prospective family directors do not have the experience or résumé of those in the outside director pool. Requiring equal qualifications for family and independent directors is not a practical approach. Even if family directors lack the outside experience of independents, they play a critical role on the board. They ensure the independent directors and management serve the family’s interests; they keep the family’s values and philosophy in the business despite having more professional management, which maintains the “secret sauce” of family ownership; they provide a critical communication link between the board/company and the family; and they can develop into very good directors.

Despite these benefits, it hurts the board if family members distract the board from its work or are ineffective. And if the board ends up disrespecting family representatives, it’s not a good thing.

To make family members far more effective as directors and help generational succession, I’ve seen and worked on several family development programs. The gist of these is to accelerate the development of younger family members into board-ready shareholders. The best programs are managed by a family education or employment committee and use tools such as executive education, family council education sessions and, most importantly, non-voting directorships with mentors from the board. In one family transitioning to its fifth generation, the process has resulted in several younger-generation family members becoming board ready in five to seven years and contributing significantly to the success of the company and family.

Building trust in the process
Any of these techniques can work to avoid an old boys’/girls’ club problem with your board or the perception of such a problem, and they are often complementary. None of them undermines the significant benefits of having the board create a slate of directors for approval by family owners. Instead, these measures help foster greater trust in the process and better family and board harmony — a very worthy goal.        

William B. Goodspeed currently serves as a director on five midsized-to-large family business boards.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact    


Dueling Perspectives: Bill Hudson and Lynn Clarke

William A. (Bill) Hudson serves as president, international in his family business, H.D. Hudson Manufacturing Company, which makes and distributes sprayers to protect against insects, weeds and plant diseases. He’s also chairman of Sasser Family Holdings, a transportation services asset services and management company, and has served on other family business boards.

Lynn Clarke, a former executive at PepsiCo and General Mills and CEO at two private equity-owned companies as well as her own e-commerce business, doesn’t come from a business family and has never been at an employee at a family firm. But she has served on seven family company boards and is currently chairman of Nielsen-Massey, a 100-year-old vanilla and flavorings company.

We asked Hudson and Clarke: What appeals to you about being an independent director on a family business board?

Bill Hudson:

“When you’re participating on a board of someone else’s family business, it’s easier, I think, to make dispassionate decisions and to more clearly enter into discussion/debate with other board members.

“In my own family business, I have such an emotional attachment to the 114 years of legacy and all that that entails, and such a detailed knowledge of the inner workings of what’s going on in the business, that it makes it more difficult to really step back. That’s why it’s so important, I think, for family businesses to have independent directors.

“I have a strong appreciation that family business is a driver of the U.S. economy. And the differences between a good family business and a great family business can be seen, I think, in how the governance structure is set up and how boards work with management to advance the firm faster. The other thing that I like about family business is the ability to think long-term as opposed to quarter to quarter. Because as a board, you can really engage in some more meaningful value-added initiatives.”

Lynn Clarke:

“I serve on boards for three reasons.

"First, I am intellectually stimulated by helping businesses to grow, which is why I serve on boards of all types. Seeing how companies in all industries address their challenges also makes me a better leader.

“Second, I appreciate being part of making a difference in generational transitions. Helping people who are less experienced than me to become better managers and better businesspeople is a privilege and challenge.

“Finally, so much of the success of the United States has been driven by entrepreneurs who have built family businesses. To be able to participate in that part of the economy and to help perpetuate strong family businesses is personally rewarding. I bring the best practices from two Fortune 50 companies to smaller organizations to help them grow and prosper.

“My view is that 85% to 90% of issues and opportunities are the same across all industries. I make a difference because I can combine the experience from being on boards in many industries with the ‘secret sauce’ of each company to build lasting success.”

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

Differing views on director term and age limits

Instituting term or age limits for directors is a way to ensure you have the right board members to help your family business grow and thrive in today’s competitive marketplace. Requiring directors to step down once they have served a predetermined number of terms or reached a certain age takes emotions out of the equation because the board members know in advance when they’ll need to step down.

A recent study reported that in public companies, age limits are more prevalent than term limits. Deloitte’s 2016 Board Practices Report, which queried 189 public company members of the Society for Corporate Governance, found that while 81% of the respondents from large-cap companies and 74% of those from mid-cap companies imposed age limits on their directors, only 5% and 6%, respectively, used term limits.

In family-owned private companies, the interpersonal issues are more intense because family members serve on the board. Here are some real-world examples from family business members, along with recommendations from advisers to family firms.

Steve Walker: Use evaluations as an alternative
“Rather than instituting a formal term limit or age limit, we recommend that at least once a year, a board assess how well the skills of the board members align with the current strategy of the company,” says Steve Walker, managing director and general counsel at the National Association of Corporate Directors (NACD).

“While age limits and term limits have been used by many successful companies, NACD recommends annual assessment of board composition as the best way for board leaders to ensure that the C suite has a ‘strategic asset board’ that provides sound advice and counsel in this highly competitive and innovative marketplace.

“A business needs to be checking constantly if the board has both the soft skills and hard skills the company needs to remain competitive.”

A tool for assessing directors’ skills. Walker recommends using a skills assessment matrix to gain insights on your board members’ strengths and to identify gaps you need to fill.

To create a matrix, list the skills your company needs most on a sheet of paper. These skills might include financial acumen, supply chain expertise, a track record in M&A or boots-on-the-ground experience in China. The critical skills list typically ranges from 10 to 15 top priorities, Walker says.

Now, create a grid by listing the current directors across the top of the page. Board members then confidentially self-assess their level of expertise for each of the skills and also rate their fellow directors.

“It is critical to understand that this is not a report card,” Walker points out. “Rather, it is designed as a team exercise to monitor skills gaps based upon the current strategy. Leadership does not share the individual results with the board.”

A high-functioning board would have at least one person who receives a high rating for each skill listed on the matrix that emerges from this exercise. If the assessment reveals a skills gap, the board should find a new member to fill that gap.

“However,” Walker is careful to mention, “no matter how technically aligned an individual board candidate may be, soft skills and cultural fit may trump hard skills.” 

In addition to evaluating individual directors’ skills, the board should examine their level of engagement and preparation. Those who aren’t adding value should be replaced.

The skills assessment matrix may also reveal redundancies. In Walker’s experience, redundancies aren’t always a negative. “Having institutional knowledge and wisdom are critical assets, as long as the director is still actively engaged and prepared for meetings,” he says.

“Many boards choose to expand the board size to accommodate a new board member” rather than replacing one director with another, Walker notes.

Onboarding strategies. The company should clarify what’s expected of directors when they first join the board, Walker advises. “There should be an onboarding letter managing the new member’s expectations and spelling out his or her responsibilities,” he says.

The onboarding process should include an explanation of the role of director evaluations in ensuring that board members have the skills the company needs. As Walker puts it, “When a new member is onboarded, he or she needs to understand that this is not an appointment to the Supreme Court. It’s not for life!

“The individual needs to understand that board members serve at the pleasure of the CEO or chair of the board, and then only as long as the individual’s skills are aligned with the company’s needs and strategy.”

Mary Andringa: Age limits rather than term limits
Mary Andringa is chair of the board of her family-owned company, Vermeer Corporation. The company, based in Pella, Iowa, and founded in 1948, designs, manufactures and distributes large agricultural and industrial equipment.

Vermeer’s board doesn’t have term limits. Instead, board members stand for election each year. In addition, after shareholder directors have served three terms, they must step down from the board for at least two years.

“We do this,” Andringa explains, “to give other shareholder directors a chance to serve.”

As chair, she makes it a point to talk with each director long before elections are held. The board must have not only the right mix of skills and experience, but also the right chemistry, she says.

Directors must be team players and must treat other board members with respect, Andringa says. A director who dominates the conversation shouldn’t be on the board, she says. She values directors who make sure everyone gets heard. 

When she’s talking with her directors, something she hears frequently is, “Am I still adding value? If I’m not, I’m fine with not standing for re-election.”

A “70-and-out” requirement. Vermeer board members cannot serve past the year in which they turn 70.

Andringa is a member of Vermeer’s second generation, which instituted the 70-and-out policy. They did this because of their experience with their father, Gary Vermeer, the company’s entrepreneurial founder.

The G2s loved and respected their father, but they found that in his 80s, he became more risk averse.

As a younger man, he’d see opportunity at every turn. As he aged, the family noticed that he no longer was able to strike a balance between seizing opportunities and avoiding risk. Too often, he focused exclusively on dangers instead of the myriad opportunities that were available.

After their father passed away, the G2s decided to be “thoughtful and intentional about success,” Andringa says. To avoid the kind of situation they had observed with the patriarch, they decided that “having senior leaders stay around forever isn’t always in the best interests of the company.”

Lee Ann Howard: Manage expectations
“The question of term limits is situational; what works for one company may not be right for another,” notes Lee Ann Howard, founder of Howard and O’Brien Executive Search.

Her firm recommends this approach: “Tell board members going in what to expect, including that they serve at the pleasure of the family.”

In her experience, “New board members need to know such things as: that there will be yearly reviews, the amount of preparation expected, the committees they’ll serve on, their compensation and the calendar dates of the meetings they are expected to attend.

“What you don’t want is someone saying, ‘Hey, join the board, we meet a couple of times,’ and then neither side knows what they’re getting into.”

The yearly review can be an effective tool for maintaining a high-functioning board. “When a board member is getting a review of 2 out of a potential 5,” Howard points out, “he or she is likely to self-select off.”

Larry Hause: Proactively remove underforming directors
Larry Hause, an attorney and family business adviser, is squarely in the camp that opposes term limits.

“In most cases, it takes a year for a new board member to get to know the personalities and figure out what’s going on in the company,” Hause says.

“It takes another 12 months for the director to find his or her groove and to know how to work with both management and the family for the benefit of both. Also, it takes time to know and trust the other board members so they can function well together as a team,” says Hause, who specializes in board governance and is co-author of The Balance Point: New Ways Business Owners Can Use Boards.

“By the third year,” Hause says, “the board member is finally in a position to add value and not just mess things up. But with a three-year term limit, the member may be rotating off at exactly the time when he or she is able to add the most value.”

What about the benefit people speak of most often when discussing term limits, the ability to get rid of underperforming directors? For Hause, that’s one of the biggest drawbacks of term limits.

“Term limits are a convenient way of putting off dealing with a difficult director,” Hause asserts. “With term limits in place, it’s possible for the board chair and the other board members to wait a year or two to allow the non-performing director to rotate off.”

In his view, this is an unfortunate approach. “When a board member isn’t adding value, this needs to be addressed immediately. Waiting a year or two to solve this kind of problem means the board doesn’t have the best team in place.”

Ronda Ritter Ray: Make way for younger family directors
At E. Ritter & Company, an agribusiness and communications company founded in 1886 and based in Marked Tree, Ark., the procedure for nominating directors has evolved.

Ronda Ritter Ray, a fourth-generation member who now serves as lead family director, previously was president of the Ritter family council. “One of the topics for my first board meeting was term limits,” she recalls. “The independent directors had all been there for years and, as far as the family was concerned, they were trusted friends.”

As the discussion at her first board meeting continued, it emerged that nobody was in favor of term limits or age limits. “The conversation became a consensus that we could, after all, change the directors at any time.
“The conversation was easygoing and relaxed, and independent board members had the attitude, ‘If we are not serving your purpose, you can simply ask us to go.’ ”

While the board decided against term and age limits, E. Ritter & Company formalized its director selection process in 2013. The company’s first non-family CEO took office that year, and the chairman at the time, a family member, was thinking about retiring. The business needed directors with the skillsets that would help it achieve its strategic goals.

When one of the independent directors said she would be ready to step down within a year, the board began considering the kind of experience a new director should have and how to formalize director selection.

The board instituted an evaluation process after an investigation of best practices. The company also adopted a director qualification and nomination policy on Feb. 1, 2013. The policy stipulates separate sets of desired qualifications, qualities and skills for independent directors and for family directors.

“What I’ve learned in all of this,” says Ray, “is that that attitude of, ‘Just let us know when you don’t require our help,’ isn’t as easy it sounds.

“It’s hard to say to someone you’ve worked with on a board for 10 years, someone you like and respect, ‘We’re moving in a different direction, and it’s time to step down.’ ”

Though board members aren’t subject to term limits, Ray thinks it’s a good idea for family directors to leave a board after 10 years. She has two reasons for this.

First, she is in favor of ensuring that younger family members have a chance to serve. “The older generation needs to enable the younger generation to assume leadership roles. The NextGen needs to know that their leadership will be required. If you wait too long, they’ll lose their enthusiasm and energy.”

She therefore thinks it’s a good idea for older board members to make room for younger ones. For NextGen members, “Being disengaged too long guarantees continued disengagement.”

She also believes that after 10 years, family members have probably made their most significant contributions to the board. “They’ve contributed their time and their experience,” she says, “and it’s time to make room for the NextGen’s fresh ideas.”

Keven Prather: Term limits can help manage change
Keven Prather of TransitioNext Advisors understands that even bringing up the issue of term limits can be unsettling. “I was talking recently with an attorney about term limits,” Prather recalls, “and he looked as if I was stabbing him in the chest with a pitchfork.”

Prather has several reasons for favoring term limits.

• All board members are not created equal. You may have some who are not firmly engaged, and it’s good for everyone if they are freed to pursue other opportunities.

• Some directors may have offered the right advice when the company was small but no longer meet the needs of an expanded business in today’s market.

Term limits can help manage needed change when asking people to step down is too difficult. Prather knows that this situation happens in the real world.

Find a solution that works for you
As is true of many other family business policies and structures, your family must consider as a group whether board term or age limits are the right solution for your family firm. Solutions that work for other families may not be right for you or may require modification to be workable in your family.

Your family may find that term or age limits are the most practical way to remove directors who underperform or who don’t have the right skills to address the company’s changing needs.

On the other hand, you may find that your senior and long-tenured directors continue to provide good counsel that translates into measurable gains for your company. If you decide not to institute term or age limits, you must commit to monitoring your board’s performance — and be ready to undertake the emotionally difficult task of removing directors who no longer meet your company’s needs.                          

Mitzi Perdue, widow of Frank Purdue, is a professional public speaker and author of the book How to Make Your Family Business Last (

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact


Dueling Perspectives: Bill Quigg and Todd Schurz

Installing professional governance in the family business helps take personal dynamics out of company decisions and strategic planning. Objective advice from independent board members can help prevent family disputes and ensure decisions are being made in the best interests of the business.

The majority-independent advisory board of Richmond Baking Co., based in Richmond, Ind., was honored as a Private Board of the Year in 2018. The awards, presented at the Private Company Governance Summit by Family Business, Directors & Boards and Private Company Director magazines, honor advisory and fiduciary boards for their high standards in governance and the success that governance has fostered.

Richmond Baking’s board guided the company through the unexpected passing of chairman Jim Quigg and led the company to becoming more efficient and profitable. Bill Quigg, Jim’s son, is the fourth-generation president of Richmond Baking, having taken over the business prior to his father’s death.

Todd Schurz, president and CEO of Schurz Communications, a fifth-generation family company based in Mishawaka, Ind., is the lead independent director on Herschend Enterprises’ fiduciary board. Herschend, based in Atlanta, is a third-generation family company that owns entertainment properties including Dollywood, The Harlem Globetrotters and Adventure Aquarium. Herschend has had an independent fiduciary board for decades and also has strong family governance in place.

We asked Quigg and Schurz, “How does having a board help with shareholder relations?”

Bill Quigg, president, Richmond Baking:

“The first thought that came to me was [that the board serves as] an intermediary. That quickly evolved into having an outsider perspective.

“Just providing a perspective that is not clouded by other potential conflicts, independent board members are helpful as it relates to family communication. I think it’s partially through communication and partially through [board members’] experience to deal with potential conflicts.”

Todd Schurz, lead independent director, Herschend Enterprises:

“I think there are responsibilities and duties revolving around governance accountability, transparency and offering sound advice and making sure that good processes are observed.

“In terms of the question, ‘What does a board offer shareholders?’ I think it gives you confidence, ensuring that the company is well-run.

“From what I’ve seen with Herschend, it’s a really talented, smart board. Conversations are engaging. I think this combination of management, family and independent directors gives shareholders confidence and comfort that their company is being well looked after.”

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact


Finding the right balance at Vertex

On a snow day in 2012, when kids had the day off from school and people were encouraged to stay off the roads, Jeff Westphal, second-generation CEO of Vertex Inc., called his sisters and asked for a meeting that day.

Stevie Westphal Thompson and Amanda Westphal Radcliffe are co-owners with Jeff of Vertex Inc., a tax software company in King of Prussia, Pa. Worried that something might be wrong, the sisters braved the snow to meet their brother at a local restaurant.

Jeff had an announcement that couldn’t wait: He wanted to step down as chief executive, a position he had held since 1996.

He told his sisters he had taken the company as far as he could, creating divisions including Vertex SMB, tax software for small and medium-sized businesses. Now it was time to turn over leadership to someone with the skills to scale up the family firm.

“He said the decision was six years in the making,” says Amanda.

In late 2015, non-family member David DeStef­ano was announced as Jeff’s successor.

“Jeff is a visionary,” says Stevie. “He thinks 20 years out. As part of that, he realized his strength was vision and culture.”

Many families in the Westphals’ position would have chosen to sell their company, especially since no third-generation members were working at Vertex. The Westphals opted instead to keep the business in the family under non-family leadership and focus their attention on governance. In so doing, they continued on the path they had forged in 2000 when they bought Vertex from their father and decided to professionalize the business.

From print manuals to cloud-based solutions
Ray Westphal, the siblings’ father, founded Vertex in 1978. The company provided businesses with paper copies of sales tax manuals that included information on jurisdictions, rules and rates. Ray’s wife, Antoinette Westphal, became his first employee, managing the books and serving as secretary. Jeff, Stevie and Amanda helped as kids, walking around the dining room table to collate rate cards. They particularly enjoyed using the shrink-wrapping machine.

The company grew as its products and services changed with the times. Today Vertex develops and distributes tax software for businesses, as well as cloud-based solutions and instant updates. Its products help companies manage sales, property, payroll and real estate taxes in the U.S.’s 11,000 tax jurisdictions.

All three of Ray’s children worked at Vertex in the 1990s. Jeff, now 56, became president in 1996 and took over the CEO role after the second generation bought the business in 2000.

Before the generational transition, the board consisted of Ray and Antoinette, their three children, and their family and corporate attorneys. The new owners wanted to make a change.

Building an independent board
After acquiring the company, the siblings started to search for independent directors. Their father left the board after the ownership transition. Their mother passed away from breast cancer in 2004.

Jeff is chairman of the board. Stevie and Amanda, who like Jeff have left their positions at the company, serve as directors.

“It was challenging to be [both] an employee and a board member,” says Amanda, 50.

The Westphals recruited large-cap board members to their mid-cap company, compensating them at a large-cap level.

Rich Teerlink joined the board in 2002, soon after retiring as chairman and CEO of Harley Davidson. Teerlink retired from the Vertex board in 2015 but remains a mentor to Jeff and an adviser to the board. Jeff credits Teerlink with helping him with the transition out of day-to-day leadership.

Today three independent directors serve on the Vertex board. Terry Kyle, the former SVP and CFO of Shared Medical Systems, helped take that company public and led the team that negotiated its sale to Siemens in 2000. Ric Andersen, a partner at Peak Equity, a Philadelphia-based private equity firm, has more than 25 years of consulting and management experience at IBM and PwC. Kevin Robert is the former global CEO of Wolters Kluwer Tax & Accounting. DeStefano, the CEO, also serves on the board.

Vertex’s board structure enables the three family directors to be outvoted by the three independent directors plus DeStefano.

The board has brought continuity and objectivity to company decisions.

“The initiative from the beginning was to do what we thought was best practice,” Jeff says. “Families bring family stuff, and you can’t take the family stuff out of yourself. We wanted truly objective directors.”

Amanda, who serves on the board’s nominating and governance committee, says the current structure helps avoid role confusion.

“Now that we don’t have a family member in an operational leadership role,” she says, “the various governing responsibilities are more clearly delinated between the voting shareholders, board of directors and ­management.”

Transition to non-family leadership
The independent directors helped the family and the company prepare for succession to a non-family member. With the mentorship of the board, Jeff had put the company in a strategic position that would enable it to succeed without family at the helm.

The company hired recruiting firm Spencer Stuart to conduct the CEO search. Together, the search firm and the board developed a five-year plan for the transition and began the process of evaluating senior leadership at the company.
“We were looking for a potential successor, but also wanted to work on executive development,” says Stevie, 55.

Spencer Stuart confirmed what the family already knew: They had a number of strong executives in place.

The field was narrowed to about four, and DeStefano pulled away from the pack. He joined the company as CFO in 1999 and then became executive vice president. He was elevated to president in January 2016 while Jeff remained CEO.

This trajectory was deliberate. “There was a transition so I could get my wings,” DeStefano says.

Stevie notes that when Ray retired, he “stepped down and away.” Having DeStefano work alongside Jeff would enable the non-family executive to grow into leadership. The gradual transition also helped reassure employees about continuity of the business.

“Jeff found opportunities for me to be the voice on company issues” during the transition, DeStefano says. In January 2017, DeStefano took over as CEO of Vertex.

Family culture
The Westphals say values and culture hold an important place in the business. The second generation followed in the footsteps of their father, who treated employees with generosity and respect.

“A very long time ago I remember an employee telling me how they had seen my parents hugging and kissing each other in the company parking lot at the end of a long and difficult day, and how they truly cherished working for a company like that,” Amanda says.

So when the search for a non-family CEO began, it was important to keep that “culture of care” front and center. Amanda says that in DeStefano, they found a leader well equipped to foster that culture.

“David embraces everyone, too, with respect, strong ethics, humility, laughter and genuine care,” she says. “There are tangible competitive strengths to being a family-owned business, and leveraging an exceptional culture is paramount among them.”

When Ray led the business, he showed his appreciation to employees by giving them an extra paycheck at random when the company was doing well. The staff never knew it was coming, “which was fun!” Amanda says.

Now that Vertex has 950 employees, that’s become impractical. But the company continues to have an elaborate holiday party and give away tickets to local sporting events. Last year, during a Super Bowl rally party, the company held a surprise drawing. The prize was airfare, hotel accommodations and two tickets to the big game to cheer the hometown team, the Philadelphia Eagles, on to victory.

The company emphasizes transparency and shares information on strategy with employees. “We treat everybody the way we treat each other,” Amanda says.

These are some of the reasons Vertex has been named as a “Top Workplace” by the Philadelphia Inquirer and was one of Working Mother’s “100 Best Companies” in 2016. In 2015, Vertex received SmartCEO magazine’s Corporate Culture Award.

Employee retention is about 95%, the family says, and nearly 100% for executives.

“Only one in the top 30 executives has resigned to go somewhere else in 20 years,” Jeff says.

The plan for the family
It’s still unclear whether any of the third generation will play an active role in the family business. Their ages range from 18 to 31.

Some third-generation cousins have participated in the company’s internship program. There is a formal family employment policy, but none of the third generation has yet shown interest in working for Vertex full-time.

“There are some really diverse interests in that group,” says Stevie, 55. Those who have embarked on their careers include an artist, an Army helicopter pilot and a couple in finance positions.

To promote connections among family members and engagement with the business, the Westphal descendants established KAFCA (“Kick Ass Family Council Assembly”). The assembly meets twice a year.

While it’s unclear whether anyone from the family will lead the company in the future, preparations are being made for succession after DeStefano.

“We’re definitely starting to build out the next [succession] process,” DeStefano says.                          

A company driven by growth

The Larry H. Miller Group of Companies was founded with a single Toyota dealership Larry and his wife, Gail, bought in 1979. Today, the group consists of 80 companies with about 10,000 employees, generating revenues of more than $5 billion.

The family enterprise encompasses a fleet of dealerships, a car financing firm, movieplexes and a number of sports businesses, including an NBA team and the arena in which it plays.

Larry Miller, who had started his career selling cars for other dealerships, grew his company, as all successful businesspeople do, through hard work and dedication. He spent long hours in the office while Gail took care of their children: four boys — Greg, Roger, Steve and Bryan — and a girl, Karen. When Larry would come home at night, Gail would sit on the bathroom floor while he took a bath. He would download his day to her, often asking for her opinion or approval.

“I not only was collecting knowledge,” says Gail, 75. “I was a sounding board for him. He relied on me for common sense and my thoughts on the character of people.”

When the children started to lament the absence of their father, Gail made it a point to go to the dealership, pick up her husband for a family dinner out and then take him back to his office.

She says Larry missed a lot with their children and “ruled with an iron fist from afar.” She believes that as a result, they have chosen “to not be married to their jobs.”

Eldest son Greg Miller, 52, remembers when that first dealership was bought over lunch while the family was on vacation in Utah. The agreement was written on a napkin.

“The business, from my perspective, was such an integral part of my life that it would probably be impossible to unravel the relationship between my personal life and my business life,” he says.

As the Millers’ children grew up, they joined the company at the bottom and worked their way up. The sons started as “lot boys,” moving or washing cars for the dealerships. Karen worked in a dealership and at one of the financial services businesses. The sons were still working in the company years later when everything changed for the family and the business.

Larry was diagnosed with type 2 diabetes in the early 1990s. Gail says she tried to get him to slow down, but her husband saw no reason for it. He never seemed to recognize the danger of his ­illness.

In addition to a heart attack in 2008, Larry suffered “every complication you could have from diabetes,” Gail says. He died in 2009 at age 64.

“It’s a sad death, because I think his working so much caused [his illness] and then prevented him from caring for himself,” she says.

By this time, Greg had taken over as CEO. Gail says her husband thought he would make a full recovery from the heart attack and return to his post, but when the diabetes complications got serious (including a double leg amputation weeks before his death), that wasn’t to be. He started directing questions and decisions to his son.

When Larry knew he had only days left, he stopped dialysis treatments. Before leaving the hospital, Larry called in executives and formed an advisory board.

Larry died at home surrounded by his family.

Rapid growth
Today, Gail holds a controlling interest in the company, and her children are minority shareholders. Since 1979, the business has expanded on three main tracks: automotive sales, sports and entertainment, and finance and insurance.

Larry Miller Dealerships has grown to 65 locations in seven states. The business started providing financing for auto loans to support the dealerships and then expanded to auto insurance, extended warranties and maintenance contracts.

A somewhat surprising addition is Larry H. Miller Sports & Entertainment. In 1985, Larry and Gail bought a stake in the Utah Jazz basketball team (see sidebar). After they acquired 100% of the Jazz in 1986, they realized they needed to build a new arena to sustain the team and its growth.

The company purchased a triple-A baseball team, the Salt Lake Bees, in 2003 after the founding owner died. In 2015, the Utah Jazz bought the Idaho Stampede, a minor league basketball team. They moved the team to Utah and renamed it the Salt Lake City Stars.

Larry H. Miller Sports & Entertainment also owns the Tour of Utah bicycle race, one of the few American bike races with Union Cycliste Internationale (cycling’s highest governing body) classification.

The company launched Jazz Gaming in May 2018 as an NBA e-sports team that plays 5v5 basketball games digitally.

The company also owns The Zone Sports Network, a pair of local radio stations that air local games, including those played by the Jazz and the Salt Lake Bees, and Saxton Horne, an advertising and marketing firm that works for all the Larry H. Miller companies, in addition to other clients.

Rounding out the enterprise is the Larry H. Miller Management Corporation, Larry H. Miller Real Estate and Jordan Commons, home to a 10-story office tower, theater and events complex.

Read more about the Larry H. Miller Group of Companies and the family behind it

Buying the Utah Jazz was a slam dunk

Prioritizing education for the succeeding generation

About half these companies have been acquired or founded since Larry’s death, doubling the group’s employees and earnings. The company, which will celebrate its 40th anniversary in 2019, continues to diversify and will continue to do so in the future, Gail says.

The road to good governance
This year the Larry H. Miller Group of Companies’ board of directors was honored as a Private Company Board of the Year at the Private Company Governance Summit, hosted by Family Business, Directors & Boards and Private Company Director magazines. The company’s fiduciary board has been in place for two-and-a-half years, but the building of the board took much longer.

Shortly after Larry’s death nearly 10 years ago, Gail worked to get up to speed with the company. On Larry’s desk she found a note that read, “Need to organize an independent board of directors.”

Gail recognized that the company needed additional management and guidance beyond the advisory board Larry established. She went to his childhood friend Dennis Haslam for guidance. Haslam was a lawyer who served as outside counsel to Larry and had been president of the Jazz from 1997 until he semi-retired in 2007.

“Larry said, ‘If you ever need help, call Denny,’ ” Gail recalls. The two started to research the nuts and bolts of forming a board. Haslam enlisted the help of the National Association of Corporate Directors, and the group sent representatives to help Haslam and Gail determine what qualities they would need in directors, what founding documentation was necessary and what committees would best serve the work of the board.

“It was a five-year process, with actually working on the board for half of that,” Gail says. “Now [the board is] learning about each other.”

Gail serves as chair, and Greg, Steve and Bryan currently sit on the board. Current CEO Clark Whitworth and Haslam also hold board seats, and there are six independent directors. The Miller sons each represent the family on board committees.

At first, the family, and some executives, had reservations about an independent board overseeing the business.
“We’ve been a very successful closely held company,” Gail says. “Having people from the outside coming in and telling us how to do something is very difficult, but you don’t know what you don’t know until you get into that situation.

“There will be a point when I’m not going to be here [and] my kids aren’t going to be here.” Therefore, Gail says, it’s important to have an independent board and good governance practices to guide management and owners through succeeding generations.

All three of the Millers’ surviving sons; Carisa Krambule, the daughter of their second son, Roger, who died in an accident in 2013; daughter Karen Miller; and grandson Zane Miller (Karen’s son, who was raised by Larry and Gail and is considered part of the second generation) serve on the board of managers of the family’s private trust. According to the bylaws of that board, there will always be a blood descendant representing the line each of Gail’s children.

The 68-member family also has a family council. Once a month Gail hosts a gathering of the council at her home. There is also a family office.

Tension at the top
Around the time of the creation of the company’s fiduciary board, things became untenable for Greg Miller, who was CEO of the group. He had felt for some time that his mother, who was chair of the Larry H. Miller Group of Companies, wasn’t giving him the room to run the business.

Greg left the company in March 2015.

“There were three reasons that I stepped down,” he says.

“I’m kind of a free spirit and hadn’t had any direct experience reporting to a board. I was not excited about having 12 different bosses and all the bureaucracy that followed around that.

“I had other goals in my life that I wasn’t able to pursue because I was committed to running the family business. I chose to serve the family business.

“And the rift between my mom and I at the time. She’s the boss in that she’s the owner. There are certain arguments or contests that I’m never going to win if I’m going against the owner, and I learned that.”

Greg says he felt as if his hands were tied, and it hindered his ability to run the company. He notes that the business doubled its earnings and employees during his tenure.

“I [felt] like [I was] getting my job done as CEO and earning my paycheck,” he says. “The frustration got to where it was just unbearable.”

Gail sees the situation around Greg’s resignation as being more about Greg’s “intensity” in the role and his desire to leave and do other things. But she acknowledges she didn’t want to leave the business.

“I didn’t feel like I needed to hand over the reins,” says Gail. “I didn’t necessarily want to run the business. I could see [Greg] could do that very well.”

Rather than run the business herself, she says, she had projects she wanted to get done, and she wouldn’t step aside until they were complete. Her list included putting the board in place and establishing policies, a family office and an education program for the family.

Greg felt as if pressure was building. “Every single issue was an argument and a debate,” he says.

Greg says the first couple of years were “pretty sour,” but today relationships are on the road to recovery.

“The difference now is the compulsion we had to be in the same place, arguing the same issue, is mitigated because I removed myself,” he says.

When Greg stepped down, Gail turned to CFO Clark Whitworth, who had worked for the company for more than 25 years.

“It was a battlefield promotion,” Whitworth says. “They gave it to me and said, ‘Don’t screw it up.’ ”

Whitworth became CEO as the company was building its board. He says this didn’t lead to a huge change as much as “a maturing experience.”

“Our culture stayed intact,” he says. “I think we’ve done a good job to keep the family-business feel. We needed to know, What are the purposes of the governance [structures], and what is the relationship of the family to the business? [The board] gave us a nice structure under which to operate. Everybody knew where to go for what.”

Larry still looms large in the business, and the family plays a major role in the company, though there is no one currently in management. Several third-generation members work within the group, but it isn’t likely they’ll be ready to run the company in the near future.

“Would the family be pleased to have a family member in this role? Of course,” Whitworth says. As for the next one to step into his office, he says, “We’re definitely looking within the company. We still maintain that family cohesion. There’s some pretty good talent in this organization.”

It might be 10 years before a Miller heir is ready to lead, Greg says. In the meantime, the company plan is that a family member will hold either the CEO or chair position. The family could hold both, but will always serve in at least one of the posts.

The second generation has moved out of positions in the company that would require them to report to Whitworth.

Greg is currently the Jazz’s representative to the NBA. He also owns and operates the Land Cruiser Heritage Museum, which includes more than 70 models of Toyota Land Cruisers as well as Land Cruiser memorabilia.
Steve, 47, is the manager of the family’s ranch, runs the Tour of Utah and is in charge of special projects, like the remodeling of the Jazz’s arena.

Bryan, 40, is now the steward of the “people and culture committee” for the group of companies. He heads up the “Who We Are” program, which encompasses the mission, vision, values and goals of the company and family.

Karen, 45, sits on the family foundation board in addition to the board of managers of the private trust.

Service and stewardship
On the anniversary of Larry’s death, the family and employees from across the companies use the day to discuss four main values of “Who We Are”: hard work, integrity, service and stewardship. “We train our people about who Larry was and what we stand for,” Gail says.

The Miller family encourages employees and family to serve the community. Service aligns with their values and their Mormon faith.

During his lifetime, Larry did a lot of public speaking. While Gail had often stood on the sidelines, she found her voice after Larry’s death.

“He spoke to the community, invested in youth and business. He could help kids learn how to get into business,” she says. “He knew a lot, he did a lot.

“I wanted to continue that legacy. I have a lot of interest in helping in the community with homelessness and supporting schools. I’m also on a suicide task force.”

Gail has 37 grandchildren, seven step-grandchildren and 19 great-grandchildren, with further growth anticipated in the third and fourth generations.

Gail encourages her grandchildren and great-grandchildren to be generous. Each child age 12 and older is given the opportunity to choose a charity and give $5,000 to that organization annually. It is the child’s responsibility to find the charity, vet the reason for its need and make a report to the family. Gail says this is a relatively new program that hasn’t had a lot of use, but “they’re learning.”

Past contributions were made to organizations that include Bridle of Hope, a program that uses horses as therapy for women and children who have suffered abuse; a dog rescue organization; and a program that keeps hiking trails clean and mountain climbing viable.

Grooming the NextGen
Succession wasn’t something Larry spent a lot of time on, and it’s something that has become a focus of the board of directors.

“It comes up every meeting,” Greg says. “ ‘What are our options? Who are our candidates?’

“There’s not a single name we could say, ‘That’s a no-brainer, that’s a clear-cut winner.’ We’re 60-70% there; we’ll get one.

“When the day comes, we’ll make a decision and do the right thing.”

The Millers hope a third-generation family member will work hard to be ready to take the helm in the future. Greg says the family needs to encourage this by rewarding the hard workers who are coming up now.

“To me, we just need to acknowledge that good things come to people with sustain high performance — like an NBA player who gets the shot every time,” he says. “The same principle should apply in the workplace.”

He says being part of the family entitles members to certain benefits, whether or not they grow the business, but “you need to reward those who make good things happen,” and not just give underperformers a pass because of their lineage.

To foster a successful transition to the third generation, Gail has installed an elaborate education program for the family (see sidebar). She is optimistic.

“I see the family continuing to grow,” Gail says. “We’ve had three new babies this year. I see the family becoming more educated, more invested in the business, more functional as a family, as a collegial group. It’s hard to lose the patriarch. We’ve learned that it’s OK to make decisions without him.”   

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