COVID-19

The Smith Family Gathering in the age of COVID

As did many families, we reimagined our annual event this year. Instead of Camp Smith at The Osthoff Resort in Elkhart Lake, Wis. (the original plan), we created Camp Smith @HOME. An hour after the shareholder meeting ended (online, of course), the family tuned into Zoom for an hour of programming. We allowed a half-hour before to socialize and a half-hour at the end for questions. 

We’d love to hear what other families have found successful. Contact Barbara Spector, editor of Family Business Magazine, at barbara@familybusinessmagazine.com.

The family enjoyed the opportunity to connect and chat before we started and loved the quick-paced, visual experience of the call. The hour included the following:

  • Toast to all with a special brunch cocktail (recipe sent out earlier)
  • Video music performance by two family members playing their guitars and singing a song with their own ”COVID” lyrics
  • Slide presentation by our incoming chair on the family organization leadership changes, his philosophy and plans for the coming year
  • Q&A with family members serving on the foundation board about what we are doing to support our communities
  • Video presentation of a children’s placemat, featuring family art and history, with a colorful collage on one side and a Menasha/Smith Family Alphabet on the other
  • Video presentation of a sixth-grade report, “History of Elisha D. Smith”
  • Video slide show update on family news and photos of family members @home
  • Small-group social breakout sessions
  • Screenshot photos of the family

We had 46 computers connected and around 65 or 70 people represented, not including the kids that came in and out of view — including during the Q&A session. That was about 25 fewer than we had hoped to host at The Osthoff, so overall, not bad.

This event was very much a team effort, and we were happy to be able to showcase the talents and leadership of so many of our younger members. Overall, in addition to our seven council members, we involved seven of our 6th gen and one 7th gen member. We are now thinking about how we can repeat some of this when we are together in person, hopefully next year.

Elliott Gansner is chair of the Smith Family Council. Tam Smith is the previous council chair and serves as a member of the council. The Smith family owns Menasha Corporation, a corrugated and plastic packaging manufacturer and supply chain solutions provider based in Neenah, Wis.

 

Family-owned retail chain stays strong during pandemic

Robert Matthews (Matt) Beall III’s promotion to CEO of Beall’s Inc., a retailer based in Bradenton, Fla., was announced in December 2019. Just three months later, the COVID-19 pandemic struck the United States. Beall, 41, oversaw the temporary closure of the company’s more than 550 stores, which operate in 17 states under the names Beall’s, Beall’s Outlet, Burke’s Outlet, Home Centric and Bunulu. Beall and his wife, Krystel, were caring for their newborn baby as governors lifted stay-at-home orders and Beall’s stores reopened.

That is a lot for a leader to contend with so early in his tenure. But Beall, who represents the fourth generation of the founding family, says he's had plenty of experience meeting challenges.

Beall, who had worked for Beall’s Inc. as a college student, started his career at Ross Stores in Manhattan as an assistant buyer. He began that job in 2001, just days after the September 11 terrorist attacks.

From the time he joined the family business in 2004 as a buyer for Beall’s Outlet stores, Beall says, the company has continually faced disruptions, including the entry of Kohl’s, a new competitor, into Florida as well as the ecommerce explosion.

“We're always dealing with external factors,” he says. “There’s always something in retail.”

Yet the shuttering all the company’s stores for an average of six weeks was an unprecedented situation. Sales from ecommerce, which ordinarily generates only about 10% of the company’s revenues, rose while stores were closed, but not nearly enough to make up for the lost brick-and-mortar business.

“You have bills to pay during that time, of course,” Beall says. So you're essentially either paying from borrowed money or you're paying from a cash position. And that's why so many retailers are struggling right now — they didn't go into the pandemic with a healthy business, they went in with debt.”

That was not the case for his company, Beall notes. “We came into the crisis from a position of strength.

“We knew that we were 10 years away from the last recession and that we wanted to get through the next recession, whenever it would come. You never see it coming, of course.

“So how do you prepare for it? Well, you have to shore up your balance sheet. We've spent the last 10, 12 years since the Great Recession doing that. And when you're able to do that, you're able to survive.

“I think the reason that we've been around for 105 years is that we've never run out of money,” Beall says. “I credit the team for that, and their ability to manage our resources. And I credit our loyal guests for that — the fact that they love shopping with us and they love the fact that we give back to the community and we're here for the right reasons.”

Decisions and preparations
Some competitors remained open while Beall’s Inc. stores were closed. “We wanted to do our part to stop the spread of the virus,” Beall says. “We’re happy with the decision, and proud of the decision. The feedback was overwhelmingly positive from our employee base as it related to how we handled things. They were always front of mind for us, keeping their best interests at heart. That's just a part of our culture.”

The company’s senior executive committee had daily videoconferences as the stores began to close. “As things sort of settled down, we were able to refocus more of our energy towards our teams and getting ourselves prepared for what the future might look like,” Beall says. Scenario planning helped the executives make financial decisions.

Beall took no salary while the stores were closed. Store managers initially received full pay and then were paid at a reduced rate. Hourly employee pay was eventually cut, but those employees were given special “leave hours” and could use accrued vacation or sick time to help supplement their income. The company continued to pay its portion of employees’ medical benefits.

Beall’s Inc. followed governors’ guidelines for reopening in each of the states where it operates.

“What we were talking about as a team while we were closed was, amongst other things, the best and safest way that we could reopen our stores. We wanted our guests to have confidence in the fact that we were clean and that we were a safe place to shop,” Beall says.

“We implemented a lot of new practices and invested in cleaning materials and in people to help us scrub the stores down,” particularly in high-traffic areas. Fitting rooms remain closed.

Employees are required to wear masks in the stores, though customers are not.

Beall is the only family member in management, though two family shareholders serve alongside him on the board of directors. He says the family agreed that closing the stores was the right thing to do.

The business adheres to six “Beall’s family values”: “We are grateful, we are genuine, we act with integrity, we’re here for each other, we demonstrate respect for all, and we strive to exceed expectations.”

“When you have those core values, it makes the decisions very easy to make,” Beall says. “And there was really no disagreement at the management level about any of those decisions.”

Since the stores have reopened, business has been “surprisingly positive,” Beall says.

“What people want has changed since the virus struck,” he says. “I think the merchant team’s [efforts] to figure out the supply and the demand on a department-by-department or category-by-category basis has been instrumental in our ability to react quickly to a changing world and to shore up our financial position.”

In response to the social unrest following the killing of George Floyd by a Minneapolis police officer on May 25, Beall sent an internal memo to company staff. “We didn’t do a press release or anything; we’re sort of a private company,” he notes. “But we felt that it was right to state how we felt about the topic and not be silent on the topic. Certainly, we feel a lot of sadness for all of the events that have occurred. We support the peaceful rallies that are happening across the country and hope to end racism. “

Family pride
Many of Beall’s Inc.’s competitors have been acquired by public companies, and some of those stores are gone forever. Beall says his company’s status as one of the few family-owned chains left standing isn’t causing him to feel pressure.

“There's a lot of people in this world that are under a heck of a lot more pressure than I am,” he says. “I'm extremely grateful to be in a position where I'm able to lead a very talented group of people and enjoy my job.”

The company’s continued survival is a source of pride, Beall says. “it just seems like every day that I show up to work, I become more grateful and have more pride in the business than I did the day prior. And I think that that was accelerated, like a lot of other things, throughout this crisis.

“I think that that's probably a difference between a family business and a public company. We're really making decisions for the long term. We want our business to be around and to survive for future generations. And we're here for our people — we're not here for Wall Street; we’re not here for a quarterly profit. We're here because we have a tremendous sense of responsibility for our people in the communities that we serve.

“I think that one of the biggest reasons why we've been able to survive a lot of these crises that we've been through in the last 100-plus years is our family shareholders and the great pride that they take in the business.

“When you're selflessly making decisions because you know that it's for the betterment of the business long-term, you're going to be able to survive through a lot of challenges.”

Planning opportunities for these unprecedented times

This year, as the COVID-19 pandemic has upended our lives, our attention is focused on the wellbeing of our families and loved ones. Because their futures are our top priority, there may be no better time than now to begin estate planning. 

The biggest question to consider is whether you are willing to give away assets and the income produced from those assets during these unprecedented times. From a financial perspective, asset values and interest rates may never be this low again, and certainly the tax benefits may never be greater. For 2020, the federal exemption from estate and gift tax is capped at $11.58 million for individuals or $23.16 million for a married couple. This exemption, which was enacted by the Tax Cuts and Jobs Act in 2017, will sunset Dec. 31, 2025, and revert back to $5 million (indexed for inflation).

Notably, the IRS confirmed that any gifts made will not be “clawed back” after the sunset date if they exceed the reduced exemption amount, provided they are not in excess of the upper limit. Individuals can also make gifts to their children using the annual exclusion, which could be essentially tax-free, if properly documented. That means that for 2020, you and your spouse could jointly gift $30,000 to each child.

However, if a new president is elected and control of the Senate changes in November, the estate and gift tax exemption could be at risk. New lawmakers may reduce or eliminate the exemption altogether to help pay for coronavirus-related government spending this year, or they may let it revert to the $5 million amount sooner than 2025.

You might be thinking that you have a few more years to gift the value of the business to your children. But if your business valuation is based on the income method, it is probably greatly reduced given the current economic situation. It is possible that your business is currently worth only 60% of its previous valuation. That reduction gives you an opportunity to gift your children much more ownership. As the economy recovers, the value of your business should “grow back” over the next few years. Making the gift to your children now, whether directly or in a trust, also saves any future estate tax on the appreciated value in excess of the federal exemption. 

Low interest rates create another opportunity for estate planning. Many estate planning techniques utilize a monthly interest rate set by the IRS, which is determined based on a number of economic factors. This rate is at historic lows, and gifts of assets are likely to appreciate at a greater rate over the long term as the effects of the pandemic subside. By transferring assets directly or putting them into a trust for your children now, it locks in at the current low rate. Then, if the value of the assets appreciates at a greater rate, more wealth can be transferred from your estate without gift tax.

Should you pursue gifting, it is important to work with your certified public accountant (CPA) and attorney to evaluate gifting options and related estate tax savings and to determine if they are worth what you are giving up today. In addition, your CPA can file a gift tax return to document the gift with the IRS, and your attorney can help document the transaction.

Estate planning and gifting to loved ones are important decisions. This may be a time of great  uncertainty, but it is an optimal time to plan for the future of your loved ones.

Mark Bernstein is the partner-in-charge of the New York office of Katz, Sapper & Miller, a consulting, tax, and accounting firm (mbernstein@ksmcpa.com). He helps high-net-worth individuals, family offices and real estate owners navigate tax and financial issues to achieve their goals. Danielle Justo is a shareholder at Rich May, P.C., a law firm in Boston. She is the co-chair of the firm’s commercial real estate practice group and practices in the tax & real estate planning group (djusto@richmaylaw.com).

 

Values guide business families during COVID-19

The COVID-19 pandemic has forced business families to make decisions with sweeping ramifications. Steps taken to ensure business survival have had to be balanced with precautions to avoid health risks.

“My values haven’t been tested, but my ability to live by them has been shattered,” commented one listener during an April 14 webinar presented by Family Business Magazine and CFAR, a management consulting firm.

Debbie Bing, president and principal of CFAR, tells of a family whose business was deemed essential and thus could stay open despite a state social-distancing mandate. Family members weighed the idea of paying part-time wages to employees who opted to stay home because of concerns about their vulnerability to the disease. “But then they worried in making that decision, which is very much of their values, that they might not have a workforce, and then they couldn’t continue their essential operation.”

“I’ve seen some businesses that went from growing and thriving to just stopping suddenly, and they’re not sure if they’re going to even exist anymore,” says Jeff Savlov of Blum & Savlov, a family business and wealth consulting firm.

Policies that varied from state to state, and diverging opinions about the pandemic from the political left and right, have made complex decisions even murkier.

Thomas Epperson, president of InnerWill Leadership Institute, spoke to a family in Georgia who fielded conflicting risk assessments from urban Atlanta and the rural parts of the state. “They were getting lots of mixed messages about what to pay attention to,” Epperson says. “So as a family business, they had to lean back on, What do their instincts tell them?”

“Liberal or conservative isn’t the issue here,” says Jonathan Moreno, a medical ethics and health policy professor at the University of Pennsylvania. “It’s about the best way to protect the lives of the people who work for you, and their families.”

Even employees who fear a loss of income don’t want to risk their lives or those of loved ones, Moreno points out. “If they feel they picked up the virus [at work] and transmitted it to their mom or dad, that doesn’t help their feeling about the company.”

Consequential decisions
Americans took to social media to criticize businesses, whether for laying off workers, for eschewing safety precautions or, conversely, for requiring face masks.

“What families need to consider is that every decision has its consequences, both positive and potentially negative,” says David Karofsky, a principal with the Family Business Consulting Group. “And the decisions are scrutinized even more so in times like this.”

“I would never put our men and women in the field in a situation that I’m uncomfortable being in,” says Brian Sessler, managing family member at Sessler Environmental Services. The Rochester, N.Y.-based company, which provides decontamination and environmental remediation services, has added COVID-19 remediation services to its offerings.

Sessler visits as many job sites as he can to talk with workers. “There’s communication from our managers and the family members, pretty much on a daily basis, to all the workers that are in the field battling [the virus],” he says.

Other business families debated the ethics of family managers working from home while lower-wage employees were required to work on site. “One guidepost has been thinking about [protecting] vulnerable populations,” such as family members over 60, Bing says.

“I think this is just the first wave of this set of questions,” she says. If the predicted future waves of infection and continuing economic consequences materialize, “The choices aren’t going to get easier anytime soon.”

Adversity reveals character
For business families who have discussed their corporate purpose and the social impact they aspire to have, “this is an opportunity to take action on that purpose,” Epperson says.

“This adversity that we’re all going through is revealing people’s character. For those families and organizations that are committed to making a positive difference, this is a time to invest in that and show that.”

The Nelson Foundation, the philanthropic organization of the family that owns Kemin Industries, a Des Moines, Iowa-based global company that produces ingredients for human and animal food, announced a $50,000 donation to the Food Bank of Iowa on April 1. The gift helped the food bank address the increased need in the area due to the pandemic.

“We felt the need was, obviously, immediate, and we wanted to be responsive,” says Mary Katherine Nelson, chair of the Nelson Family Council.

Typically, the foundation solicits contribution requests through June and makes decisions by September 1; checks are issued by the end of the year. As the pandemic spread, “A member of the family council suggested that we consider moving up our donation process for the year,” Nelson says.

“We obviously knew that the food bank was a need locally, and we wanted to make sure that our dollars were supporting our neighbors in Iowa.”

One of the foundation’s requirements is that its gifts be meaningful, Nelson says. “We wanted to make sure that we were giving an amount that would feed as many of our neighbors as we possibly could.”

In a separate initiative, Kemin Industries donated nearly 10,000 personal protective equipment (PPE) items to the Iowa Department of Public Health, and teams in other global locations donated PPE locally. The company also announced it would allocate $1 million to fund a bonus program to thank employees who were required to work during the pandemic.

Values as decision-making tools
Chief among the challenges of these times has been the ambiguity of the choices.

“There is the financial responsibility that we have to our shareholders and stakeholders, there is the health and safety of our people, there is the long-term result of some of these decisions, and then there is the short-term impact of these decisions. So out of all that, what comes first?” Epperson explains.

“I always encourage alignment around whatever decisions that [families] are making,” Karofsky says. That’s especially important when there’s no single right answer, he says.

Family values can help provide clarity. “Your values should really be practical decision-making tools,” Epperson says.

“The clients we work with have clearly defined values,” says Greg High, president of GH Family Business Consulting. “These values have helped to frame their discussions around how their family and their business will deal not only with COVID-19, but anything else that comes their way. By doing this work early, they have positioned themselves well to be able to calmly manage through challenging situations.

“Some clients read their mission statement and review their values at the beginning of every family meeting to keep these items at the top of their minds as they continue on with their meeting.”

Some families have internalized a set of values even if they haven’t formalized them. Jeff Kotzen, fourth-generation vice president of J.W. Lopes, a food distributor in Chelsea, Mass., and his wife, Elyssa, created a new residential delivery division after COVID-19 wiped out demand from the company’s restaurant-industry customers.

The Kotzen family has not established a written list of values, but in their new venture they’re putting their community at the forefront. Their service offers products from other local businesses in addition to J.W. Lopes’ produce and dairy items.

“We’re trying to lift up other people in the industry who are dealing with the effects of COVID-19 like we are,” Elyssa Kotzen says.

“There are so many companies in our position now that are mostly family-owned businesses who had to pivot during this situation — who are staying open, who are in the front lines — and those are the companies who we really wanted to be partners with,” Jeff Kotzen says.

Families should make decisions based on what they value most, Epperson says. “I think there’s a pretty broad spectrum in what’s right. What I think is most important is that we are authentic to what we’re all about.”

Saying one thing but doing another will get companies in trouble with customers, employees and other stakeholders, Epperson says. “People can smell that.”

When emotions are running high, Karofsky advises clients to “separate the emotion from the logic.”

He recommends assessing the potential impact of decisions on the business and each of its key stakeholders.

“This is where boards can shine. How you use that board is so important right now, and having that board in place is so critical.

“The power of the board in this case is to separate emotion from logic. And we have to live in the world of logic right now. If we’re running around making emotional decisions on what to do with this business, in my opinion it brings in a higher risk to the business.”

Leaders in the spotlight
Leaders are “always on stage,” and a wide variety of stakeholders are in the audience, Epperson says.

“They are paying a lot of attention to what we’re saying and what we’re doing. So being aware of those words and actions right now is incredibly important.

“And if you want them to be fiscally responsible, or you want them to care about other people, or you want them to value health and safety, or you want them to value relationships, then you have to act that way.“

Savlov knows of a family whose construction firm is continuing its essential projects during the pandemic. Some of the work requires employees to travel and stay in hotels.

“They’re trying really hard to be honest with their workers about what they need,” he says. “They’ve always treated their workers exceptionally well, so I think they’re trading on a credit balance of goodwill, on having treated workers like family. They’re not seen as greedy. It’s a mutual generosity — helping each other out and making it through.”

Elena West, CEO of Ohio Art, a lithography and graphic arts company in Bryan, Ohio, that’s 89% owned by her family, implemented pandemic mitigation measures early on. In addition to enforcing social distancing, the company stepped up the efforts of its cleaning crew and “doubled down” on its orders of sanitary products, she says.

West has taken the lead on managing the company’s COVID-19 prevention efforts. “I go out into the factory, and I literally take [workers’] temperatures in the morning,” beginning at 4:30 a.m., when employees start arriving for the shift that starts at 5, she says.

“What we have told them over and over again, and what we have shown them, through taking temperatures and cleaning the spaces so well and so consistently, as well as enforcing the social distancing, is that we do care, and that we are committed to this, and that we do want to stay open.

“The longer we stay open, the likelihood is we’re going to continue staying open into the future, when all of this has passed. If we shut our doors now, who knows what will happen in a month’s, two months’ time?”

Open communication
An elevated level of transparency with all stakeholders is called for under these circumstances, advisers say.

It’s difficult to predict what will happen to the economy in the remainder of the year as states start reopening while the pandemic continues. If business leaders see dramatic cuts on the horizon, it’s best to be honest about the situation, Epperson says. “Begin to prepare people,” he advises.

Epperson advocates asking for employees’ help and support. “You’re building a case for involving people, helping them do their best thinking, empowering them to make decisions to act quickly and support customers and the organization.

“At the same time, you’re trying to be real with people: ‘If we have to make hard calls, we will. And here’s how we’re going to make that decision.’ ”

Open-book management — sharing financial information with employees — can work to the family’s advantage now, Savlov says. “When times are bad, people really see the kind of pain you’re willing to take.

“They can see your losses. They can see you not taking a paycheck when they’re still getting theirs. And that kind of transparency is invaluable in the long run.”

Dennis Snow of Snow & Associates, a consulting firm specializing in customer service, employee development and leadership, cites several practices of companies that implement furloughs or layoffs in a way that’s sensitive to workers’ feelings and concerns.

“They’re very empathetic in the way they’re doing it. They’re providing one-stop shopping for information. Whatever kind of benefits they can continue for X amount of time, they’re doing that. It doesn’t make it easier for their employees, but it says, ‘We care.’ ”

Snow says it’s important to be “extra appreciative” when communicating with customers and to focus on what your company can do, not on what it can’t do. He also recommends doubling down on things customers love about your company, such as a personal touch.

Companies selling scarce products in these days of supply-chain disruption should make sure prices are in line with what others are charging, Snow advises. “The big thing is making sure that you don’t get hit with that price gouging perception, because that will have lasting repercussions.”

Pulling together
Bing has found family interactions improving during the crisis. “So far, we have seen the softening of dynamics.”

She’s observed “a lot more transparency than we usually see” within families, “and more rallying together, even in deeply conflicted families. In a way, you could say, it’s breaking all the norms.”

Videoconferences might be drawing families together in ways not possible with in-person meetings, Epperson says. “It’s helping people to make connections that they otherwise wouldn’t.”

Today’s unprecedented circumstances have strengthened intergenerational ties in many families, Bing says. “There’s this level of vulnerability that has shaken up the traditional leading/rising generation dynamic, where the senior generation would take the stand, typically, of ‘You don’t know what you’re doing yet,’ or, ‘I’ve seen it all; you’ve seen nothing.’

“That’s being turned on its head, because this is the first time nobody can say they’ve seen something like this before, unless they were running their business in 1918,” she says with a laugh. “And so there’s a humbling there. And on the other side, rather than, ‘Get out of my way; I know what to do,’ it’s, ‘We need all hands on deck.’ ”

Bing is working with families who now want to step up efforts to build NextGen engagement and family involvement, “whether that’s the shaping of a governance structure or sorting out roles or accelerating an ownership transition.”

One senior-generation member Bing knows had been adamantly opposed to transferring ownership to the next generation. After the coronavirus struck, he executed the transfer “all of a sudden,” she says.

Yet the new living arrangements brought about by social distancing may be pushing young family members into roles they’re not ready to assume. In one family Bing knows, college students are living with their parents because their schools have closed. Ordinarily, their involvement with the family business would be limited to summer jobs.

“But now they’re home, and they’re calling in with their father to top-level strategy meetings and business discussions.

“On one hand, they’re able to [discuss] at dinnertime, ‘What are we learning about business and leadership in a crisis?’ and they’re learning more in an accelerated way. On the other hand, it’s undermining some of the things that [the parents have] said they’re committed to, like age-appropriate experiences for these kids as they come into the business, or working your way up from the bottom.”

With families being what they are, and with the economy in a downturn, it’s an open question how long the positive developments will last.

“I’ve seen more of the pulling together than pulling apart so far, but what I would predict is that the battles are going to come, because these companies are going to be so economically stressed, and family dynamics get worse when there’s less prosperity,” Bing says.

“People are in survival mode right now, but the recovery is going to, I think, invoke all the old battles.”

The dilemmas are daunting. Bing heard a business owner sum up the situation in a powerful way:

“Eighteen months from now, two years from now, five years from now, when I ask myself the question, ‘Did I do everything I could do in that moment?’ am I going to be proud of this answer? And I need to think about that now, with every decision I make.”

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 bwenger@familybusinessmagazine.com.    

Eight actions to secure your family’s future amid COVID-19

For enterprising families during the COVID-19 pandemic, it’s important not only to stay connected as a family, but also to ensure the family enterprise will survive and thrive. “The foundation for this involves investing in the family’s human and social capital,” notes Jeremy Cheng, founder of GEN+ Family Business Advisory and Research and a Ph.D. student at The Chinese University of Hong Kong.

In an article in FFI Practitioner, a weekly online publication of the Family Firm Institute, Cheng offers some suggestions to help you not only manage your family business through the pandemic but also shore up your enterprise for the future.

Here is Cheng’s advice, based largely on his observations of Asian families who experienced the first wave of the pandemic.

1. Know what assets you have
When the senior leader is the only one with a complete picture of the family’s holdings, the family enterprise will be slower to respond in a downturn. Keeping information from advisers — and sometimes even from other family members — also hinders holistic risk assessment.

2. Keep your family wealth in the right hands
The comingling of family wealth with corporate money can create cash flow issues in the operating business and potentially impinge on family members’ lifestyle.

3. Share your burden
Check in regularly with the broader family to see how they’re doing and keep them informed about the financial health of the business. Discuss the impact of developments on the family and other stakeholders and work to develop a shared response. Honest communication will build trust and enable family members to help each other manage anxiety.

4. Refocus on your family’s natural strengths
Successful enterprising families take a long-term view of business stewardship. This may be a good opportunity to make investments to diversify the business or prepare for growth after the current crisis.

5. Act like a portfolio owner
Rather than focusing on long-term survival of the legacy business, consider the value of the family’s entire portfolio. Think about the economy of the future — what investments or divestments will best position the business family for success?

6. Develop generational immunity in the family governance system
Help your family prepare for the next crisis by creating a living governance system. Members of succeeding generations must develop their own agile leadership, and learn to work together to make decisions.

7. Review and renew
Conduct a risk-assessment analysis of your family governance system to see what elements need to be strengthened. For example, do you have a crisis-management protocol?

If you’ve developed new ways of keeping the family informed during the COVID-19 pandemic, will you continue them after the crisis has ended? What lessons can you draw from this experience, and how will you teach them to future generations?

8. Watch for real transitions, not simply resilience
Some of the changes wrought by this crisis will be permanent, so future success will require more than the ability to bounce back from an unpleasant event. It’s important to reexamine why you stay together as an enterprising family, how to foster entrepreneurship and what you need to do to engage the rising generation.

Read the full article here.

Family firm with roots in Colonial America makes PPE

The Merrow family of New England have altered their business over the centuries, from a general store to a gunpowder maker to a sewing machine manufacturer to a maker of technical apparel. During the COVID-19 pandemic, the 182-year-old company has shifted gears to increase its production of personal protective equipment (PPE).

Joseph Merrow started making gunpowder in Connecticut, 24 miles from Hartford. After his powder mill was destroyed in an explosion in 1837, he built a knitting factory and started turning out knit cotton goods in 1838.

In 1868, the founder’s grandson Joseph Millard Merrow developed the Merrow Crochet Machine. After the factory burned down in an 1887 fire, the company pivoted again, moving to Hartford and focusing on overlock sewing machines. The company expanded its line of industrial overlock sewing machines, used to overedge fabric and add decorative edging. The business was renamed the Merrow Machine Company, and Joseph Millard Merrow became a major figure in the textile industry.

In 2004, eighth-generation brothers Owen and Charlie Merrow bought the company and moved it to Fall River, Mass., where it operates in a 300,000-square-foot building. Merrow Group now encompasses several companies that specialize in making sewing machines, contract manufacturing of technical soft goods and fashion design and development.

During the COVID-19 pandemic, the enterprise is playing a crucial role. It has hired more workers and increased its production of medical protective equipment, which it’s selling to hospitals, healthcare networks and local government systems.

Merrow has received funding from the Massachusetts Emergency Response Team (MERT) to support expansion of its production capabilities to meet the urgent demand for PPE.

“Merrow was one of the first companies to pivot their operations during this extremely critical time,” says Carolyn Kirk, executive director of the MassTech Collaborative, the agency heading up MERT. “Merrow quickly ramped up production and is now producing gowns that provide critical protection for our frontline healthcare staff and first responders. We’re grateful to Merrow and the other companies the MERT has assisted, as they provide reliable, local sources of PPE and other critical supplies that are undoubtedly saving lives.”

CEO Charlie Merrow says that each week the company produces several hundred thousand gowns and increases production by 20%. 

“We are working 18-hour days and sending out dozens of shipments,” Merrow says. “Nonstop, truck after truck pulls up to the loading dock getting PPE, but it’s never enough.” You can hear the frustration in his voice as he says that they could do more, but because of plant closures, supply chain markets are fluid. Merrow says he ordered a million yards of fabric but found out it was sold to someone else for more money.

His goal is building a supply chain to support the entire country, and he’s experimenting with different ways to scale up. Merrow is now shipping to 16 states. In addition to gowns, the company is making other essential medical products, such as surgical caps and gaiters.

“This is the most difficult professional time of my life, but I’m proud of the way the company has been able to execute,” Merrow says.

Lisa C. Johnson is a writer based in Massachusetts.

Jelmar’s supply chain holds steady during pandemic

CLR and Tarn-X cleaning products sold by Jelmar, a family company, are popular with consumers during the COVID-19 pandemic, the company reports.

“Our bath and kitchen cleaner and our mold and mildew remover are both in high demand right now,” says Alison Gutterman, third-generation CEO of the Skokie, Ill.-based company. CLR’s Garbage Disposal Foaming Cleaner, Stainless Steel Cleaner and Stone Cleaner have also been strong sellers, she says.

Unlike Clorox and Lysol products, which are hard to find these days, Jelmar’s offerings are not disinfectants. Gutterman explains that Jelmar products should be used to clean household surfaces before disinfecting products are applied. 

The company, one of the first to use the tagline “as seen on TV,” introduced a new advertising campaign in March, featuring 15-second commercials shown during highly viewed programs, including some in prime time.

Since its founding in 1949, Jelmar has outsourced the development and manufacturing of its products. Unlike other makers of household products during the pandemic, Jelmar has not experienced any supply chain challenges, Gutterman says.

“We have really, really great partners that we've had for a number of years,” she says. “And because we have such a great partnership with them, they know that they need to keep us in stock. The owner of the plant has added shifts to accommodate our increase in sales.

“I have to give a lot of credit to my staff and to our purchasing agents and to our quality-control people. They really are doing a phenomenal job of making sure that we're fulfilling our orders on time. And we just keep on manufacturing and shipping.”

The company has a couple of new products in development with a targeted launch date in early 2021.

Gutterman’s staff of about 20 includes two new employees who started before the pandemic reached the United States. 

Though most of the team is working from home, “we were able to incorporate two different employees during this time and have them really feel like they're part of our culture,” Gutterman says.

To keep up morale, she has established themes for the weekly staff meetings that are held via Zoom. During one meeting, everyone wore their favorite hat. At another, staffers traded suggestions for movies or shows to watch on Netflix. Recently, colleagues offered recommendations for take-out restaurants to one of the new employees, who had moved to the Chicago area from New Jersey.

The other new staffer, who works in the plant, has had a “trial by fire,” Gutterman says. “His onboarding was, ’OK, we’ve got to ship all this stuff out; we can’t be late. You may have to work longer hours, because we've got to make sure that we're maintaining our supply chain.’ ”

To keep up morale, Gutterman gathered her team on a street near the company headquarters one day in May, “and we had a little parade,” she says.

“We had balloons. We had candy that we threw at them, and we had signs and champagne and other spirits — just to make sure they knew that we are so thrilled that they're working for us.

“I've sent out care packages with great snacks to all of our employees. We're really trying to make sure that they feel the love. We’re connecting with them all the time, and it's been really seamless.”

 

 

Herschend prepares to open its theme parks

Family-owned Herschend Enterprises, which delayed the openings of its theme parks because of COVID-19, is currently evaluating opening dates for the summer.

In addition to theme park operator Herschend Family Entertainment, the family enterprise includes tour operator Pink Adventure Tours; Herschend Live, owner of the Harlem Globetrotters; and Herschend Entertainment Studios, which produces shows for children.

The opening plans have been revised several times to incorporate new information and evolving developments, according to Chris Herschend, chairman of Herschend Enterprises.

The decision to delay the openings, by contrast, was “kind of iterative” and made over a period of less than three days in March, Herschend says. “It went fast.

“It went from, ‘Do you think this could happen?’ to, ‘Oh, my gosh. They just canceled the NBA season,’ to, ‘We can't open tomorrow.’ “

During those days, Herschend spoke multiple times a day with Andrew Wexler, the non-family CEO of Herschend Enterprises. Wexler was in Dollywood, the Pigeon Ford, Tenn., amusement park, where co-owner and namesake Dolly Parton had planned to attend the season opening scheduled for Friday, March 13.

As of Monday evening, March 9, the country music star had confirmed her attendance at the opening. On Wednesday, March 11, Parton canceled. On Thursday, March 12, Disney announced it would close its U.S. parks starting the following Monday. By Thursday night, Herschend had decided not to open its parks.

“It couldn't have happened at a worse time,” Herschend says. “We work all winter. We put capital into the ground. We put expense on the company to bring back all our seasonal workers. We rehire. We get everybody trained.

“March is always our worst balance sheet of the year for those summertime businesses.”

The timing was bad for the other business units, as well. March is a peak month for Pink Jeep tours and a time of high turnout for Globetrotters events.

“This is a complete full stop,” Herschend says. “It's been existentially threatening in every possible way.”

After the decision was made to stop all business activity, he says, “There was a release. You feel for a moment that you've made the tough decision. And then about a minute later, there's the dread: ‘Oh, my gosh. Now what do we do with all our seasonal employees?’ ”

Steps to save the company
The company moved quickly to institute furloughs. “All our non-furloughed employees took a 50% pay cut, and Andrew and I took 100%,” Herschend says. Subsequently, “we made a second round of cuts that went deep into the year-round staff.

“We're expecting them to come back. But still, we've never done anything close to this scale” in the 70-year history of the company.

Staffing was slashed to just 5% of what it had been a year earlier. “That was agonizing and brutal,” Herschend says.

“The employees that remained after the furloughs are working harder than ever, and we are eager to restore them to full pay, which we hope to do very soon,” he says.

The company is covering premium payments for furloughed employees who were eligible to participate in the health plan. “This is one of several things we did to try and ease the transition to unemployment benefits,” Herschend says.

“We didn't even have a board meeting until April 2 because it was so obvious what had to happen,” he says. “We had to focus on survival first.

“We were under-levered compared to our peers, but we were still in danger of not surviving if we didn't rapidly cut costs.”

The shareholders wanted the company to remain independent, without taking on outside investors, Herschend says.

Capital investments were delayed for a year or more. Lack of investment in the attractions “hurts our guests, but also our employees,” Herschend notes. “The growth rate slows and their compensation drops as a function of that. We don’t do it lightly.

“We don't even talk about financial performance right now. All we talk about is cash flow and survival.”

Keeping family in the loop
As Herschend and Wexler discussed the park closures, Herschend kept in touch with family members via a secure messaging app.

“They were asking me questions in real time. And I was able to answer some and pass some on to Andrew,” he says. “There was a lot of communication and it was really a blessing because it was super-efficient.”

The family knew about the decision to close the parks before it was officially announced. “All they wanted to talk about were employee issues and how we're going to care for our employees,” Herschend says. “And that was really our focus as a family for about two weeks. We didn't have any discussions about profit or loss or anything other than, what do we need to do for these people in the first, first wave of decisions?”

Several family members made personal contributions to Share It Forward (SIF), a 501(c)(3) non-profit organization that assists Herschend Entertainment employees in times of personal crisis. Those contributions from family members exceeded $800,000 in the days immediately following the first furlough announcement, Herschend says;

“What was so encouraging was that it was from individual households, not through any formal coordinated or centrally controlled entity or foundation.” SIF then made “immediate one-time payments to any furloughed employee who asked, in addition to its normal hardship mission, which was subsequently expanded to provide more effective assistance in the context of COVID impacts,” Herschend says.

Careful planning
Plans for opening the parks are being driven by the management teams. The board has provided input, and the plans have been shared with the family.

“The employees, the guests, the balance sheet, the stockholders — everybody benefits by us being open,” Herschend says.

Because of the changing body of knowledge about the spread of the virus, proper precautionary measures and government regulations, “It’s the most dynamic decision-making environment I’ve ever seen,” Herschend says.

“The professionalism and the depth of preparation and the care and the quality from the management teams is a huge confidence builder.”

Direct communication
In some ways, Herschend says, the current situation is analogous to the Great Recession of 2008 because of the effect on every industry across the board. On the other hand, he notes, “In the worst of ’08, we never had a week when we had zero revenues.”

One lesson that has emerged, he says, is “the need to communicate humbly and quietly to your stakeholders — and a lot.

“People value transparency and frequency of direct communication. And nobody needs you to tell them all the reasons they should be optimistic.

“People can be trusted with bad news. And especially in this case, there's so much of it. They didn't want me to be a cheerleader.

“Now, I couldn't be a pessimist. But I could definitely be a realist. I spoke as plainly as I knew how. And the family has responded really, really well. They've been great for one another and to each other.”

Company leaders knew that lenders would request the suspension of distributions to shareholders. “We got out in front of that — we told the shareholders we're doing this before the banks even asked us to,” Herschend says. Family members responded that they understood.

“We've done formal and informal video updates. We've done a lot of a lot of talking and chatting and communicating

“And I think it’s brought us closer together.”
 

Specialty Restaurants reopens some of its locations

Guests can once again reserve a table at Florida and Ohio eateries operated by Specialty Restaurants Corporation, a family-controlled company that owns 19 dining spots. In addition to Florida and Ohio, the company operates restaurants in California and Buffalo, N.Y.

John Tallichet, second-generation president and CEO of the Costa Mesa, Calif.-based company, says there was “a lot of pent-up demand” at the first restaurant to reopen, the Rusty Pelican in Tampa.

The websites of Tallichet’s eateries list the steps they’re taking to protect guests and employees from the coronavirus. The measures include checking employees’ temperatures, changing brunch buffets to an å la carte plated menu, providing sanitized utensils in individual wrappers, requiring staff to wear masks and adjusting seating and capacity to maintain 6-foot distancing.

“We've been communicating with our guests and sharing with them the different protocols that we have in place for their protection,” Tallichet says.

He says returning guests’ appreciation for the safety procedures showed on their faces. “It gave them a chance to come in and dine and feel like they could relax and not have to be stressed.”

Guests’ dining habits have changed, Tallichet reports. “You don't get the people lingering like they used to. They're excited to come in and have a meal and then get home.” That accelerated turnover rate has helped restaurant sales.

The Rusty Pelican reopened with outdoor-only seating because Florida guidelines at first restricted indoor restaurant dining to 25% capacity. On May 18, the state changed indoor dining guidelines to 50% capacity with 6-foot distancing. Some of Tallichet’s Florida locations are now seating diners indoors; others continue to offer outside service only.

“In Florida, we have sites that work well in this environment, because we have a lot of outdoor space,” he says.

Although California has been slower to lift its restrictions, the company is preparing for the eventual reopening of its restaurants in that state. Tallichet says of his California staff, “When they hear the stories and see the numbers that we're doing [in Florida], they are really pleased and feel like there's light at the end of the tunnel — that when they reopen, business will come back.”

The company is working on instituting an electronic ordering system to minimize close contact between guests and servers.

In early to mid-March, before most states began mandating restaurant closures, customers started to stay home, Tallichet says. “You could see with reservations, the numbers were starting to go down. People were starting to be concerned.”

His locations that had offered a Sunday brunch buffet shifted to å la carte brunch service before the closures. That helped staff and guests adjust to the change, which is still in effect.

Although restaurants were permitted to offer take-out service, Specialty Restaurants tried that option in only about five of its locations. “Our restaurants are very experiential, and it's tough to re-create that in a to-go setting,” Tallichet says.

The restaurants provided some meals for first responders and hospitals during the shutdown. “Being able to do that brought a lot of pride to the teams,” Tallichet says.

Input from the family
The company has about 12 family shareholders plus about 20 others with small percentages that date to the time when its shares were traded on the American Stock Exchange.

The company’s board of directors consists of its retired CFO, three family members and Tallichet. Another group, called board advisory members, includes other family members as well as two business leaders from outside the family.

Tallichet has kept them updated with conference calls that at first were held weekly and then shifted to biweekly.

“They definitely have a lot of input,” he says. Family members are dispersed throughout the country and weigh in on what’s happening at restaurants in their communities.

The company’s mission and values are based on the five-star rating scale commonly used in the restaurant industry, Tallichet says. The expectation is that employees, guests, the community and partners such as landlords and vendors will have a five-star experience in their interactions with the business.

“So it was important to the family that we were doing what we could for our employees, even though we furloughed them. We created a fund to assist them until they could get on unemployment. If employees needed produce or toilet paper or anything like that, they could come to the restaurant weekly, and we would give them what we had available.”

The family has real estate holdings in addition to its restaurants. Funds that had been set aside for real estate investments were reallocated to restaurant modifications and staff training to facilitate the reopenings. A Payroll Protection Program loan helped, too.

“I think [family members] recognize that this is not a short-term time period — it could be 18 months that we're dealing with this, and there could be another wave [of virus infections] and another setback,” Tallichet says.

Future shareholder distributions have been put on hold.

“All our people, including myself, took a pay cut,” Tallichet says. “So everybody's had to sacrifice.”
 

Branding your family business after the pandemic

The COVID-19 pandemic has altered the business landscape, resulting in both demand shock and supply disruption. In a matter of weeks, we moved from growth and expansion to a full stoppage of non-essential activities, along with universal concern about the health of our families, friends and co-workers.

Once the coronavirus pandemic subsides and we shift to the recovery phase, we will begin to focus on the resiliency of family-owned business names and brands. For multigenerational businesses, this period represents a reset — a time to retrench and revisit who they are, why they are in business and how they differentiate themselves from their competitors. It is a rare opportunity for family businesses to examine their core brand and company positioning.

Family businesses obviously want to make money, but most of them do not center their success only around revenue or shareholder return. They are also driven by the strong relationships between the family and long-time staff, as well as the service they provide to their customers and communities.

During this reset, families must recognize that these close relationships are a valuable part of their brand. Your brand — what people think about when they reflect on your company and its products or services — includes your people, the actions you take and the stories you tell. A brand that has been built over many generations can either be enhanced and elevated, or tarnished and torn down, by the actions taken right now. PwC’s “Future of Customer Experience Survey” (2017-18) found that 32% of all customers would stop doing business with a brand they loved after one bad experience.

During the long bull market ended by the recent pandemic, the primary focus for the family business was investing in output and sales growth. Branding was viewed as a marketing exercise — more tactical than strategic. However, as we restart the economy, family business owners must revisit their strategy. While no one can say how long this crisis will last, we do know that it has accelerated the pace of change, and there is no going back.

Brand position and strategy involve more than just logos, taglines, content marketing and search engine optimization. Enhancing the brand involves storytelling, consumer experience, positive actions, employee attitudes and reduced friction. In order to move forward, families should begin building authentic, resilient brands that focus on providing a memorable consumer experience.

How does your brand reflect the family, its values and mission? What actions are you taking as a business to “live” those values? Here are five questions every family should ask during this economic reset:

1. Why do we exist?
2. What do we stand for?
3. Who are our brand ambassadors? Do our employees love our brand? Do our customers?
4. How do we want to make our customers feel?
5. Why do our customers align with (and, therefore, buy from) us instead of our competitors?

Making strong connections with brand stories
During uncertain times, brand stories help consumers connect more closely with your company, as stories work on a deeper emotional level than data-powered marketing. Successful brand stories make the consumer the main character and make the company the guide. For example, during a recovery, expressions like “Buy American” take on new meanings.

Remember that your brand story is unique to your family business. Today, every brand functions as its own publication. Your company can produce content that can be shared daily via social media, weekly via email, and monthly via the web and digital content providers. Content can come from anywhere; everything in a family business’s day-to-day operations represents an opportunity to create content and customer value. Remember that consumers crave connections to brands they trust and value.

During a recovery, family-owned companies can be a catalyst for local, regional and national business activity. COVID-19 has highlighted the need for companies to position themselves for resilience. Just as family-owned businesses need to establish strong balance sheets and brands that stand the test of time, the U.S. economy must become more resilient through the growth of U.S.-based manufacturing.

Unfortunately, in the quest for efficiency, many businesses abandoned resiliency. That must change.

Family businesses need to become more robust, sustainable and resilient in the face of economic shocks and global forces.

They can play a central role in rebuilding robust supply chains and distribution ecosystems that ensure access to agriculture, raw materials, specialty equipment, parts and components. As brands, U.S. family-owned businesses are in an advantageous position to lead the way in rebuilding America.

Responding to change
As family businesses begin to determine the way forward, there are five questions every family should explore before rewriting or adjusting their brand position:

1. Who is our target customer?
2. What is our product or service category?
3. What is the greatest benefit of our product or service?
4. What is the proof of that benefit?
5. How can we hedge against future disruptions?

Family brands clearly must shift their positioning in response to the COVID-19 pandemic, as consumer attitudes and preferences are rapidly evolving with the changing landscape. Innovations and shifts in consumer preferences are already taking hold. Employees working from home, curbside pickup of five-star meals, rapid adoption of telemedicine and distance learning, virtual fitness, 3D printing and crowdsourced medical equipment design are examples of adaptive pathways that emerged in real time during the pandemic.

Family businesses must pay attention to these trends that illuminate the way forward, as we are now experiencing an acceleration of changes that were already under way. For instance, the pandemic has forced baby boomers to become rapid adopters of digital technology, closing the gap with digital-native millennials and generation Z. Grandparents now know how to use Zoom, order groceries online, watch streaming TV and movies, and even post on TikTok.

This shift, among others, will drive family-owned businesses to revisit their core strategy and brand position. They must ask themselves, “Are we optimally positioned to succeed in this new environment and competitive landscape?”

Brand positioning describes how a brand differentiates itself from its competitors, and where or how it should be perceived in customers’ minds. Consumer preferences are changing, supply chains are adjusting and technology is accelerating the pace of change. To respond successfully, family brands must focus on the evolving digital consumer experience.

The way forward
Family businesses will be seeking growth in the face of the current disruption, all while fending off old and new competitors. All company leaders must ask how their business model will be impacted — what are the second- and third- order effects of the pandemic?

Our playbook for the way forward includes a branding conversation that every family, founder, president and CEO can engage in:

1. Remember who we are and where we came from. Identify what we want our brand to be and then craft the right story to accurately project that image.

2. Ask whether our products and/or services reflect our brand. If not, we need to change them. Branding is a holistic process, and consumer experience is an important piece of that process.

3. Find out whether our partners and consumers digitally explore, experience and transact with our company in ways that are simple, efficient and pleasing.

4. Evaluate whether our product messaging reflects our brand. If not, let’s change it to reflect what’s authentic to our brand.

5. Examine our staff to determine whether they understand and embody our brand. If not, create a plan for changing that — a plan that includes communication, training and policies.

6. Evaluate whether our pricing is in line with our customers’ needs and expectations. Review fee structure(s) and terms to better align with our customers’ current reality.

7. Consider whether sales should shift from new-customer acquisition to focusing on current customers and their brand experience and needs.

8. Evaluate how brand messaging is delivered. The COVID-19 pandemic will accelerate the transformation to digital delivery of messaging. Is our business at the beginning, in the middle or toward the end of that transformation?

9. Understand that branding is a continuous process. Therefore, we need to continually refine, improve and adapt.

As your family business emerges from this pandemic, your most important asset will be your carefully crafted brand, which can enhance revenue growth and increase profits with greater efficiency. Equally important is your family brand’s ability to attract and retain its people. Well positioned brands with aligned employees promote resilience, longevity and customer loyalty.

R. Travis Coley is director, growth and strategy at Whitepenny Brand & Digital Strateg Ann Marie Liotta, CPA, AEP®, is U.S. wealth strategist at Cohn Financial Group, a division of Gallagher, M Financial Group Member Firm. Charlie J. Carr, CFP®, is managing director, Family Enterprise Advisory Services at PwC.