Owners

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 bwenger@familybusinessmagazine.com.    

                                                    

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Family jewelry stores opt for closure

Fine jewelry is one of the few retail categories still dominated by independent multigenerational stores. There are nearly 21,300 specialty jewelers in North America. Many are third-, fourth-, and even fifth- and sixth-generation businesses.

But that is changing. In 2014, 612 retail jewelry stores went out of business; in 2015, 760 closed; and by mid-December 2016, 981 more had shuttered, says the Jewelers' Board of Trade, the industry's Warwick, R.I.-based credit bureau. Of those 981, only 16 went bankrupt. Seventy were sold or merged; the rest just bid customers farewell and, with varying degrees of fanfare, went away.

It's not that people aren't buying jewelry: Total U.S. jewelry and watch sales were more than $75 billion in 2015, and early reports suggest the 2016 figure will exceed $80 billion. Nor is the Internet putting brick-and-mortar stores out of business. Only about 6% to 7% of total industry sales are made online, says Edahn Golan, a jewelry industry research analyst.

What's happening to America's jewelry stores?

In a word, demographics. The jewelry industry is getting old. Industry experts estimate the average age of jewelry store owners in the United States at 58. Many store owners either don't have children or have children who don't want to operate the family business.

"The kids have watched the parents work a minimum of six days a week, morning to night, with little or no time off, and they see what their folks have given up for it," says Jeff Gordon, principal of The Gordon Co., a Florida-based financial and liquidation consultant. Millennials typically have different goals and want a more balanced life, so unless they're already entrenched in the business and love it, they're not going to take over the family store, he says.

Although jewelers get to share in the happiest moments of their customers' lives, that's not enough to keep stores from closing. While not decimated by category-killers the way independent hardware stores were, or by Amazon (yet), the jewelry industry is changing. The Baby Boom generation is aging out of the market and Millennials don't yet have the disposable income to fill the void.

Despite low online sales penetration, targeting Millennials still means being digitally savvy and merchandising differently—adding more designer brands and selling a greater volume of lower-priced goods—things many older jewelers just don't want to do.

"I don't blame them," says Michelle Graff, editor-in-chief of National Jeweler, an industry trade publication. "If you're in your mid-50s or 60s and staring down the last five or 10 years of a long career, would you be willing to put in the time and energy to completely change your business if you had the means to retire? I wouldn't." Mature store owners don't have decades to recoup the losses of a major misstep, either, she points out.

Also, American culture has become more casual. That means relatively few people—even people who can afford expensive products—are wearing lavish jewelry today. Dorfman, a tony store in Boston, was renowned for the kind of ultra-high-end jewelry seen on the red carpet at Hollywood premieres or at galas like the Metropolitan Museum of Art Ball in New York City. But outside New York, today most women go to charity balls dressed more like the museum curator than a Hollywood starlet, says third-generation jeweler Jonathan Dorfman.

Jonathan and his brother, Douglas Dorfman, founded and still run Connoisseurs, a manufacturer of consumer jewelry-care products. With their own successful business—a global leader in its category—neither planned on taking over the luxury jewelry store their grandfather founded, but they stepped in when their father got sick. The brothers closed Dorfman in early 2015, barely a year after an extensive remodel.

Most Boomer-age jewelers just want to retire, even if it means closing a highly successful store. Selling it, even to other jewelers, rarely is an option, says Gordon. "Unless [the buyer] has cash to purchase a successful store and its inventory, I know of no banks willing to enter the retail jewelry business without a strong guarantee against assets beyond the jewelry business," he says.

Hedda T. Schupak is a business writer and jewelry industry editor and analyst.

Copyright 2017 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.

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Community ties

Family businesses are important contributors to the economic sustainability of their local communities—and often to the regions' social, cultural and charitable activities, as well. Several of the companies featured in this issue are pillars of their communities.

At Woodward Funeral Home in Spartanburg, S.C., featured on our cover, fourth-generation member Stinson Woodward Ferguson says she takes time to visit with community members who stop by to chat. The business makes its limousines available free of charge for weddings and offers complimentary notary services.

The Hillenmeyer family, who operate 175-year-old Stephen Hillenmeyer Landscape Services of Lexington, Ky. (profiled in our "Celebration Corner" column), told me that most people in town have some connection to the business and the family. That's not surprising, since both have been around for six generations. Many locals treasure their memories of picking out Christmas trees from the Hillenmeyers year after year after year, sixth-generation member Chase Hillenmeyer told me.

These strong community connections often result in fierce loyalty among customers. Local business names (such as Wawa and Yuengling here in Philadelphia) are hallmarks of civic pride.

But there are challenges, as well. Fifteen years ago, I interviewed an Indiana family in the jewelry business who filed for Chapter 11 bankruptcy amid adverse circumstances in the 1990s. The local newspaper put a story about their situation on the front page—with a headline in a font size most editors reserve for declarations of war.

If you make a business decision to execute a reduction in force or move your headquarters out of town, be prepared for a local outcry if you are well established in your region. If your next-generation members who have moved from the company's hometown redirect their charitable giving to organizations in their new home base, those who traditionally received the grants will criticize the decision.

Likewise, if family members misbehave in public, the name of the family business will be included in the local gossip. And if relatives sue each other over ownership of the family business or shares in the departed leader's estate, the family's personal heartbreak will be fodder for armchair psychologists all over town.

Many family business members would say that the benefits of their brand's status as a household name outweigh the drawbacks. With ample forethought and family education, the downsides can be reduced or at least managed.

Your family meetings—and parental discussions with young family members—should include conversations about the responsibilities associated with stewardship of your family's legacy, and warnings about the high stakes involved. A brand can survive a corporate misstep, but in the electronic age, a family embarrassment will live forever.

Copyright 2016 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.

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How 'gamification' can improve family education and engagement

Julie Andrews, playing the title role in the film Mary Poppins, sang: "In every job that must be done, there is an element of fun. You find the fun and, snap, the job's a game." As parents have known for generations, projects that seem like fun get accomplished more quickly, and more people want to participate.

Our school and work lives can be compared to a grandly complex video game. We strive to complete a sequence of challenges or quests. When we "level up," we receive a passing grade or a job promotion. At the end of a series of challenges, we might garner a badge (a diploma) or a prize (a new title or a year-end bonus). This is perhaps an oversimplification, but games and rewards are heavily embedded in our social fabric and hard-wired into our psyche as a way to engage, motivate and teach.

Family businesses spend an extraordinary amount of time and capital (financial, human and intellectual) on skill building and education within the family system. Rising members of the family system must master many different skills. Some of these skills can be taught in a classroom or online, but others must be supplemented with experiential learning.

With families increasingly scattered across the globe, family leaders must find a way to entice all generations to work cohesively to further their common interests. Games, at their core, are among society's most powerful forms of communication and entertainment. Incorporating games into the educational process may be a way to increase engagement and foster community across generations and continents.

Researchers have found that three basic psychological needs can be met through games. First, there is the desire to seek control or gain mastery over a situation. We like to feel that we are succeeding and gaining competence. Next is the concept of "autonomy," or the desire for control over our actions. We don't like to be manipulated. Finally, there is the need for "relatedness." We want to matter to others and to contribute to society.

The power of games

The business world is aware of the psychological power of games. Companies have been adding games and prizes to their marketing and customer loyalty programs for years—consider S&H Green Stamps, prizes in Cracker Jack boxes and airline frequent-flyer programs. Today, game elements are increasingly being incorporated into workplace learning and internal employee functions.

The use of games—or, rather, the application of game elements to non-game contexts—has been referred to as the "gamification" of the workplace. In laymen's terms, this means using the elements we associate with games as motivational tools.

Points are a basic element of game design and can provide a context for measuring performance. Badges work to showcase larger accomplishments, such as completing a series of tasks or mastering a new skill. They are a visual reminder of our achievements. Leaderboards can awaken participants' competitive instincts or, in a team situation, can create a sense of community.

Technological enhancements

Game elements become even more powerful when augmented with technology. Incorporating real-time data analytics, mobile or cloud-based platforms, or social media elements can foster communication and a sense of play. Just as traditional games have been used for millennia to bring friends together, gaming in a virtual environment unites large groups of people.

Corporations have used digital games as a way to build and solidify brand loyalty for the last two decades, as the Internet became a more pervasive means of customer interaction. In fact, some social media firms are based entirely on game-playing to drive business revenues (think FourSquare).

Companies are now using games to motivate and engage employees, sometimes for learning initiatives but also to stimulate innovation and enhance teamwork. The Gartner research firm estimated that some 70% of companies would use gamification techniques for at least one business process by 2014. Deloitte estimated that revenues from gamification initiatives would grow to more than $2.8 billion by 2016. These methods are used in applications such as FitBit and Salesforce.com, as well as the badges and points on almost every social media platform.

The gamification of family education

Family enterprises are beginning to incorporate elements of games into their social media communication and family portals. "Gamifying" your family website does not need to be overly high-tech or very expensive in order to be effective. One family, for example, populated their dedicated private Facebook page with simple quizzes about current events related to the family's operating business (such as news articles on deals within the industry and market trends affecting profitability), tracking responses using a leaderboard on the page.

Another family used a shared Evernote library, supplemented with emailed Survey Monkey questionnaires, as a way to share news articles and generate discussions among family members on topics of interest, especially leading up to shareholder weekends. At family reunions, the leading scorers on surveys and those publishing articles to the shared libraries were acknowledged for their participation and success through prizes and pins that they proudly displayed throughout the weekend. While a minor activity, this simple game enabled the younger generation to be recognized at a broader family function; provided a low-cost, yet fun, educational tool to encourage discussion about the impact of broader market forces on the operating business; and challenged other family members to begin engaging more in the online community that had developed. The families noticed that the content of the Facebook posts began to shift from chatty updates on family news to links to relevant articles. Essentially, they had "crowdsourced" their family educational effort across the entire family system.

Yet another family circulated Survey Monkey quizzes and news articles on their SharePoint sites, coupled with emailed leaderboards comparing participants' performance on the quizzes and badges awarded for reading and commenting on news articles. They found that these innovations not only increased family participation broadly but also uncovered a desire for online learning. In response, they began enrolling family members in several Coursera and Khan Academy classes aimed at bolstering financial acumen. Over time, they developed a database of materials from these courses and posted it on the family website. By tasking "rising leaders" with the job of maintaining the database (and reviewing the online content), they were able to provide leadership opportunities to family members who did not yet have enough experience to take on more "traditional" leadership roles in the afmily office and business.

Other families have begun to explore the gamification of their family history or business information to educate and engage younger members. In essence, they are moving from an external piecemeal approach, using Survey Monkey quizzes and manual leaderboards, to exploring formal online educational tools. Families with very large shareholder groups are starting to work with software developers, like Bunchball and others in the gamification space, to create a more robust online educational programming tool incorporating quests and games.

Many financial advisers and consultants are moving to the gamification space as well, developing more robust suites of tools to engage younger family members. Reading pages of family history or poring through financial statements is certainly more fun when you are competing with cousins for points or prestige factors.

While there are several firms devoted to gamifying business processes, the application of this trend to the family business arena is still in its nascent stages. Proposals to add gamification elements to an existing database of family educational material can be pricey if proper parameters for the project are not given to the technology team but often are reasonable in the context of a shareholder budget. However, even adding basic gamification elements to the usual tools employed in consulting or family educational events can have a profound impact collaboration and engagement.

Perhaps your family should consider adding gamification elements to your annual family retreats and educational symposia. If you do, you may find that your cousins who are glued to their smartphones are not playing on their own—they're comparing pieces of family memorabilia they found during the scavenger hunt or studying the family firm's balance sheets. You never know where games may take you!

Holly Isdale is the founder of Wealthaven LLC, a family business consulting firm specializing in ownership transitions, private trust companies and governance. Wealthaven also operates outsourced family offices (www.wealthaven.com).

Copyright 2015 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.

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A family war that involved external and internal factors

I recently read War at the Wall Street Journal, by Sarah Ellison (Houghton Mifflin Harcourt, 2010), a wonderful tale of modern family warfare. It’s an easy-to-read, gripping story about a very large family that couldn’t get its act together. Rupert Murdoch wanted to own Dow Jones, publisher of the Wall Street Journal. Dow Jones’ owners and executives didn’t want him to have control.

Most people read this as another Wall Street hostile takeover of a corporation. It occurred during a time of national financial crisis, coinciding with huge technology threats to Dow Jones’ future.

The largely fourth- and fifth-generation descendants of Clarence Barron, the patriarch of the Bancroft family, who had purchased Dow Jones in 1902, found that the very carefully developed and managed network of trusts and mechanisms they had set up to ensure perpetuation of their control did not hold up.

• None of the family branches had a strong leader.

• Attempts to develop a united family strategy proved fruitless.

• Serious dissension with non-family company executives erupted.

• Several non-family outside directors opposed the family’s desires.

• There were battles with both family advisers and company advisers.

• Intergenerational battles within the family added complications.

• Views among trustees of the various trusts conflicted.

Of vital importance: Freeing the prisoners

Families and businesses accumulate prisoners. A lot of this begins with a familiar parental mantra—all children should be treated equally—that is translated into equal ownership shares in the family business.

The kids move on in age, maturity, interests and abilities. They marry, relocate, develop relationships of various types with siblings or cousins, and sometimes divorce and remarry or otherwise accumulate extended family members. Meanwhile, in many cases, there is no provision that permits them to turn the shares into capital for other uses. They are trapped. The shares were intended as a loving gift to them and as motivation for the family to stay close. But many of the variables listed above produce resentful prisoners.

Ellison, a veteran reporter (including time at the Journal), summed up what happened at Dow Jones: Barron’s continuity arrangements for the Journal “ensured later generations of the Bancroft family were bonded together, however reluctantly or tentatively. Without it, the Boston-based clan would feel like just another rich family, a status the elders in the clan were reluctant to embrace. As the generations progressed, their relationships grew ever more tenuous. Murdoch’s money would allow them to be rid of one another.” The released prisoners were Barron’s great-great-grandchildren.

Trust funds can be gilded cages

Our society has had huge benefits bestowed by well-crafted and well-administered trusts. Problems occur when they incorporate limits that constrain adjustment to changed circumstances. Usually the well-intentioned aim is to protect a business or institution or its interests or heirs from risks, or to minimize taxes.

Barron’s trusts could not control his granddaughters’ progeny: One had two children; another seven. After another generation, some family members held large amounts of company stock; many did not. Some were pleased with the trustees who handled their affairs; others were resentful. Trustees’ views of their responsibilities to the family varied. Some trustees had been in position for decades. It’s not surprising that younger ones didn’t always share their views.

Forces beyond family control

Before her death in 1982, Jessie Cox, Barron’s iron-willed, colorful granddaughter, decreed the family would “leave the business to the professionals.” Family control was via the board. Directors included family members, their attorneys and trustees. That protection from Wall Street raiders had allowed the management to take the long view after World War II.

When Dow Jones went public, it adopted the model of other families. Two classes of stock guaranteed absolute family control. At its 1982 centennial, the firm was the highest-profit, fastest-growing company in its industry. With an outside board, a NYSE stock listing, and firm family support, the firm was fully “in the hands of the professionals.” Family control enabled management to fend off unwanted suitors.

Years passed, competition in-creased, the Internet enabled new competition and the family aged and grew. The board worked with family advisers, providing sufficient dividends to tamp down dissatisfaction. Gradually, profits fell, the stock price fell and competition grew. One report had the dividends at 50% of profits. The management complacency was stirring internal revolts. When Rupert Murdoch first talked with the staff after his takeover, he said, “In the last five years, circulation has dropped 25%. We have to make some changes.” The family’s protection had become a curse.

What’s in all this for us?

A book like this can be a wonderful tool for opening up discussions of subjects often avoided, especially between generations. Invite family members who signal some interest to read the book; then follow up with those who actually do read it. It’ll be a lively discussion about a good book. It will likely create some discomfort among older participants. (“I had no idea you felt that way!” “Well, you never asked me before.”)

Those of us with strong attachments to family businesses and their great value to the community always feel a twinge at the departure of one that did so well for so many for so long. But the workings of the economy are beyond our control. Knowing when it is time to go, and letting go with fairness and grace, are not easy.

At the family level, many prefer to work at being part of a family and business that contributes positively to many constituencies. They’re seeking not to be “just another rich family.” They’re proud of all the jobs they’ve created, and of their work with other firms and institutions to develop and maintain their community’s special characteristics and culture. If the situation finally does require them to surrender their position, they, and many others, regret that it became necessary.

The Bancrofts’ consolation prize was that their $35 shares sold for $60. I suspect most of them decided they could live with that.

James E. Barrett (jebcmc99@comcast.net) heads the family business practice of Cresheim Inc. in Philadelphia.

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The hidden history of Maybelline

If Mabel Williams hadn’t singed the hair off her eyebrows and lashes in a 1915 kitchen fire, there would be no Maybelline eye makeup today. Using a technique she had read about in Photoplay, Mabel mixed ash from a burnt cork with coal dust and Vaseline, then applied it to the missing brows and lashes. One of her brothers, Tom Lyle Williams, was fascinated by Mabel’s concoction and the way it enhanced her eyes. Tom Lyle, a movie buff, realized at that moment that glamour in those early days of Hollywood radiated from actresses’ eyes.

Out of this inspiration a billion-dollar business was born. Tom Lyle—a country boy from western Kentucky who had moved to Chicago to seek his fortune—set out to replicate Mabel’s product, at first with a friend’s chemistry set and then, after the first efforts failed, with the help of a chemist from drug manufacturer Parke-Davis. The product, initially dubbed “Lash-Brow-Ine,” at first was sold by mail order through magazine ads. It was eventually reformulated (after a government crackdown on the ads’ claim that it stimulated brow and lash growth), and the company was named Maybelline in Mabel’s honor.

Today, of course, Maybelline is a household name, and the business—which Tom Lyle sold to Plough Inc. in 1967 and was later acquired by L’Oréal USA Inc.—made the Williams family rich. Yet their fortune couldn’t shield them from discord, heartbreak and tragedy.

Tom Lyle’s grandniece Sharrie Williams, with assistance from publishing entrepreneur Bettie Youngs, has brought her family’s long-hidden story to light in a new book, The Maybelline Story and the Spirited Family Dynasty Behind It (2010, Bettie Youngs Books, www.BettieYoungsBooks.com; 384 pp., $16.95). Her page-turner tells the tale of the inspired founder and his loving yet fractious family. It describes how Tom Lyle’s resilient company faced adversity again and again, bouncing back and growing stronger each time. It also examines society’s changing views of women and beauty, and how money can affect family relationships.

Sharrie Williams, 63, recently spoke to Family Business by telephone from her father’s waterfront condominium in Newport Beach, Calif. Tom Lyle “was the joy of our lives,” she says. “We adored him—being in his presence, listening to his wisdom, seeing the joy in his eyes.”

Little had been known about Tom Lyle before Sharrie’s book was published; in fact, as of March 2011 Maybelline’s Wikipedia entry stated, “The Maybelline company was created by New York chemist T.L. Williams in 1915,” though Tom Lyle was neither a chemist nor a New Yorker. The pseudoscientific claim that mascara would enhance eyelash growth was promoted to bring respectability to the product in an era when “beauty was not a virtue,” Sharrie explains. In 1924, Maybelline ads featuring wholesome silent film star Mildred Davis targeted young ladies who feared makeup would tarnish their image.

Maybelline’s sales actually rose after the 1929 stock market crash (because of its low-priced products, prominent advertising and innovative waterproof makeup). But as the Depression dragged on, eye makeup began to fall out of favor.

In late 1931, Tom Lyle’s fortune disappeared when Chicago Guaranty Trust failed, according to Sharrie’s history of the company. Tom Lyle kept his business afloat via a $30,000 loan from advertising executive Rory Kirkland, which he used to form a distribution network and shift sales of Maybelline products from mail order to drugstores. During World War II, the company released patriotic-themed ads and continued to thrive. Later, Maybelline would become the first cosmetics company to advertise on television.

During Sharrie Williams’ formative years, her views on fashion and beauty were heavily influenced by her grandmother, the alluring and narcissistic Evelyn Boecher Williams—“my stage mother and biggest fan,” as the author describes her. Sharrie was five years old when Evelyn first put Maybelline cosmetics on her face.

To Evelyn, image was everything. “My grandmother was caught up in the illusion and the vanity, the grandiose expectation of how the family should look and act,” Sharrie tells Family Business. “It wasn’t that you were loved unconditionally; my grandmother had a lot of conditions. You had to look a certain way.”

Evelyn married Tom Lyle’s brother Preston—though Preston was married to another woman when they met and wasn’t free to wed Evelyn until after the birth of their son (Sharrie’s father, Bill). Tom Lyle, too, was captivated by Evelyn’s glamour. Preston took her to speakeasies and gambling dens, while Tom Lyle escorted her to elegant events.

“Tom Lyle and Preston held an almost preternatural sense that Evelyn embodied their other halves, while Evelyn split herself in two to accommodate their love,” Sharrie writes.

There was a twist to this love triangle. Although as a teenager Tom Lyle had fathered a son—Cecil, who changed his name to Tom Lyle Williams Jr. and eventually came to work at Maybelline—by the time he met Evelyn he had become conflicted about his sexuality. Tom Lyle adored Evelyn and treasured the idea of family. (He put numerous family members on the Maybelline payroll, though some, like Preston, did little actual work.) But Tom Lyle’s lifelong partner was a man, Emery Shaver, whom he had met before he invented Lash-Brow-Ine, when both worked at Montgomery Ward. Emery subsequently joined Maybelline and created the company’s ad campaigns.

Few people knew the true nature of Tom Lyle and Emery’s relationship, which lasted for 55 years, Sharrie notes in her book: “In public, Tom Lyle preferred to be associated with the female stars he signed for magazine ads.”

According to Sharrie, a faction in her family “was not excited about this book being written” because they didn’t want to publicize Tom Lyle’s sexual orientation. Those family members undoubtedly cringed upon reading the New York Post’s brief writeup on the The Maybelline Story (Sept. 24, 2010), which bore the sensational headline, “Cosmetics King’s Secret Life.” 

Sharrie says her research for the book—which is rich in reconstructed and imagined dialogue—included poring over old letters, divorce depositions and legal documents. She also had the advantage of having lived among the characters. She knew how they spoke and how they viewed the world—especially Evelyn, who “was a very, very good story-teller.” Sharrie had hoped her grandmother would write an autobiography.

“This book has been in the works for 30 years—since my grandmother died,” Sharrie says.

Evelyn and Preston’s relationship was troubled from the start. Preston, a World War I veteran who suffered from post-traumatic stress, drank too much and was prone to rage. After a stay at the Mayo Clinic for stomach pains, he traveled to Los Angeles, ostensibly to recover in warm weather, leaving Evelyn and his son behind. While in California, he worked briefly on film sets, drank and caroused heavily. He also took up with an Argentinean woman who spoke very little English and, unbeknownst to Evelyn, had a son with her. (Tom Lyle supported his brother’s mistress and her baby with Maybelline money.) Preston and Evelyn had several cross-country reconciliations, most orchestrated by Tom Lyle; she eventually joined him in California. Though their reconciliations were short-lived, the couple remained married until Preston’s death at age 37 in 1936. 

Tom Lyle and Emery, who first visited California at Preston’s urging, moved there permanently in 1934 to live in privacy. Congress had drafted two bills to scrutinize the cosmetics industry and purge it of “homosexual influences.” From Los Angeles, Tom Lyle sought new stars to model Maybelline cosmetics, while his brother Noel and ad man “Rags” Ragland ran the company from Chicago.

In late 1950, Maybelline—by now the world’s largest private cosmetics company—was threatened by the specter of a government investigation under a new anti-monopoly law. Tom Lyle also feared his lifestyle would become fodder for the House Un-American Activities Committee. He responded to the threats by restructuring Maybelline and creating a second company, Deluxe Mascara, that would be run as a separate business to handle mascara production, with Mabel’s husband, Chet Hewes, as the sole owner.

After Noel died in 1951, Tom Lyle incorporated Maybelline and named his family members as stockholders. In 1954, he gave each family member preferred cumulative stock in the Maybelline Co., raising their annual dividends.

When Noel’s son Allen declined the offer of an executive position at Maybelline, Tom Lyle feared a power shift because Ragland had three college-age sons, according to Sharrie’s account. Tom Lyle instituted a policy to prevent any family members—his or anyone else’s—from entering the business, with the exception of Chet and Mabel’s son at Deluxe Mascara. Thus, the family’s fate was sealed.

When Emery Shaver died in 1965, Tom Lyle fell into depression and decided to sell Maybelline. After the 1967 sale of the company to Plough Inc., the founder—who “never bought anything he couldn’t pay for on the spot,” according to his grandniece—wrote letters to his family urging them to invest conservatively. They didn’t heed his warnings. “Existence for the Maybelline heirs became a consumer free-for-all, a feeding frenzy,” Sharrie writes. When Plough merged with Schering, each stockholder received 1.32 shares of Schering for every share of Plough, making the family even wealthier. 

Noel, Mabel and other members of the Williams family had stable, long-term marriages. But Sharrie Williams’ parents, Bill and Pauline, had a tumultuous relationship that echoed that of Bill’s parents, Preston and Evelyn. Pauline, whose father ran the construction department and other units at MGM Studios, met Bill Williams in high school. Many factors lay behind their unhappiness: Evelyn’s disapproval of Pauline, Pauline’s depression and pill-popping, and Bill’s drinking and philandering. Although they renewed their vows two times, their marriage ended in an acrimonious divorce. (Bill, who according to his daughter was pursued by “gold-digger women,” remarried twice.)

Pauline died last September, as her daughter’s book was being released. “It’s safe to say she was a casualty of the Maybelline empire and dynasty,” Sharrie writes.

Two generations of dysfunctional family dynamics took their toll on Sharrie, who lived with her grandmother for a time while auditioning for modeling and acting jobs. Struggling to stay thin and win Evelyn’s approval, Sharrie took diet pills by day and, to counter their effect and get to sleep, pain pills at night. Grandmother and granddaughter’s relationship, as Sharrie describes it, was marked by explosive arguments, cutoffs and rivalries.

“When I started writing the book, I had a lot of resentment” stemming from the family’s stormy relationships, Sharrie tells Family Business. The writing process helped her to see things from her relatives’ point of view, she says. “I had to develop the characters to the point that I understood them.” 

Tom Lyle—who never participated in his family’s feuds and gave generously to anyone who requested a favor, as Sharrie tells it—died at age 80 in 1976. Sharrie suspects he never got over the relinquishment of his company. Things might have been different, she speculates, if more next-generation members had been encouraged to attend college and work at the company. “This is the story of people who never really worked for their money,” she says.

Family members used money and threats of disinheritance as a form of control, Sharrie says: “To them, money was love.” What’s more, she says, “A lot of the problems came from too much closeness, not enough boundaries, too much intensity.” Her generation was not encouraged to develop as individuals, she notes.

What’s striking about the many family feuds in the book is that they were all followed by reunions. “We may have arguments, but we always make amends and get back together,” Sharrie says. “There’s always a feeling of love.” 

Evelyn’s susceptibility to flattery and male attention led to a series of bizarre events that ultimately, according to her granddaughter’s account, caused her death. She took up with a mining executive named Warren Deuel and waited years for him to divorce his wife. Deuel died in a car accident in 1954, only a few years after they finally were married; Evelyn spent years fending off his creditors, Sharrie writes.

In the 1970s, after a feud with her son and several of her grandchildren, Evelyn drew close to her stylist, a man named Danie King who had performed with Liberace. King introduced her to Charles Harrison Dimmick, known as Harry, who was 12 years younger than Evelyn. After five weeks of courtship, they were engaged without a prenuptial agreement. Shortly after their marriage, Evelyn and Harry moved to Hot Springs, Ark., along with a woman named Melinda whom Harry called his stepdaughter. Evelyn changed her will, leaving everything to Harry and naming him trustee of her fortune, and gave him money to start a business that included a roller rink. As Sharrie tells it, Melinda—who had moved in with the couple and accompanied them on their honeymoon—drugged Evelyn before the papers transferring her trust account were signed.

Evelyn came to suspect Melinda and recognize that Harry had embezzled her money, according to Sharrie’s account. She hired a Hot Springs attorney, Peter Petrouski, to represent her. Petrouski suggested she return to California—and asked for her Arkansas estate as payment. He also suggested she hire a shady bodyguard. After more questionable and expensive demands, Evelyn became suspicious and returned to Hot Springs to fight her case with a new attorney. At her insistence, though, stylist Danie King accompanied her there. King had suggested that she build a business promoting herself as “Miss Maybelline.” 

At the trial, Sharrie recounts, Evelyn’s attorney revealed that Harry, who had served time for multiple felonies, had been married seven times and that Melinda, in addition to being his stepdaughter, was wife number six. (Her mother, wife number five, had disappeared without a trace.) Evelyn was awarded a divorce and return of her property. But she refused to listen to warnings that Danie King, too, might be after her money.

Evelyn named King manager of the Spa City Roller Rink and started referring to him publicly as her “nephew.” He arranged speaking engagements for her and promoted the roller rink, which became very successful. The pair planned to transform the rink into the Palace Dinner Theater. But one day in 1978, as construction was progressing, Evelyn found a letter from King detailing a plan to turn the Palace into a gay bar, Sharrie recounts. Right before the theater opened, she caught him with men and began plans to cut him out of her will and their business partnership.

The theater’s grand opening, featuring country star Conway Twitty, was March 1, 1978. The next day, Evelyn’s house burned to the ground—while she was inside. Her body was found by the front door. The doorknob had come off in her hand; family members suspected it had been loosened, though King told authorities it had always been loose. Thirteen of Evelyn’s wigs were lined up on the front porch—a sign, the family believes, that the fire had been set intentionally.

According to Sharrie’s account, detectives said there had been two fires, but because a cooking pot had been left on the stove, they couldn’t prove arson. A homicide investigation was not conducted. Danie King returned to Newport Beach and “would soon disappear altogether,” Sharrie writes. 

Sharrie’s father, Bill, who died in 2006, opted not to pursue his own investigation, which would have drawn public attention to the lurid details of the case, Sharrie says. “He didn’t want to put any negative spin on the Maybelline name,” she explains.

Evelyn’s will bequeathed the Palace and all the property inside it, plus the land on which she had planned to build a spa and a six-acre lakeside estate, to her grandson, Preston (Sharrie’s brother). Evelyn had left Sharrie and her sisters cash and stock, but after creditors were paid, the money was “effectively wiped out,” Sharrie writes. Danie King received $45,000 and 25% of the Palace. Shortly after the memorial service, Evelyn’s ashes were stolen from her mausoleum.

Coincidentally, Sharrie’s Laguna Beach, Calif., house was destroyed by fire in October 1993, laying waste to three generations’ worth of memorabilia. As she writes in her book: “Fire gave, and fire took.”

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A non-family CEO in the driver's seat

Ernie Silvers was sitting in his office at Egge Machine Co. one day in 2005 when his boss, company owner Bob Egge, walked in. Silvers, who at the time was vice president and general manager, chatted with Egge about the daily operations of the company’s business: making pistons and valves and reselling engine parts.

Then, out of the blue, Egge said, “‘You know, you’re kind of running things here. I’m going to change your title to CEO,’” Silvers recalls. There was no formal interview. “It wasn’t a question,” Silvers says, and there wasn’t much discussion, either. “Bob is not a big talker. I asked, ‘Gosh, are you serious about this?’” Egge was serious, and Silvers has been running the company—owned by Egge, now 56, and his sister, Kathy Weaver, 57—ever since.

It may seem surprising for an owner who is involved in a business to give up day-to-day control to an outside CEO. Indeed, Egge calls turning over the reins “one of the hardest decisions of my life.”

But ideas about hiring an outsider have changed in recent years, says family business consultant Leslie Dashew. “The whole notion of keeping the business in the family without running it is acceptable,” Dashew says. “People have started to differentiate the role of owner from manager.”

The story of how and why Egge gave up daily control of his company illustrates the succession planning challenges faced by many family businesses, particularly small ones.

An adaptable company

In 1915 Egge’s grandfather Edward N. Egge founded a car and tractor repair business in Texas. He moved the company to Los Angeles in 1923 in hopes that he could do more business in an area with more cars. His two sons—Bob Egge’s father and uncle—joined him in the business, which expanded to making pistons.

World War II changed the business in several ways. The company couldn’t make pistons because the aluminum was needed for the war effort. Fuel rationing limited how much people drove, so demand for car parts fell. Egge’s father, Nels, who had had polio and couldn’t join the military, kept the business going by making parts for the Navy and repairing engines while his brother, Edward, served in the Coast Guard.

When the war ended, there wasn’t enough business for both of them. Edward had learned to repair boat engines in the military, so he started Egge Marine and continued in business selling parts for boat engines. (The company still operates in Long Beach Calif.) Nels kept the auto side of the business, making pistons and reselling old engine parts.

By the late 1950s, “my dad was buying parts wherever he could: at auctions, at stock buyouts,” Bob Egge says. “We’d buy valves from different people, rings, gaskets, bearings.”

“What for us is current inventory is old inventory for other people,” Weaver says. “Our dad had a great knack for finding excess inventory—that’s what we’re built on. He didn’t want to deal with paperwork; he liked the machine shop.”

By 1972, all that excess inventory was too much for the space they had, so Egge’s father moved the company to a more spacious location in Santa Fe Springs, Calif., where it remains today.

Both Bob Egge and his sister, Kathy, fell into working for the company. They grew up with it, Kathy helping her mother, Bettye, with the books and Bob working with his father in the shop.

“We got paid $5 a day,” Kathy Weaver says. “We had an appreciation for the work that went with money.”

“My dad would buy parts wherever he could, and on weekends and evenings we’d sort out parts, renumber them at home in the garage,” Egge says. “I started to even come to the shop on Saturdays, sweeping floors and cleaning out machines. I liked it. I still like being around the machines.”

Weaver planned to become a teacher but ultimately, after she had children, started working part-time with her mother. Gradually she ended up as the company’s bookkeeper, a position she didn’t leave until just a few years ago.

Their parents “didn’t talk too much” about their expectations for their children as far as the company went, Egge says. Rather, he says, he “kind of assumed” he’d run the business as his father had. “My dad and I worked side-by-side for many years in the shop.” However, Egge acknowledges, I wasn’t that much involved on the business side of it.”

When Egge’s father retired in 1994, he and his sister took over the business. Egge focused on manufacturing, his sister on finances and his sister’s husband, Craig, on business issues. Egge and Weaver’s parents died in 1999 and 2003, leaving them the sole owners of the company. Egge owns 51% and Weaver 49%.

After about a decade of this arrangement, Weaver’s husband left the company. He and Egge had very different work styles. “Working in a family business, certain compromises are made that create stressful situations in both the business and the family,” Craig Weaver says. “I felt it was time to move on.”

Much of the work he had been doing fell to Silvers.

Silvers had started as the company’s sales manager in 1995 after spending time in the military, working with his own father in his father’s trucking business, and holding a series of other jobs in the automotive aftermarket industry. During his time at Egge, he completed an undergraduate degree and got an MBA. He was promoted several times before becoming CEO in 2005.

Challenging times

Today, Egge sells pistons, valves and other engine parts mostly for cars from the 1950s and ’60s, though the company has parts for engines going back to 1896 and made as recently as the 1980s. Most of the company’s customers are businesses such as auto repair shops, engine rebuilders and restoration shops. About 80% of the company’s business is wholesale. Only a small number of its sales come via its storefront; most orders come via the Internet or phone.

Among the company’s 38 employees is one of Egge’s sons, Daniel, 24, who programs the computerized lathes the company uses to manufacture the pistons and valves.

The business is larger and more complex than it was when Egge’s father was running it. Weaver says she doubts she and her brother could have kept the business sustainable through the recent recession if they hadn’t had professional management. “Bob and I still feel a responsibility for the employees, to keep them employed,” she says. “We know to do that, the business has to keep going.”

This type of challenge is not uncommon among family businesses, advisers say. For one thing, even if the children or grandchildren of a founder are just as capable and engaged in the business as the founder was, times change.

“People change, and markets change,” says Dennis Jaffe, a family business consultant and a professor of psychology and organizational systems at Saybrook University in San Francisco. A family may own a store that is suddenly challenged by the opening of a Walmart nearby. A manufacturing business may face competition from China where costs are less.

A family member who takes over the business must learn not only how to run the business but how to “really change it if it’s facing difficulty,” Jaffe says.

For Egge, naming Silvers CEO seemed a logical choice. “He was doing most of that work. We decided to just make him CEO,” Egge says. “He developed into that position before we did it.”

That’s didn’t make it easy, though.

“You feel like you lose control,” Egge says. “I still own the place, but I’m working for him.”

But Egge says he realized that his preparation and personality were not well suited to leading the company through challenging times to growth. “People are not my forté,” he says. He attended junior college and got two associate’s degrees, one in manufacturing and the other in business management. “What I learned in college, by the time I needed it, I’d forgotten most of it,” he says. “I always worked in the shop. I never did that much to run the business.”

Weaver, who discussed the decision with her brother before he made it, says it was clear that running the business wasn’t really what her brother wanted to do. “He’d just as soon be in the shop or behind the scenes,” Weaver says. “Dealing with banks, vendors, publicity and the schmooze factor that needs to come in at that level—he had no desire to do it, yet it’s a necessary skill to run a business.”

Still, Weaver says, she could see how difficult it was for her brother to give up control: “It meant he had to admit that he couldn’t lead the company that had his name on the door.”

Hiring an outsider to run the company is not without pitfalls. “An outside person who’s hired to run the company doesn’t care about it the way the family does,” Jaffe says. Not all CEOs are successful, whether they’re running a family business or a publicly traded company. A poor CEO can harm the business; a good one is at risk of being hired away by a competitor in a way that a family member would not be. “There are all kinds of challenges to even having a good outside person,” Jaffe says.

Egge and Weaver, though, believe that for their company, the change has worked out well.

Silvers “has all the skills that Bob and I both lack in running a business,” Weaver says. “He’s able to make the hard decisions dealing with people and money and cutbacks. He has some vision of how to grow things.”

Egge says Silvers’ expertise has been especially helpful in getting through the recession. When the company was considering staff cuts, for example, Silvers decided to use a work-share program that allowed employees to work reduced schedules and receive some government assistance.

Today Egge runs the warehouse and consults on repairs and electrical work. “I do a lot of research on parts—stuff that we’ve bought over the years that has just been sitting here on palettes,” he says. “It’s what I grew up doing, and I enjoy it.”

Silvers talks with Egge at least each week, often more frequently. The company’s board, which meets quarterly, consists of Silvers; Weaver and Egge; Egge’s wife, Judy, and Weaver’s husband, Craig. An outside financial adviser occasionally attends board meetings and offers advice as well.

Silvers says Egge “is there every day, but he’s not overly involved. He keeps apprised of what’s happening but doesn’t have a direct hand in it.”

Both Silvers and Egge says they have a good working relationship.

“My job is to be the fiduciary of his organization and make sure he knows full well what’s going on and that I’m in line with him,” Silvers says. “Part of my responsibility is to make sure there are no surprises.”

Does Silvers regret working for a company where he has no ownership stake? “Oftentimes I’m asked, why don’t you start your own company?” Silvers says. “I may well do that. But right now I have this responsibility of piloting this 95-year-old company for the owner while they’re sorting out how it’s going to transition to the next generation.”

Future plans

The partnership with Silvers has kept the business going so far. But the long-term future is less clear.

Weaver says the current plan is for her two children to eventually split her share of the company. But since neither is interested in the business, she is considering alternatives, including selling her share.

This is a common scenario for family businesses in which one owner works for the company and the other does not, consultant Dashew says. “A lot of times,” she says, “businesses have just the vision of the founder or his successor. There’s no shared vision. This can end up with one family member saying, ‘Let’s sell,’ and one saying ‘Let’s keep.’”

Weaver knows, though, that things can change. “They’re all still too young to know what they really want to do,” she says of her children and her brother’s, all of whom are young adults.

Egge has four sons and a daughter. He has talked to all of them about the business, but four of his children are pursuing their own careers. It’s too soon to know whether Daniel Egge, who programs the company’s computerized lathes, will run the business someday.

“I’d like to always be involved in the company,” Daniel says. “I don’t know if I’ll be actually making the day-to-day decisions.” He says he prefers doing hands-on work to a desk job—but he realizes his preferences may change. “I want to make sure I’m prepared for whichever way I go in the future,” he says.

Bob Egge says he has discussed the situation with his son: “I’ve said, ‘You’re not getting the business until you get a four-year degree.’” Egge says he felt his lack of a four-year degree had hampered him. His son is currently taking courses at a two-year college.

“I’m not sure if he actually wants to run the business,” Egge says. “He’s like me—he likes the machines. We haven’t gotten that far yet.”

Silvers says he is encouraging Egge and Weaver to work on a succession plan.

“That’s one of the more difficult things for me to implement. I just sort of hold it together until the family decides how they want to do it,” Silvers says. He does have one piece of advice, though: “I think owners’ kids—and I have been one myself—need to have the opportunity to figure out: Do I really want to be here?”

Margaret Steen is a freelance writer based in Los Altos, Calif.

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Community ties

Family businesses are often referred to as “the backbone of a community”—and for good reason. According to 2003 research by Joseph Astrachan of Kennesaw State University and Melissa Shanker of Loyola University Chicago, family businesses contribute between 29% and 64% of the U.S. gross domestic product (depending on how broadly “family business” is defined) and employ between 27% and 62% of the U.S. workforce (J.H. Astrachan, M.C. Shanker, Family Business Review, vol. XVI, no. 3, September 2003).

 

But such data paint only part of the picture. In communities from Albany to Yuma, citizens rave about the service at family-owned stores and restaurants, and businesses cherish their connections with family-owned manufacturers and contractors. Family business owners are reliable contributors to charities. The names of prominent business families are etched on hospital wings, university buildings, theaters and other regional landmarks.

 

In this issue, we celebrate family businesses’ connection to the community, and family business leaders’ special status within their hometowns. In a two-part feature on business owners and the media, longtime family business journalist Sharon Nelton shares her insights on talking to the press (page 63), and Phil Yacuboski offers advice on addressing the media when your business faces a crisis (page 66).

 

We also examine the challenges confronting family business leaders who choose to be politically active. On page 47, Patricia Olsen explores how two business owners balance their devotion to partisan causes with their business mission to serve a diverse market, and how they find time for activism while running a company. On page 50, Bennett Voyles profiles Michael and Steven Roberts, who control a multifaceted $820 million enterprise in St. Louis. Both Robertses have served on the St. Louis Board of Aldermen, and both have run for mayor. In their case, business opportunities arose from their political work—not the other way around.

 

Other features focus on innovative ways of promoting a business to people in your region. Ray Lope and John Sullivan of Wm. Sullivan & Son Funeral Directors in Michigan describe how they got the community involved in their business’s 100th anniversary celebration (page 54), and Scottie Mayfield of Mayfield Dairy Farms in Tennessee explains how he’s created a community of loyal customers through his blog (page 57). And in this issue’s Survey column, Jayne Pearl talks to six business owners about the charitable causes they support (page 69).

 

When your family name represents a business that people trust and respect, you have a big responsibility. You also have a tremendous marketing advantage. The business literature offers many excellent examples of how to make the most of it—and the tabloids show what can happen when a relative doesn’t get the message.

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Family control

Ever since the Rigas family’s criminal self-dealing at Adelphia Communications Corp. became front-page news in 2002—at the same time that scandals at Enron and WorldCom were making headlines—family-controlled public companies have received as much media scrutiny as their non-family corporate counterparts.

 

In the past year, several family-controlled companies’ dual-class stock structure—in which members of the controlling family own a small portion of the total stock but have most of the voting power—has been a subject of controversy on Wall Street. Ford Motor Co., the New York Times Co. and Dow Jones & Co. (which on July 31 agreed to be bought by News Corp.) all have been criticized for allegedly insufficient consideration of minority shareholders’ interests.

 

There’s no question that opening ownership to the public can help a company to grow and the controlling family to prosper. Just ask the Waltons, Robertses and Tysons, proprietors of Wal-Mart, Comcast and Tyson Foods, respectively—to name just a few families who have reaped the benefits of such arrangements. But, as reporter Deanne Stone notes in her profile of the Koss Corporation in this issue, going public involves disclosing information that a family might prefer to keep under wraps. “If you’re not comfortable in the spotlight, this is not where you want to be,” Michael Koss, president and CEO of the stereophone company, tells Stone.

 

This issue of Family Business also features a comprehensive analysis by longtime contributor James E. Barrett of dual-class stock arrangements. In addition, we focus on a governance mechanism that can help bring prosperity and harmony to all family firms, regardless of ownership structure: the family council. Charlotte Lamp, a third-generation shareholder in Port Blakely Companies in the Pacific Northwest, describes her family’s diligent six-year effort to establish a family council that has strengthened the business and unified the family. In another insightful feature, Dirk Jungé of Pitcairn discusses how the establishment of a family governance system can help prevent conflicts over the family’s wealth.

 

That’s not all you’ll find in this edition. Tom Durso profiles family business women who are succeeding in industries typically thought to be the province of men, and Sandra Westlund-Deenihan, president of Quality Float Works in Schaumberg, Ill., tells of her rocky road to family business succession. Advisers G. Scott Budge and Geoffrey N. Irvine discuss the role of real estate in a business family’s wealth portfolio. And Dave Donelson tells the story of Massachusetts-based Charles River Apparel, whose family owners have built their company one relationship at a time.

 

As the articles in this issue demonstrate, no matter who your shareholders are or how your ownership is structured, sound management is the key to your company’s success.

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Growing large, staying in charge

Most people who aren’t involved in a family firm equate “family business” with a mom-and-pop shop. They don’t realize that huge private enterprises like Cargill and Koch Industries are also family businesses, and so are giant public companies like Wal-Mart and Comcast.

 

Some large firms simply don’t emphasize their family connection in their advertising. Perhaps executives at these companies fear that prospective customers (or potential investors) may associate “family business” with “lack of professionalism”—though events of the past decade prove that executive shenanigans and bad decisions can occur in enterprises of every stripe.

 

On the other hand, ads that promote a company’s family status, such as S.C. Johnson’s “A Family Company” campaign, appeal to consumers because these marketing initiatives connect the business with tradition and continuity, and attach a personal identity to the brand in this era of faceless conglomerates.

 

In this issue of Family Business, we celebrate big family firms with an updated list of America’s largest family companies—a list that has changed considerably since the last edition was published in 2003. Our special section also includes some advice on the challenges facing family enterprises that aspire to grow into billion-dollar companies.

 

Large family firms can get derailed by the same forces that doom the mom-and-pops: reluctance to change an outmoded business model; a poor economic climate; or the inability to separate the realms of family membership, business management and business ownership.

 

But, as the articles in this issue show, other factors are involved when a company grows larger. In a family firm, this also usually means that the family has transitioned to later generations, with a larger ownership group whose members vary in their connection to the business.

 

In some cases, problems arise at a family company when the family insulates itself from outside perspectives. A series of studies by David M. Reeb of Temple University and Ronald C. Anderson of American University found that family firm performance is greater and economic value added is 5.5% greater when founding families maintain an ownership stake—but a firm’s performance is highest when family members hold only about 12% of the board seats.

 

A family council can be an effective means of promoting continuity of family ownership, especially in large families with large companies. When directors, owners and managers all can effectively carry out their responsibilities, a family business is in the best position to grow and thrive.

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