Preparing for 2020

The fourth quarter is packed with occasions when the extended family gets together. In addition to Thanksgiving and Christmas or Hanukkah, families who own businesses are likely to gather at the company holiday party.

As anyone with a family knows, all that togetherness can cause family tension, especially during a season when meals and decorations are expected to be perfect and memories of the past — for better or worse — are evoked.

With a presidential election on the horizon next year, friction is likely to be heightened. Families all over America have been arguing about politics since 2016. Business families are no exception.

Politically divided families are nothing new, of course. Differences of opinion about U.S. involvement in the Vietnam War, for example, sparked many a family fight. But in the age of social media, family disagreements you’d prefer to keep private can easily go viral.

Arguing with your relatives around the dinner table can ruin the family’s holiday. Taking the argument public is quite another matter — it has the potential to harm the business.

Examining what happened in some business families in 2016 might help your family to strategize about how to handle the next campaign — before it’s time to put your pumpkin pie in the oven.

One family I know of (probably not the only one) engaged a family business consultant to help them work through the divisions that had arisen in their ranks because of the election.

Some business families presented a united front in favor of a candidate. Several even offered up company facilities for campaign events.

Other family businesses stayed out of politics. But in some of those families, rogue relatives proclaimed their support for one of the sides. Even though these people didn’t work in the business, the public recognized their last name. Consumers on the other side of the aisle called for a boycott and posted heated messages on the company Facebook page. Though executives insisted the company was politically neutral, the business got caught in the crossfire.

However you decide to handle the next election, it will be best for everyone if you make your decision as a family and make it in advance. If you want your business to be perceived as neutral, has everyone in the extended family gotten that message? Do they all promise to stick with the program?

If you decide to support a candidate, how would family members feel if there were a boycott? Would this ignite a family dispute that could result in a shareholder exit, or worse?

Would your board or shareholders agree to budget for a PR strategist if needed? Would it make sense to have a statement prepared in advance so it can be issued immediately if necessary?

Whatever your political differences, keep your shared family values in mind. That might help everyone stay calm and grounded.

I wish you a peaceful holiday season.

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

Valuation: A worthy cause

Most multigenerational family companies eventually will buy out a family shareholder, or at least redeem some stock held by a family member. Sometimes it’s the culmination of a planned transition (a retirement), but often it’s emotionally fraught (a payout to heirs after a shareholder’s death or a dispute that culminates in someone’s exit). No matter the circumstances, a disagreement over the price can turn a good situation bad, or make a bad situation worse.

Families should not view a shareholder exit as shameful or unthinkable, says Travis W. Harms, who leads the family business advisory services group at Mercer Capital. “It’s common, and it does not mean that your family or your business is a failure.

“Different family members have different needs and different interests, and continuing to own shares in the family business may not be appropriate for every member of the family. That’s not a good or bad thing. That just is what it is.”

Agita remedies
Many disagreements over payouts are rooted in shareholder education shortcomings. To explain how uninformed family business owners see it, Harms offers an analogy: Suppose you want to liquidate an investment account managed by a stockbroker on your behalf.

“The broker says, ‘Well, in order to liquidate your account, I will give you $100,000.’ The broker’s never told you historically what’s in the account. You have no idea how it’s performed. All they’re doing is saying, ‘I’ll give you $100,000 for your account.’ ”

Developing a buy-sell agreement — and explaining the details — can help prevent or manage conflicts. A buy-sell establishes the mechanism for the purchase and sale of shares upon various triggering events (a shareholder’s resignation, termination, retirement, disability, divorce or death) and how the shares will be valued.

“The smart [families] do a good job putting these sorts of agreements in place ahead of time and helping people understand them,” says Stuart A. Smith III, managing director, strategic family business advisory services at Wilmington Trust. “The really smart families also continually educate their family members, so that as they are faced with these situations, it’s not a surprise — ‘My brother’s saying it’s worth this much, but I’m not so sure.’ ”

“If you’re going to buy someone out,” Harms says, “then I think you will sleep much better at night when you do so having had a history of regular, quality communication with the shareholders about the business, and ongoing education for the shareholders about what business valuation means, and the risks and the prospects for the business, and the risks and rewards for owning shares.” Communication will ensure that owners who request a buyout are making an informed economic decision.

The Allyn family — who owned Welch Allyn, a medical device manufacturer based in Skaneateles, N.Y., for 100 years before Hill-Rom acquired it in 2015 for about $2 billion — developed processes for redeeming family members’ shares and establishing a value. “If you were to talk to a person in my generation, they would say they understood the value of the company from, say, 2000 until the sale [to Hill-Rom],” says Eric Allyn, the fourth-generation former chairman of Welch Allyn.

“They might not be able to say how it was calculated, but they would generally know that there was a third-party firm who did this for us every year.”

Even family members who preferred not to delve into the details of share valuation understood that “there’d be no room for argument” about the price if they wanted or needed to sell shares, Allyn says.

What’s it worth to you?
One reason for confusion over valuation is that there’s more than one way to value a company.

All too often in family businesses, family members are unaware of these distinctions. “They don’t understand how the companies get valued, and they don’t understand what it means to them — because nobody’s explaining it,” says Amy Wirtz, a consultant with The Family Business Consulting Group.

“People tend to have stars in their eyes about what the business is worth,” says Smith.

“If a family business decides to get a valuation to help the board assess what the company might be worth in the event of a sale, then [the valuation firm is] probably going to make that assessment at the highest level of value,” Harms says. “And just because a family member gets a whiff of that does not mean that that’s what their shares are worth today if they elected to sell their shares to the company.”

The amount of an exiting shareholder’s payout may differ depending on the circumstances, says Wirtz. (For example, a shareholder who is fired from the company might receive a lower payout or, in cases of egregious misconduct, no payout at all.)

“Not only should the people running the company understand it, but also the people who would inherit the liquidity should there be a death,” Wirtz says. “It’s challenging, because most people don’t want to talk about their triggering events, mainly because it envisions some sort of radical change.”

Asset valuation, which calculates the value of a company’s assets, is often used when the company owns real estate. Shareholders may not realize that owning a 15% stake in a business with real estate holdings entitles them to 15% of the earnings from the real estate, not 15% of the real estate itself (unless the business is being liquidated).

The income approach to business valuation looks at the company’s cash flow and compares it to the risks the business faces.

Book value is the difference between a company’s total assets and its total outstanding liabilities. Book value is easier (and less expensive) to determine than fair market value, defined as the price at which a property would change hands between a hypothetical buyer and a hypothetical seller when no one is under compulsion and both parties have reasonable knowledge of the facts.

Because it’s typically lower than fair market value, book value is useful for estate planning and is often specified in family companies’ shareholder agreements. Using a lower value can help owners stay within the lifetime exemption limit for federal estate taxes. In addition, a lower payout makes less of an impact on the company’s balance sheet.

“It’s great — if everyone is on the same page,” Wirtz says. But if heirs don’t understand why their payout is based on book value, “they feel ripped off, and it causes turbulence.”

In the absence of a buy-sell agreement that specifies a valuation method, courts will use fair market value, Wirtz says. “And the problem with that is, most of the time when people are in court, it’s not a willing sell and a willing buy,” she notes.

A common benchmark for determining fair market value is the stock price of comparable public companies. The shares may be subject to a discount from the benchmark price if the exiting owner has a minority interest. A discount may also be applied for lack of liquidity of private company shares.

“It’s an interesting dynamic,” Smith says. If the exiting minority shareholder were to sell their stock to a third party, it’s easy to understand why a minority discount would be applied. “But it’s a little different when you’re selling to folks that actually have the controlling interest, because they’d be expanding their control.

“They’re the one buyer in the universe that can really benefit from picking up that incremental block of shares.”

Buyers vs. sellers
Over the century that the Allyn family owned Welch Allyn, no shareholder ever requested an exit. But because of what Allyn refers to as “the obsession that my family has about managing estate taxes,” the business paid scrupulous attention to valuation.

Family members gifted shares down to the next generation to avoid estate tax consequences, Allyn explains. In pursuing this strategy, they wanted to ensure the holdings they gifted would not exceed the IRS’s lifetime gift tax exemption — the total lifetime amount a person can give tax-free in addition to the annual gift tax exclusion. The lifetime exemption is currently $11.4 million, but between 2002 and 2010 it was capped at $1 million.

Valuation of Welch Allyn shares helped the family’s charitable giving. “Back in the time we owned the company, we actually didn’t have a lot of cash, but our shares were worth a lot,” Allyn says. “My wife and I would, on occasion, gift shares to a not-for-profit.” The recipient organization redeemed the shares to receive the value. “Typically, they would do it that quarter or at the end of the financial year,” Allyn says.

“We would do quarterly valuations. We would use the same numbers for charitable gifting and for intrafamily gifting. And if anyone needed to be bought out, it would be the value at which the company would buy someone out.”

Occasionally, family members would redeem shares to obtain cash in lieu of borrowing. A relative of Allyn’s, for example, did so to fund a divorce settlement. “He sold shares back to the company, generated the cash at the same valuation, and that was part of his settlement with his ex-wife,” Allyn says.

The same valuation also was used for phantom shares in Welch Allyn’s long-term incentive plans for non-family executives. Some executives received phantom shares, and some also had phantom stock appreciation rights.

In share redemptions, as in any other sale transaction, the seller hopes to receive a high price, while the buyer aims to pay the lowest amount. If the family members on either side of the transaction are fighting, arguments over the value will further polarize them.

Allyn notes that members of his family were both receiving shares from their parents and grandparents and gifting shares to their own children and to charitable organizations. “That tells you that it really was a true market,” he says.

“The fact that I was both receiving and giving shares [meant that] I was implicitly — no, explicitly — agreeing that the value makes sense.”

Putting it in writing
The optimal time to create a buy-sell agreement and develop a stock redemption program is when the shareholders are on good terms. The agreement should specify how the value of the shares will be determined.

“If we can get together today, when we are both getting along — and I don’t know if I will in the future be a buyer or a seller, and neither do you — we both can agree that if one of us needs to go, this [procedure] will be fair,” Harms says.

“And then, five years from now, when we do get into a fight, and we decide that I am the one who has to leave, I will have been committed already to what is the appropriate level of value. And so will you. And that greatly increases the odds that we can execute this transaction with as little heartache and pain as possible.”

The wording of the agreement should be specific, Wirtz advises. “A really well-written agreement is going to say, ‘The valuation firm we are going to hire is X’ — which is a named company — or, ‘The person we use has to have these credentials.’ ” Some companies put the names of several firms (perhaps recommended by the business’s lawyer or accountant) into a hat for a drawing.

Even with this provision in place, one of the parties may not like the resulting number and will hire their own expert to prepare a second valuation. A detail-rich agreement will ensure both valuations are based on the same data, Wirtz says. For example, if the income method of valuation is specified, which years will be assessed (e.g., the trailing three years vs. the trailing five years)? How will adjustments be made for one-time highs or lows?

It’s also a good idea to spell out who will pay for the valuation, Wirtz says. “Does the company pay for it? Does the individual pay for it? What if there’s more than one?”

Many agreements state that the company will pay for the initial valuation. If one party doesn’t accept those numbers, they can commission another valuation at their own expense. “If the two experts can’t help the parties agree on the process, a third can be hired to mediate the two valuations’ opinions and come up with a final number,” Wirtz says.

Most high-functioning family businesses need only one valuation from a mutually selected firm, she notes. “But if relationships are really in distress, you want to have some process in place to break the tie between the experts.”

Like most family business shareholder agreements, the Allyn family’s agreement included restrictions on the transferability of shares to prevent non-family members becoming owners of the company. Shareholders who wanted to sell shares had to offer them first to other shareholders (their siblings or children — not to the senior generation — to avoid estate-planning issues) and then to the company. “It basically specifically excluded selling to outside parties,” Allyn says.

Keeping current
It’s important not only to create a shareholder agreement with a buy-sell provision, but also to review it regularly to ensure it remains current.

“Markets change, and that can have a significant impact on the valuation,” Smith says. “We’ve definitely seen situations where there is a shareholder agreement, but it’s been in a drawer for 10 years. The industry’s changed, and the valuation metrics in the industry are very different.

“You’ve got to make sure that you continue to update [buy-sell agreements] and treat them as living, breathing documents. Because that’s going to be far cheaper than the agita that you might endure if there are big disagreements down the line.”

As the healthcare industry changed over the years, it became challenging for Welch Allyn’s valuation firm to find peer companies for benchmarking.

“Choosing the peer companies was probably the biggest variable, and the most important variable,” Allyn says. “Many of our peers were being acquired in the last three or four years of doing valuations. We went from having a peer set of 15 companies down to maybe only 10 ­companies.”

The Welch Allyn board had to approve changes to the peer companies used in the valuation, Allyn says. “If you went changing companies out left and right, then people could be [accused of] manipulating numbers.”

As is true of so many other family business issues, planning and process will help prevent unpleasant surprises when share redemptions are needed. A shareholder agreement with a buy-sell provision will help reduce conflict, as long as family members understand the wording and the reasoning behind it.

“There are hundreds of really high-functioning family businesses that never look at these documents,” Wirtz says. “But they’re really glad that they’re there if they need them.”  

How should you pay an exiting shareholder?

Travis W. Harms, who leads the family business advisory services group at Mercer Capital, says family business leaders have three options to consider when determining the appropriate value for paying out a departing shareholder.

• Non-marketable minority value. In privately held family businesses, shareholders cannot obtain ready liquidity the way they can with shares traded on the public market. In addition, most exiting shareholders don’t own a controlling interest in their family firm.

“From the perspective of a hypothetical willing buyer of your interest, they are going to take both of those negative factors into account,” Harms says. “They will value the company on a minority interest basis, and then take a marketability discount from that — effectively penalizing the outgoing shareholder for the lack of liquidity in the shares.” If the exiting shareholder is leaving because of a family dispute or has been fired from the company, the remaining shareholders may feel the penalty is appropriate.

The downside: Some states have laws prohibiting the application of discounts for lack of marketability in buyouts of minority shareholders.

• Forgo the discount for lack of marketability. Some families opt not to penalize exiting shareholders for selling stock in a family business that has elected not to go public. The rationale here is that the buyer — whether it’s another family member or the business itself — is not just any hypothetical willing buyer.

The downside: “That can lead to problems if the departing shareholder does sell on that basis and then one, two or three years later, the company is sold in a change-of-control transaction at a higher price,” Harms says. “Memories are long, and that will be a sore point between the departing shareholder and the remaining shareholders.”

• Change-of-control value. This is the highest level of value. It recognizes that “when a shareholder departs, what they are giving up is ultimately the right to participate on a pro rata basis in the eventual sale of the family business if and when that were to occur,” Harms says. A buyer who will control the company will likely pay a higher price than a minority investor. “Under this option, you’re effectively prepaying the departing shareholder for their share of the value of the business from a control buyer’s perspective.”

The downside: “If you pay the departing shareholder a controlling price, but then the company does not sell for a long time, the remaining shareholders are likely to resent the fact that the departing shareholder got a higher value than they’ve realized over their holding period,” Harms says.

“Of these three options, none is inherently or morally right or wrong,” Harms points out. “They’re just different ways of doing it.” — Barbara Spector

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

When the 'hard side' meets the 'soft side'

In the family business world, issues tend to be divided into those requiring “hard side” expertise (such as investing, tax planning and legal compliance) and those necessitating “soft side” competencies (like family meeting facilitation, leadership coaching and conflict resolution).

In an environment where love and money intersect on a daily basis, this dichotomy is unhelpful. For example, financial issues must be explained in a way that family members will understand, and family values around inclusiveness determine who may own shares in the business.

In this edition, we address two “hard side” areas that require “soft side” sensitivities: debt and valuation. If you don’t look up from your spreadsheet and note the expressions on your family members’ faces, you’re setting yourself up for an argument, or maybe worse.

Here are some questions that straddle the lines between “hard side” and “soft side”:

• Does your family reject debt out of hand because the business founder never borrowed (or because a previous generation borrowed too much)? Is an inherited fear of debt holding you back from an expansion that could boost profitability?

• Has your ownership group developed a policy on how much debt the family is comfortable with?

• Has your ownership group reached consensus on the option of taking on a private equity investor or other partner in lieu of borrowing?

• Are your family members taking too much cash from the business for perks like cars, fancy meals or short business trips that turn into long vacations?

• Does your business have an independent board that can help you sort out questions related to debt, risk and cash management?

• Are dividends or other liquidity options available to family members so they have a means to obtain cash and realize a return on their investment in the family business?

• If a family shareholder wanted to cash out, would the business leaders view this as a slap in the face or an individual making a financial decision in their best interest?

• Does your shareholder agreement spell out how the value of an owner’s shares would be calculated upon exit?

• If there are wealth discrepancies among households, has your family come to terms with the difference between what is “fair” and what is “equal”?

• Have you developed a mission statement for the family’s collective wealth, based on your shared family values?

• How are you teaching your NextGens about ownership, management and stewardship?

Wealth and assets are emotionally charged issues. Having clear policies created through a consensus-driven process — before they are needed — will help your family prevent or manage conflict when money questions are raised. You may need the help of both “hard side” and “soft side” consultants to help you navigate around minefields.

The questions raised here are challenging ones, with implications for the future of the business and the family (individually and collectively). They will take time to sort out. But if family members believe the process of addressing them was fair, they will likely be comfortable with the result.

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

Before the iron throne, there was family business

In Game of Thrones, the hit HBO series based on books by George R.R. Martin, families ruthlessly protect their interests. While it may be a stretch to describe them as “family businesses,” through real estate ownership (including castles), various trading relationships and support for broader stakeholders in the communities they oversee, they resemble many “family enterprises” we have profiled in Family Business. And, like family enterprises, they focus on creating long-term value for the family — which in Game of Thrones means over centuries.

In this issue of Family Business, in partnership with EY, we highlight the 100 oldest family businesses in America, along with lists of the 100 largest family businesses in the United States and globally. Stretching back as far as 15 generations, with some older than the United States itself, many of the country’s oldest family companies approach the longevity of Game of Thrones family enterprises. The Avedis Zildjian Company dates from 1623, Lyman Orchards was founded in 1741 and Bachman Funeral Home was established in 1769. The “youngest” family businesses to make the U.S. list were founded in 1850. All are still being run by the founding families.

At our recent Transitions Spring conference, speakers from fourth-, fifth- and even sixth-generation companies discussed what it takes to create an enduring organization. Members of Zildjian’s 15th generation were in attendance. What all these families have in common is a commitment to providing long-term value to their many stakeholders, including their employees, customers and communities. It is difficult to sustain a business for decades without a focus on multiple stakeholders, which, in turn, creates long-term value for the shareholders.

This is in stark contrast to many public companies, which often focus on short-term shareholder return. Directors & Boards magazine, a sister publication of Family Business, has commented that many public companies are beginning to re-examine their character and purpose, including whether to continue with a short-term shareholder supremacy lens. When they outline a model to emulate, they are frequently describing a view long maintained by many family businesses.

Many of the companies on our list of America’s oldest family businesses also have established values-driven cultures. For some families, these values derive from their faith; for others, they are developed from secular views shaped over time. In many instances, the cultures resonate throughout the organization and are built and strengthened over generations. These values-driven cultures provide a backbone for the business and help ensure success during ownership and leadership transitions.

While we have a long way to go to match the longevity of the oldest family businesses in America, as a third-generation family member of MLR Media, it has been my honor to continue to build upon a legacy created by my grandfather, father and mother. Their focus on creating long-term, sustainable value, support of multiple stakeholders, and creation of a values-driven culture has enabled our business to thrive for 30 years. And while we worry about disruption undercutting our business, at least unlike the families in Game of Thrones, we don’t have to worry about dragons being a disruptive force. 

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

A buyout without bitterness

What began as a more or less regular gathering of the four Flanagan brothers for high-level discussions about ownership of their business took a new turn in the fall of 2012. Two of the siblings, Murray and Rick, said they wanted to look into selling their shares in Flanagan Foodservice.

Their brothers weren’t surprised. They knew Murray and Rick had thought about leaving the business and had chatted about what else they might do.

“The idea was floated around and sort of loosely discussed,” says Jeff, 53. “And then it just started to evolve into more serious conversations.”

The company, based in Kitchener, Ontario, is the largest Canadian-owned independent foodservice distributor and employs nearly 600 people. In 2017, it generated revenues of C$513 million.

Rick, 54, notes that by 2012, the business had grown to the point where “it didn’t necessarily need us as employees anymore.”

At a previous meeting, Murray, the youngest, had asked his brothers, “Why are you in the business?”

“It seemed like a very simple question, but it was anything but simple,” recalls Murray, 49. At the time, each of the four brothers owned equal stakes in the company their father founded in 1977.

Eldest brother Dan, the president and CEO, had his own view of the future. After Murray and Rick made their announcement, “I reiterated that I was not personally interested in any kind of exit and wanted to see the family business continue,” says Dan, 55.

Within a week, Jeff told his siblings he wasn’t yet sure whether he wanted to leave but was interested in investigating options.

With all viewpoints out in the open, the next step was clear. “With everyone’s agreement,” Dan says, “we went down a path together to explore what might be possible.”

Less than six months later, the Flanagans had a transition and continuity plan. Today, Dan owns the majority of the voting shares in the operating company. Rick, Jeff and Murray equally own most of the remaining voting shares and no longer work in the business. The four brothers have equal ownership of the family’s real estate holdings and some other interests. Most important of all, they and their families have maintained their close relationships.

“We started the process in October of 2012, announced the plan to our company right before Good Friday of 2013 and closed the transactions in July of that year,” Dan says.

All too often, when a family business restructures ownership, the outcome isn’t seen as a win-win. In a Family Business Magazine online survey of 431 family business stakeholders in 2011, 33.6% reported that over the history of their company, one or more family branches had sold or relinquished ownership. Of those, 44.9% said the exit caused a rift in the family.

“We were very fortunate in that we were able to go through the transition the way that we did,” Jeff says.

Talking it over
The brothers were able to create an environment where they could safely share their thoughts. Murray and Dan were active in a national organization then known as the Canadian Association of Family Enterprise (CAFÉ) and now called the Family Enterprise Xchange. Through attending its educational programs, as well as FamilyBusiness Magazine’s Transitions conferences, they learned the importance of differentiating ownership, management and family issues.

“Each shareholder had a right to decide what they wanted to do with their investment,” Dan says. “At the same time, each of my brothers and I could make decisions around our own employment.”

All four brothers had spent their entire careers in the family business. Their father, Joe Flanagan, had semi-retired and turned the reins over to Dan in 1997. On June 1, 2000, Joe passed away at age 57, just one month after being diagnosed with terminal cancer.

“I might have felt a bit of an obligation to my deceased father, to carry on what he started. But I realized that I didn’t love the industry and what I was doing,” Murray says. “I knew that, because I wasn’t loving what I was doing, I probably wasn’t helping the business the best I could.”

Rick’s wife, a teacher, was thinking ahead toward retirement. “Travel was certainly something that was in her plans, and so I wanted to be able to support that,” Rick says.

Selling Flanagan Foodservice came up in the brothers’ discussions, but this alternative wasn’t pursued because Dan wanted to continue running the company as a family-owned business.

“My first preference would have been to continue working in partnership with my brothers,” Dan says. “But that was not an option, because they get to decide.”

In demonstrating respect for each other’s viewpoints, the Flanagan brothers were following in their father’s footsteps.

Building a business
After 21 years working for HiWay Market, a family-owned store in Kitchener, Joe Flanagan struck out on his own in 1977 at age 34. At first, he called his business Bob’s Surplus Foods because he expected his brother-in-law, Bob Reidel, to become his partner. The partnership never came to fruition, and Joe soon changed the name to Flanagan Sales & Distribution. In late 1979, the business was incorporated as J. & D. Flanagan Sales and Distribution Ltd. “J. & D.” stood for Joe and his wife, Dolores (Dee), who served as secretary-treasurer.

Joe and Dee’s four boys — ages 9 to 15 when the business was launched — helped launch the company, which began as a local discount grocery.

The boys did what was needed after school and on weekends: stocking shelves, running the register, working in the warehouse, painting, cleaning the offices, making deliveries. The family’s “all hands on deck” mentality would serve the company well in the years to follow.

Joe soon shifted the business from retail to wholesale to capitalize on what he saw as better growth opportunities. The company began as a bakery supplier — using a station wagon to make deliveries — and then branched out to serve restaurants, universities, hospitals and other institutions. In 1983, it started hosting its own trade show rather than joining a multi-exhibitor show.

Sales have increased every year throughout the company’s history. Although most of the growth has been organic, acquisitions have also helped Flanagan expand geographically, increase services and product offerings, and enlarge its customer base. In 1995, the business was renamed Flanagan Foodservice.

What made Joe’s venture so successful? One factor was his commitment to customer service: “doing things that our competitors were unwilling to do,” as Murray puts it.

“We learned that at a young age,” Murray says. “On weekends, the phone would ring, and Dad was off to the warehouse to help out a customer in need. I think that sort of got embedded in us.”

Joe was “a forward-thinker,” Dan says. “For example, he purchased a property next door to the main Kitchener warehouse in 1995, even though it wasn’t ultimately needed for expansion until 2010.” The company began investing in technology in the 1980s.

Joe ran Flanagan as a democracy. “Decisions were made based on consensus, not based on his own desires,” Dan says.

“If we had a discussion on an issue, even if my dad felt strongly about something, he could obviously overrule everybody else, but it was very important to him to know what other people were saying, and what the other side of the issue was,” Dan says. “And then, if something came down to a vote in a meeting and my dad was outvoted, then the other side carried, and that was fine and we moved on.”

Murray describes Joe as humble, open to suggestions, fair and levelheaded. “I don’t think I ever saw my dad get heated in any kind of situation,” Murray says.

Consciously or unconsciously, Joe’s sons absorbed these values.

Company veterans
As kids, all four Flanagan brothers had held part-time jobs outside the family business: Murray and Rick at grocery stores, Jeff as a dishwasher at a pancake house and Dan at HiWay Market, where Joe had worked before setting out on his own.

None of the brothers intended to make the family business his career.

“We didn’t really see the glamour in being a food distributor,” Rick explains.

“I may have viewed working in the family business as sort of the easy way out,” Murray says. “I kind of wanted to have my independence and just make my own mark.”

Their lives would take a different turn.

Dan studied accounting through a correspondence course offered through the Certified General Accountants Association of Canada. The program required work experience in the field.

“My dad said, ‘Well, we happen to need somebody to do some financial reporting and analysis,’” Dan recalls.

The offer was hard to refuse. Joe said Dan could work off a loan for a 1980 Chevy Malibu station wagon whose lease to a sales rep was ending. Dan’s 1972 Ford Maverick happened to be in poor condition.

“I needed a new car, and I needed a job in finance. It was too coincidental that all that was available,” Dan says. “I think it was part of his master plan.”

Dan joined the company full-time in 1982, working the front desk in addition to his accounting duties. Later, he moved through different roles, including credit manager and office manager. As part of a management reorganization in December 1987, Dan was promoted to vice president of finance. In 1995, he became executive vice president, overseeing finance and sales. He was named president and CEO in 1998 and assumed the role of chairman upon Joe’s death in 2000.

Rick’s earliest recollection of working in the family business is painting the warehouse bathroom at age 14. He began making deliveries after school once he got his driver’s license.

The summer after he finished high school, Rick filled in for vacationing sales reps. “That was only supposed to last for the first summer after high school, but then one of the sales reps quit, and my father offered me that job,” Rick says.

After a year in sales, Rick started driving a delivery truck. “I always liked the transportation side of things,” he says. Three years later, he became warehouse and traffic manager of the company’s Kitchener location. In 1989, he was promoted to vice president of operations. In 1995, he was named executive vice president, overseeing purchasing and operations. Eventually, his duties expanded to include sales oversight.

Jeff, who had started out cleaning the offices and washing trucks, joined the business after high school. He worked in the warehouse, on both the day shift and the night shift, and drove a truck for four years. He became the company’s first inventory control manager, a position he held until 1995, when he became division manager of Flanagan’s Coffee Service. When the office portion of the coffee service was sold off in 2007, Jeff was named manager of business analysis and continued to oversee the foodservice portion of the coffee division.

Murray studied business at Conestoga College in Kitchener. In 1988, as he was about to graduate, a produce manager position opened at Flanagan’s distribution center in Owen Sound, Ontario, about two hours north of Kitchener. Murray had gained produce experience at his grocery-store job, so the Owen Sound post “was a nice fit for me,” he explains.

“I finished college on a Friday, and I moved to Owen Sound over the weekend, and started my new job on the Monday morning,” Murray recalls.

After a year, Murray moved back to Kitchener, where produce had been introduced, taking on the role of produce buyer for both Kitchener and Owen Sound. He later assumed buying responsibilities for more products and subsequently became office manager and then administration manager.

In 1995, Murray returned to Owen Sound to run the facility there, first as division manager and then division vice president. Five years later, he was back in Kitchener as vice president of operations. In 2003, he was named senior vice president overseeing operations and finance. A year after the company’s 2004 acquisition of Burlington, Ontario-based Roseland Produce, Murray became Roseland’s president.

“We were able to do many different things within the business, so we could see the bigger picture,” Jeff reflects.

Planned and unplanned changes
In 1997, Joe decided to semi-retire from the business and transfer ownership to his sons. Joe and Dee exchanged their common shares for fixed-value shares; their four sons evenly split the common shares.

Though young, the brothers already were seasoned company veterans.

“Even before he semi-retired, he had given us a lot of accountability,” Dan says. “We knew what we were doing and had a lot of experience.”

Joe met with his family individually and as a group throughout 1997. After one final meeting in the fall of that year, Joe announced Dan would become president and CEO. “Everyone left united and agreed to support the structure moving forward, which we all did without any real issues,” Dan says.

“I thought Dan was best suited to fill that role,” Murray says. “He had the most experience in the business and had one of the more senior roles at that point.” Dan took the helm on Feb. 22, 1998.

In his characteristically proactive way, Joe completed his ownership and leadership transition, as well as his estate planning, prior to his untimely passing.

His diagnosis came as a shock.

“No one — including him — suspected he was even sick until two months before his death,” Dan says.

Joe opted to decline chemotherapy. “He decided that prolonging a life with terminal cancer was not worth it, so he refused any treatment to defer the inevitable,” Dan says.

In the short period between Joe’s diagnosis and death, “We took his diagnosis as another set of facts that needed to be dealt with,” Dan says. “We worked well together and divided up the responsibilities to help us get through it. He continued to inspire and guide us during this time.”

Continued growth
Dan’s brothers praise his leadership, saying his style is similar to their father’s.

“In the end, [Dan] often had to make the hard decision, one way or the other, but he really took into account what other people felt,” Murray says.

“I would say he was probably a little more of a ‘people person’ than I am, but I try to emulate my dad’s leadership style as much as possible,” Dan says.

The most significant growth year was 2010, when Flanagan became the approved distributor for all Wendy’s locations in Ontario and Quebec under a multiyear contract that has since been renewed several times.

Except for 2010, growth has occurred in “small steps every year,” Rick points out.

“I remember looking back when we reached a certain point, and realizing that from a revenue standpoint, we had quadrupled the size of the business since my father passed away,” Rick says. “And that was kind of an eye-opener for me.”

“Being a second-generation family member, you always feel like it’s Dad’s business, even after Dad’s gone,” Murray says. When he calculated how much the business had grown since Joe’s passing, Murray recalls, “that was a moment when I realized, ‘You know what, this is our business. We’ve done something here; we’re not just necessarily carrying on what Dad has done.’”

High trust
The transition discussions took place in an atmosphere of trust.

“We were brought up with certain values of fairness and respect,” Dan says. “We were also brought up to work through any challenging issues and not let emotion, envy or greed play into it.

“Nothing in terms of the strength of our relationship has really changed much since we were young. I would say we’ve always been close, and always had strong ties,” Dan says.

According to the brothers, there was never a pivotal parental lecture about the importance of sibling harmony. “Maybe because we always did have a good relationship, it wasn’t necessary to have those conversations,” Murray says.

As Dan describes it, “We had a typical middle-class upbringing and got along as brothers do, playing together, fighting once in a while, making fun of each other and arguing over how much food the other guy was taking.”

But collective thinking prevailed in the transition talks. “It’s easy to think, ‘Well, this is what’s best for me,’ but when we went through the transition, it was really about, ‘Here’s everybody’s goals; how can we all get there?’” Murray says.

“I think [the key is] just the way that the four of us have always been able to get along with each other,” Jeff says. As colleagues, they lunched together frequently. “We just maintained that close family dynamic,” Jeff says.

“I always tell people one of the keys to our maintaining that closeness is that our wives all get along incredibly well,” Rick adds.

In the fall of 2010, the Flanagans engaged Grant Robinson, a now-retired Canadian family business adviser who was an accountant by trade, to sit in on meetings and help them with strategic and succession planning for ownership.

“Basically, these guys talk to each other — which is a big thing,” Robinson says. “They were willing to reach out to somebody to help them have conversations. They’ve been very proactive at gathering information.”

The planning process included individual interviews with the brothers and their spouses. “It involved looking at where they’d come from, the things that had worked and that hadn’t worked — where they [were], and what the future could be,” Robinson says.

The Flanagans, Robinson says, “are very good at learning from others and listening. And then when it’s time to do some problem solving, they are very good at listening to each other.”

Reaching a deal
The Flanagan brothers entered the transition discussions recognizing, as Dan puts it, that “This was going to be the most important transaction in the history of the company. It was crucial that we did it right.”

The brothers worked together to interview and select advisers to help them through the process. “The fees added up pretty quickly when we had all the right people in the room, but we had to get it right from all angles,” Dan says.

The Flanagans engaged a major accounting firm to lead the project. Also on the team was a national law firm with a local office in Kitchener. The company’s long-time auditor was included, as well.

They invited Robinson to sit in on the negotiations, “to make sure we stayed on track from the family perspective,” Dan says.

After several meetings, Robinson told the brothers his presence wasn’t needed. “When it came time to do the buyout transaction, everybody was very confident that it was the right thing to do,” Robinson says.

The Flanagans set the tone with their advisers at the outset. “I remember my brother Rick saying, right before the first meeting started, ‘If we can’t get through this and, in the end, maintain our relationship as brothers and go golfing together and spend time at each other’s cottages, then we will stop the process immediately,’” Dan says.

The brothers had had a buy-sell agreement prior to these negotiations, but the purpose of that document was to guide them in the event of an ownership dispute, not to set a share price for an amicable transition. “We essentially tore it up and started over again,” Murray says.

Most of the real estate already was held in a separate company. Two properties were moved from the operating company into a second property company equally owned by the four brothers.

“We trusted our advisers to give us good advice and tell us truthfully what the business was worth and what it can maintain in terms of debt going forward,” Rick says. “We didn’t ever want to jeopardize the health of the business.”

The brothers say there were no sticking points. “It was just very fact-based, like putting the pieces of a puzzle together, and when it was done, it was done,” Murray says.

The brothers agreed that Dan, as the sole family executive in the business, should control the majority of the shares. Rick, Jeff and Murray have equal minority stakes in the operating company. “That still gives us a little skin in the game,” Rick says.

The trio now serve as board advisers. They sit in on meetings and provide guidance based on their experience in the business. Although they don’t make decisions for the company, they receive the same communications as voting board members do.

The voting board consists of Dan (the chairman), the senior vice president/corporate secretary, a long-time outside adviser and a member of the employee shareholder group. (Employees may purchase a special class of non-voting shares. Share value is calculated annually, and dividends are paid. Upon leaving the company, employees must sell back the shares.)

Moving on
Dan says he wasn’t worried about recruiting successors for his brothers. He worked with a headhunter and received assistance from Rick, Jeff and Murray and some long-time non-family executives.

“Although my brothers each had their own unique retirement transition timeline, they agreed to stay on and help recruit and groom the successors for their roles,” Dan says. “This made it much easier for me.”

Dan had other recruiting to do, as well. “In addition to replacing my brothers, we had a number of other retirements and transitions of senior leaders around the same time,” he says. “As of April 2016, our senior leadership team consisted of 12 people, nine of whom had been in their current roles for less than three years. This was a big change for me. I was used to a group with 25, 30 or 35 years of service filling these spots.”

While Dan says he’s “very pleased with the strong group that we were able to put in place,” he’s had to adjust. Building trust and developing relationships with a new team after working with his brothers for decades takes time and effort.
“I certainly had to learn how to lead differently,” he says. “I used to say it was like having four CEOs when my brothers and I were there. Now we were down to one.”

For example, Dan says, “I find that my time is pulled in a lot more directions than it was in the past. When there were four brothers who could represent the family and the ownership to the employee group and the customers and the industry and other stakeholders, we could divide it up. Now, it all falls on me. I definitely have been able to let go of other things, but I do find that it keeps me hopping, that’s for sure.”

One thing may have gotten easier for Dan. “I believe my brothers were generally more conservative than me when it comes to making investments or acquisitions for growth — acquisitions in particular,” Dan says. He adds with a laugh, “After they left, we actually made quite a few acquisitions.”

“Yeah, I would definitely say I was probably a little gun-shy, maybe a little bit more conservative, when it came to any type of acquisition,” Rick admits.

Jeff, however, sees it differently. “I definitely saw value in acquisitions as well — more so, now that I’ve actually seen Dan doing more of it,” Jeff says.

Happily ever after
Although no longer employed at Flanagan Foodservice, Rick, Jeff and Murray have lent a hand on certain projects.
Murray played a leading role in the production of a book published in 2017 to commemorate Flanagan Foodservice’s 40th anniversary. He also worked with Dan to develop an independent advisory board, which was finalized in September 2017.
Rick was involved in overseeing construction of Flanagan’s newest distribution center in Whitby, Ontario. The new facility, serving customers east of Toronto, is the largest expansion in the company’s history.

Jeff has participated in training staff members working to extend a customer profitability model he helped develop before he left.

“They are willing to help out wherever needed, which is great,” Dan says of his brothers. “However as we continue to transfer skills and knowledge to the new leadership team, I suspect this need will diminish.”

All three brothers say they have no desire to return to full-time roles at the company, though they would gladly step in if an urgent situation arose.

“I’ve moved from every day doing what I have to do, to every day doing things I want to do,” Murray says.

The foursome continue to meet each month to discuss business and other issues. All four families — as well as Dee, the matriarch, age 76 — live near each other.

Since 2015, the Flanagans have been holding family retreats, usually over an extended weekend. The retreats have three objectives, Dan says: to provide education, to disseminate information about the business and build family members’ connection to it, and to have fun and strengthen family bonds.

“We try to engage NextGens broadly in some of the working committees that come out of the meetings,” Dan says. Committees are cross-branch, to help build relationships among the cousins and give them experience working together.

There are 10 NextGens, ranging in age from 18 to 29. “A few of them have worked at the business on a part-time basis over the years,” Dan says. “There have been a couple of preliminary expressions of interest in joining the business full-time, but nothing concrete at this point.”

The brothers realize they never had extensive conversations about the business with their kids. “We don’t want to discourage them,” Dan says, “but maybe inadvertently we did that by not keeping them in the loop as they were growing up.”

“Once we started engaging them a bit more,” Murray says, “a few have shown a bit of interest in maybe learning more about options that could exist.”

The Flanagans have developed their first two family documents, a family employment policy and a code of conduct.

Spurred by the suggestion of a NextGen member during a family retreat, casual social events are being organized: a summer barbecue, a day at the lake, bowling outings and “Flanagan Pub Night.”

“We’re trying to get together more often than we had in the past,” Dan says.

Murray expects doubters when he tells the story of ownership transition at Flanagan Foodservice. “I’m sure there’s people who think, ‘Where’s all the dirt?’” Murray says. “People can choose to believe or not believe, but that is what happened.”  

Dan Flanagan’s tips for a successful ownership transition

Dan Flanagan, president and CEO of Flanagan Foodservice, offers these suggestions for those planning to buy shares from family members:

  • Start with trust. Build constant communication and transparency into the relationship from the very beginning.
  • Don’t be selfish. Work towards a win-win result. Be willing to give and take a little for the greater good.
  • Ensure you have a structured mechanism to allow those who wish to “take some chips off the table” to do so. Everyone must agree on the process for selling shares, which must be put in writing.
  • Take time to do it right. This is a big decision with many implications for the business and the family. Give it your attention, and don’t rush through it.

Why the Flanagans' transition worked

In many cases, when family members reduce or relinquish their shareholdings in the family business, not everyone is satisfied with the outcome. How has the Flanagan family managed to remain close after three of four siblings each sold about 40% of their shares in Flanagan Foodservice?

Here are the factors that combined to make the Flanagans’ ownership transition a success.

  • All parties agreed to the share transition. The three exiting brothers wanted to sell shares and leave the business. CEO Dan Flanagan would have preferred to continue working with his siblings but honored their wishes. They, in turn, honored Dan’s wish to keep the business family-owned rather than sell it outright.
  • The business was performing well. The business took on debt to buy shares from the three brothers, but because the company continues to grow, the debt is manageable.
  • The family had a history of open communication. The late Joe Flanagan ran Flanagan Foodservice as a democracy, one of the family values he passed on to his sons. A related family value is respect for others’ viewpoints. Each of the four brothers felt free to express his vision of the future, and they worked as a team to ensure each person’s vision would be realized.
  • Preserving the family relationship was a priority for all parties. At the outset of their negotiations, the brothers set the tone for their advisers, saying they would abandon the deal if they felt family bonds were about to fray. The advisers knew their goal was to work for the benefit of the group rather than any one individual.
  • Family members “knew which hat they were wearing” during discussions. The brothers were able to separate their roles as co-owners of the company, managers of the business and family members. They also understood how role confusion could harm the business or the family.
  • The family members had a history of working well together. They built on their track record of success over decades, and the trust they had built through years of collaboration, to work toward a result that was a win for everyone.
  • The family reached out for advice and proactively sought out information. They networked with other business families and engaged a family business consultant. And they did the homework their consultant recommended.

Copyright 2018 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


Family ingathering

In 2014, members of the family that owns Sycamore, Ill.-based IDEAL Industries participated in what was to be a routine telephone meeting to discuss arrangements for an upcoming Family Business Network conference. "It was the first time we were going to a conference as a big group," recalls Jamie Tucker, a fourth-generation family council member. The family's Development and Education Fund planned to cover the cost of conference attendance.

During the phone call, a disagreement arose about a matter the family hadn't previously considered: Should family members be required to attend all conference sessions in order to qualify for reimbursement? Some thought perfect attendance should be mandated; others favored leniency. "This disagreement bubbled up, sort of out of nowhere," Tucker remembers. The conversation became tense.

At that point, the family members drew on their proven conflict-management strategy. After the conference, they would convene a family task force to study the attendance question. The task force would report on its findings, enabling the full family to make an informed policy decision.

Knowing the matter would eventually be examined in depth helped those with strong opinions to put the matter aside, Tucker says. "It gave us the appropriate time and place to deal with the issue, instead of everybody going to this meeting all [annoyed with] each other," he explains. After the conference, family members realized that an attendance policy was part of the requirement for receiving funding from the Development and Education Fund. The family is now creating a set of expectations for those who obtain conference funding, including requirements for conduct, attendance and a report to the full family, Tucker says.

Tucker's second cousin Meghan Juday, fourth-generation chair of the IDEAL Family Council and a director of the company, says the task force process is an effective conflict-management tool because it involves multiple family members—including those who feel the most strongly about the issue being examined. Before task forces were instituted, "These decisions were made at the top," by the third-generation chairman or the family council chair, Juday says. However, she notes, "The third-generation decision-making model stopped working when the fourth generation got old enough and started asking questions, and wanted to be more involved in the process."

Decision making is more complex for a business owned by cousins than it is for companies in the founder or second generation. The division of the family ownership group into branches and the larger number of stakeholders make consensus building more difficult. Another complication involves diversity in the shareholder group: Family members might live far from each other. The different households might not share the same values or even the same faith. Branches are likely unequal in size, which can result in some family members owning larger stakes in the business than others. Such circumstances can be incubators for discord.

Juday and other later-generation business family leaders say that building a culture of inclusivity can help families manage conflict productively.

"When you don't have an inclusive environment, you really are running the risk of doing damage to your business," Juday says. "If you have people who feel excluded, they're eventually going to lash back or disappear and take their assets elsewhere."

On the other hand, Juday says, family members feel appreciated when their opinions are sought out and their suggestions are taken seriously. This serves to build engagement and buy-in, she says.

The family as 'nested cultures'

A later-generation family enterprise system can be thought of as "a set of nested cultures," says Steve Lytle, a fourth-generation member of the Agnew family and a director of The Agnew Company, a single-family office based in the Pacific Northwest. Constituencies within a family, Lytle explains, include individuals, nuclear families and branches, in addition to various dichotomies such as older generation/younger generation, linear descendants/married-ins, and those working inside the business/those not working in the business.

Around the fourth or fifth generation, Lytle says, "the family gets so large that they have to think much more collectively than nuclearly. And the biggest work in terms of keeping the family enterprise system together is to make sure there's enough overlap of these cultures—there's enough shared principles and enough shared vision—to warrant holding it all together."

When the family includes a substantial contingent of people who don't work in the business, "the biggest challenge is to keep the momentum going," because these family members aren't thinking about the enterprise on a daily basis, Lytle notes.

A "pernicious and difficult" constituency, Lytle says, are family members whose needs aren't being met, especially those who are uncomfortable discussing those needs. Instead of speaking up, "They resist, consciously or unconsciously." This resistance often takes the form of non-participation. "It's way more passive than it is aggressive," he says. "At the end of the day, if the system's not meeting the needs of the individuals, you're not going to hold the system together very well, no matter what you do."

Juday says that in her role as family council chair, she has reached out to family members who opposed initiatives supported by the majority. "We continued to move forward with the majority of the family, and I continued to loop back through emails, conference calls and phone calls, and personal connections with these individuals who were not engaged or excited," inviting them to contribute feedback. After years of effort, "many of these individuals who were on the 'no' side have come into the 'yes,' " she reports. "But it was through that continual invitation, and continual loop back."

Opening avenues for communication

For about the past seven years, the Vermeer family—owners of Vermeer Corporation, a Pella, Iowa-based manufacturer of industrial and agricultural equipment—has been working to heal a longstanding rift. The family split into two factions in the 1970s owing to a falling-out between founder Gary Vermeer and his brother Harry Vermeer, who had worked together for a quarter-century. After the split, the Gary Vermeer side owned 75% of Vermeer Corporation; the Harry Vermeer side owned 25% of the company and had an ownership stake in a local bank. From then on, under a tacit family understanding, no one from Harry's side would work for the company, and no one from Gary's side would work at the bank, explains Heidi Vermeer-Quist, the third-generation chair of Vermeer's ownership council and a member of the board.

An emphasis on inclusivity and open communication—simply "starting to have conversations"—has helped reunify the family, according to Vermeer-Quist, a licensed clinical psychologist. She and her father—Gary's son Bob Vermeer, now chairman emeritus—reached out to the Harry Vermeer branch. "We came to find out that they still really wanted to be involved in the business but also felt completely in the dark, which was understandable," Vermeer-Quist says.

Initiatives were developed to increase interbranch contact and information flow: a quarterly newsletter and a family website, educational forums for all branches of the family and "family camp."

Amy Schuman of the Family Business Consulting Group facilitated a timeline exercise that examined world events juxtaposed with key events in the family business from 1940 to 2010. "That was really helpful," Vermeer-Quist says, "because some of the long-held resentments were brought up in a way that was put into some context." The exercise, she says, also inspired the family to consider how to move forward while learning from their past.

"What has been really helpful for us is going back and remembering and honoring our family history as well as our loved ones, focusing as a family on our common interests and causes," Vermeer-Quist says. "I think that's really helped to develop a family glue."

With the help of consultants Schuman and David Lansky, the full family created an ownership council, in addition to separate family councils for the Gary Vermeer and Harry Vermeer branches. Representatives of the ownership council communicate with the board, which has a family chairman and a majority of outside directors.

Vermeer-Quist says that family members might hesitate to speak up because they don't think the rest of the family cares about their opinions. "So we've said, 'Yeah, we do care, actually, and we think your head in the game makes us stronger. So do speak if you have something you want to say, or something that could be helpful to the business or the family, or us developing as good stewards and owners of the company.' "

Family leaders hold themselves accountable through progress reports and measurable goals. Surveys are conducted to assess family members' views of how well family governance is working and whether family activities have been successful, Vermeer-Quist says. Family members are encouraged to "speak the truth in love to each other—try to be as honest, but also as loving, as possible in our interactions with one another," she says.

Free-flowing feedback

The Clemens Family Corporation, a Hatfield, Pa.-based holding company that owns pork processing companies as well as logistics, transport and real estate operations, emphasizes communication and feedback in addressing the concerns of a very large stakeholder cohort. As of late October, there were 679 members of the Clemens family. Fewer than half (290) are shareholders in the business.

In 2000, faced with shrinking profits and fierce competition, the company underwent a restructuring that, among other changes, reduced the number of family members working in the business from more than 40 to about 15, and transitioned to an independent board of directors. Professionalizing the business paid off in increased value for shareholders; today Clemens generates annual revenues of more than $780 million. Twenty-four family members now work in the company.

Fifteen years after the restructuring, the subject is still sensitive for some third-generation family members who lost their jobs or were unhappy with the situation, says John Reininger, a fourth-generation married-in family member who holds the title of chief relationship officer at Clemens. "They get very vocal and involved because they don't want the same thing to happen to their son or daughter if they're in the business," Reininger says. In an effort to address concerns stemming from the reorganization, he says, he has had conversations with third-generation members "to help them understand what happened and why it happened."

Family members who are qualified for open positions at the company and who have the talent and passion to succeed are eligible to apply, Reininger explains. "It doesn't matter what branch you're in; it comes down to being qualified to enter the business in a position where you can add value," he says. When Reininger discusses career planning with next-generation members, he tells them, "Make sure you get the education and the training to match what your desires are, because your last name doesn't get you the position; it's what kind of value you can add."

As part of the restructuring in 2000, Clemens created an owners' advisory council, which addresses issues of concern to shareholders. A family council, formed in 2013, organizes events to engage the full family. Two family meetings are held per year.

Business is not discussed at the family meetings, Reininger notes. "At family meetings, it's about fun and connecting," he says. "What we do discuss at family events is our family heritage and legacy. To break it down, at family meetings we talk about who we are, and at shareholder meetings we talk about who we are and what we do as a business. And, to note, we are very open with our shareholders with business information."

The Clemens family also organizes fun outings for the whole family, like picnics and ice cream socials, as well as events to support charitable causes, such as volunteer days at non-profit organizations.

Reininger says family members receive brief surveys after each event so organizers can obtain feedback and suggestions for the future. Summaries of the survey responses are sent to the entire family. Family members have been pleased to note that many of their recommendations have been put into practice, Reininger says.

Reininger says he reaches out to those who routinely skip family events. Sometimes their absence is due to a misunderstanding, he says. "When I called some of those folks that would never show up, the response was, 'Well, we feel out of place here, because we're not shareholders.' That was a misconception on their part; they thought it was a shareholder activity and not a family activity," he explains. "And they came to realize they weren't the only ones that weren't [shareholders]. So they felt better about it, and began to show up." Logistics might also play a role, Reininger says. "Some people just don't like large crowds," he says. "So we try to invite them to some smaller venues if we have them, or find out what kind of things they like, and try to incorporate those types of things."

Though some might disagree with decisions that are made, he says, all family members are given the opportunity to express their views.

"I think the key to transparency is timeliness," Reininger says. "Since I do a lot of the coordination and communication with shareholders and family, I have a goal of responding back to anything that comes in within 24 hours. And even if I don't have the answer, I still will get back to them with something."

Connecting with the family

At Menasha Corporation, a packaging and merchandising company owned by descendants of Elisha D. Smith and based in Neenah, Wis., fifth-generation member Sylvia Shepard spearheaded the effort to form a family council to improve communication among the business, the board and the family. The Smith Family Council was established in 2003.

It was no easy feat to bring together the owners of this historic company, which was founded in 1852. "There wasn't a database of emails or phone numbers or anything," says Shepard, the former family council chair. The only information on hand was a list of shareholder addresses, many of which were merely post office box numbers. It took about a year to gather viable contact information for the whole clan, Shepard recalls. "Nobody knew each other," she says.

When the idea for the family council was first raised to the family, "They didn't really understand the need for it," Shepard says. "They thought it was going to be like a shadow board." The initial resistance, she reflects "kind of came out of ignorance."

Eventually, though, the family came around to embracing the idea. The council's first project was a family survey, an initiative that has been repeated regularly. Other council projects include an annual family meeting, educational programs and a family newsletter. There are 237 family members, 175 direct descendants and 135 shareholders, and the council has served as a vehicle to keep everyone informed, give family members a voice and encourage engagement. "Now [the family council] is just a fact of life, which is great," Shepard says.

Survey responses have indicated that family members are comfortable bringing their concerns to family council members, Shepard reports. "I do feel that people feel that they're heard, that their opinions matter," she says. "The more people get to know each other, the less tension there is."

One recent successful family engagement effort was the creation of a philanthropic fund that is managed by next-generation members. "I'm really proud of this, because it ended up engaging about seven people," Shepard says. The next-generation members organized an auction "that was the highlight of our family meeting," she says. "It was really fun." In addition to raising money for charitable causes, the project drew in "seven next-genners who are now engaged on a different level," Shepard notes.

Family values build unity

Many families have found that developing a list of shared values strengthens family bonds. The values statement helps provide direction on family and business conduct going forward. Perhaps more important, coming together to produce a document that everyone endorses is a success that serves as a foundation for future successes.

"Our task force process has a basis, and that basis is our core values," says IDEAL Industries' Jamie Tucker. The family's fourth generation created its own set of shared values.

In the Vermeer family, faith is an essential value. "For our family, Christian beliefs are really something that's common core," Vermeer-Quist says. "We all kind of grew up in church, and the idea of a loving God, and loving one another as you would have them love you, were core principles."

Vermeer Corporation developed a "4-P Philosophy"—principles, people, products and profit—that "was easily transferable to our family group," Vermeer-Quist says. In 2011, the family held a ceremony to celebrate the signing of its mission and values statements.

The Clemens Family Corporation's founder, John C. Clemens, established his business in 1895 with an emphasis on Christian principles. The company's mission statement is, "We aspire to operate in a way that honors the Lord Jesus Christ as demonstrated through our ethics, integrity and stewardship."

"We're not afraid to share that with people," says Reininger. In all issues related to the Clemens family and its business, he says, "We really strive to model our mission statement when we engage, involve and work with our family and shareholders."

At IDEAL, on the other hand, the family values do not include religion. "We have such a mix of religions in our family," Tucker says. "The values we came up with were the ones that we agreed on. People's interpretation of faith can be varying."

Transparency and inclusiveness are among the family's most important values. Jenna Juday, who is married to Meghan Juday's brother Ben, speculates that the third generation was probably uncomfortable with the fourth generation's emphasis on those concepts. "They just had to believe that it was going to be OK," she says, "because I know there were moments when they thought, 'What the heck are these young people doing?' " She credits the third generation for stepping back to let the fourth generation determine its own values. "I think that took a lot of courage and a lot of forward thinking on their part," she says.

Resolving issues through task forces

Meghan Juday notes that the task force participants look back as well as forward. "The first thing we do in a task force is look at what worked really well in the past that we want to keep [as well as] what are the things that aren't working well today that we want to change," she explains. "And so you really are honoring the history when you're doing research. And I think that makes people feel comfortable in the process." The task force process was introduced to the IDEAL family by consultants David Lansky and Dennis Kessler.

In the past, when family members brought their questions to senior leaders, the answer could be interpreted as being based not on the legitimacy of the question, but on the leader's relationship to the person who asked. The task force process, by contrast, is based on "all of us trying to get to the answer to the question," says family council chair Meghan Juday.

The family ensures that the person who raises a task force question is part of the group that investigates the matter. "You can't just sit in a family meeting, throw in a bomb of a question—I say 'bomb' because sometimes these questions can be incendiary, they get everybody's emotions up—and you can't just do that and then turn around and walk away," Jenna Juday explains. Task force volunteers have included those who feel strongly about the issue as well as those who are just interested in learning more about it.

Task force projects are generally conducted via conference call or webinar to accommodate the far-flung family. (One key to the process, Meghan Juday says: The research is presented as a series of PowerPoint slides rather than as a Word document, to emphasize that the matter is a merely work in progress. Showing the family a Word document, Juday explains, gives the impression that the language is final.)

"If I ever thought that somebody was really invested in the outcome, either for or against the task force topic, and yet they were not participating in the task force, I would call them several times throughout the process and make sure that they understood the research or recommendations that we'd come up with, and make sure that all of their feedback was included as part of the conversation," Meghan Juday notes.

"We would always roll out the results of the task force at the annual family meeting, but we would actually do a webinar several months in advance," says the family council chair. "And if we had feedback from the family as a result of the webinar, we would go back and make the changes, and then we would do another webinar, so we would continue that rollout process until the family was satisfied with whatever the recommendation was of the task force. And then the family would approve the recommendation of the task force at the annual family meeting."

Meghan's sister-in-law, Jenna Juday, says the task force process "has given us a known channel" to discuss family members' issues. "If you have a question, we're going to bring you in," she explains. "We're going to address your question; we're not going to brush it aside or say it's not important or make up an answer that we want you to have."

In addition to conducting task force projects on emotionally charged issues, like the dividend policy and the family employment policy, the IDEAL family has convened task forces simply to accomplish important missions, such as planning a program for fifth-generation members at the annual family meeting.

When the family first began working with task forces, they were in "a put-out-the-fire mode"; now, they are in "a more preventive mode," Jenna Juday says. "I think there's trust building every time we address a concern." She says that while family members used to arrive at family meetings projecting an air of being "poised for battle," today "I think there's a lot less tension overall."

Meghan Juday concurs. "The one outcome is that we got through a lot of our issues as a family, and really got into the deep stuff, and addressed a lot of the stuff that was kind of holding us back," she says. "But additionally, we really got to know family members in a way that we wouldn't have known otherwise, and it's because we were working together on common projects. The projects gave us the context to then learn a lot more about each other personally. And so people who worked on a lot of task forces have become very close as a family."

Family fun and education

Fun activities that bring the extended family together are important bonding experiences. Last summer, the Vermeer family's activities committee, working in conjunction with the family office administrative team, arranged a "history hunt" around the company's hometown of Pella. The family divided into teams that were intergenerational and inter-branch. The hunt took the teams to sites that the company helped build, organizations that received funding from the company or the family, or places that were meaningful to the great-grandparents who are the common ancestors of both family branches. A "treasure chest" hidden at each destination contained information about the significance of the site; upon finding each treasure, teams were required to take a photo at the site.

At Vermeer family dinners, "we do the great shuffle," Vermeer-Quist says with a laugh. Assigned seating splits up nuclear families to give diners a chance to converse with relatives they likely don't know as well.

The Vermeer family has instituted a "family camp," an annual three- to four-day gathering that combines business updates, family governance work and fun. In 2014, the theme of the camp was "One Vermeer," to accentuate family unity.

The IDEAL "family camp," an annual three-day multigenerational retreat at a family property in Wisconsin, puts the emphasis on fun. "Our relationships to each other have so much to do with the business portion," Jenna Juday says. "What's really nice about family camp is that it's not really about the business; it's about us having valuable time together. And that less pressured time together is great."

The IDEAL family includes about 50 total members, with 30 shareholders in the third through fifth generations. A recent family camp drew between 20 and 30 participants. Jenna Juday, a regular attendee, acknowledges that family camp, with its emphasis on outdoor activities, "is not everybody's thing." Organizers are brainstorming about different types of inclusive activities, she says.

Family education helps bring family members together and develops well-informed stewards of the business. While it's essential to teach family members about the "hard" issues—such as how to read a financial statement, how to be a good beneficiary or trustee, and the fundamentals of tax planning and estate planning—family members also need to build relationship competencies, The Agnew Company's Steve Lytle says.

"In my family system, at every family meeting we have a block of time allocated to education and competency building. And about half the time, that education and competency building is what some people might call 'soft side'—qualitative, interpersonal education, versus quantitative, financial education," Lytle says. "We bring resources in to help the family develop communication skills, so that folks can speak their truth skillfully."

IDEAL has created a Development and Education Fund that finances education, leadership development, coaching and mentoring initiatives for next-generation members. The fund was originally seeded by second-generation member Tug Juday, who has since passed away, along with three third-generation members.

Transparency is an essential part of the development and education process, Meghan Juday says. "We wanted to be very clear about the competencies that family members need to take on specific leadership roles," she explains. There is a wide range of roles a family member can potentially fill, and many talents that are needed. Quarterly reviews are conducted to assess each family member's progress. This model emphasizes that the family wants to support individuals' rise to leadership, as opposed to a focus on screening out candidates, Meghan Juday says.

Dealing with the disaffected

In some families, despite family leaders' concerted efforts to be inclusive, there is a faction that resists participation in family meetings or activities. Menasha's Sylvia Shepard laments that if these family members decline to interact with the broader family, there is little a family leader can do to heal the hurts of the past.

It's challenging to engage family members who refuse to voice their concerns, family leaders say. "We really work hard at giving [family members] avenues to communicate and voice their opinions," says Clemens' John Reininger. He says he hopes that family members will speak up rather than stew in silence, "but at the end of the day, they're responsible for their own emotions and feelings." He emphasizes that family members should raise their concerns through family channels—not in public.

"The hard thing is, there are always a few people you can't make come to the table," Vermeer-Quist says. "But then you've just got to keep going. And those people may, unfortunately, be left behind for a while."

IDEAL's Meghan Juday says that over the years, she has changed her views on how to deal with disaffected family members. The epiphany came after a family survey found that more than 92% of the IDEAL family "was experiencing a significant high emotional return from being part of the family business," Juday says. "Up to that point, I kept trying to cater to the very small percentage that was unhappy, and trying to figure out what their issues were and seeing if we could resolve them. And I ended up realizing that I [was] neglecting the majority of the population that was really happy."

Addressing inherited conflicts

Some interpersonal issues are so difficult that they must be left for a future generation to heal. Heidi Vermeer-Quist says of the rift between the Harry Vermeer and Gary Vermeer branches, "I think there was a desire—I know that there was a desire amongst the second generation, and certainly a wondering amongst the third generation—of, 'How can we communicate better with one another? How can we bring this back together?' " But because of "pretty strong personalities and sort of a traditional male leadership feel," she reflects, "I don't think anybody dared take a step toward reunification until [both patriarchs] passed away."

Yet in some cases, resolution need not wait until the senior generation dies; it might come when the next generation reaches maturity. Institution of the task force process at IDEAL, Meghan Juday says, has "created bridges for individuals in our family to build relationships independent of any of the negative legacy that's been passed down."

"I think what happened in our family," says Menasha's Sylvia Shepard, "is that the issues of the previous generation just weren't that important to the next generation."

Shepard says the appointment of her father, Tad Shepard, as Menasha's CEO in 1981 caused tension with a member of another branch who had vied for the job, Mowry Smith Jr. "That was kind of an underlying conflict that pervaded, that I was aware of growing up," Sylvia Shepard says.

Through working in the Smith Family Council, Sylvia Shepard grew close to Sue Gosin, a niece of Mowry Smith's. "We think a lot alike," Shepard says. "And she and I decided that it was time for Mowry and my dad to make amends." The two women arranged for Tad and Mowry to meet for lunch. "My dad kept saying, 'It's nothing,' which was typical of my dad," Shepard recalls. "But [for] Mowry, it was important for him to have this lunch. It was important to him to have a real face-to-face talk with my dad."

The result was a rapprochement between the two fourth-generation men. "My dad was never one to acknowledge any conflict; he kept everything very, very close to the vest, and didn't even acknowledge that there was a problem between him and Mowry," Shepard says. "But Mowry felt really good afterwards. He felt good about the meeting, and that he and my dad kind of resolved things." Tad Shepard died in 2011; Mowry Smith Jr. died in 2013.

Although the family council did not bring about the reconciliation directly, Shepard says, it played a role because it enabled her to grow close to Mowry's niece Sue Gosin. The lunch meeting was a result of the two women "coming together and serving on the council together," Shepard notes.

Bringing the family together

Meghan Juday says inclusivity has led to progress in her family. "From having demonstrated our inability to talk about [sensitive] topics for the previous ten years," she says, "the fact that we can do it today—and, really, with very difficult topics and subject matter—to me means that we've really come a long way."

Heidi Vermeer-Quist says that in her family, "The differences seem to work themselves out eventually. Some take years, but they've been working themselves out, as we keep coming to the table and talking."

Vermeer-Quist says, "I still just think it's remarkable that our family business has been able to come together as strongly as we have in seven years, after a 35-year split."

When she talks to other family business owners who are trying to work through conflicts, "I just want to say, 'Hey, if our family can do it, and they didn't even talk for almost 35 years, then maybe there's hope,' " Vermeer-Quist says. "Somehow, maybe your family, or at least a group within your family, can work together for the good of the business and the people who work at your business, as well as the strengthening of your family system."


The 'family champion'

Many business families that have addressed their inherited conflicts have been brought closer together through the urging of a next-generation member who serves in an informal role that Joshua Nacht, Ph.D., calls a "family champion."

Nacht, an affiliate of the Family Business Consulting Group, defines a family champion as "a visionary catalyst who brings new energy into the family enterprise to support and develop the family ownership advantage." These family members encourage their relatives to build new, stronger relationships with each other, letting go of past family dynamics.

A family champion is generally not appointed to the role; he or she simply steps up, Nacht notes. "It's not hierarchical, and it's not the leader of the business," he says. "It's somebody in the family who just says, 'Hey, we need to do better. We can do better.' " Rather than guiding the family by command-and-control, the champion emphasizes consensus. "It's servant leadership, really," Nacht says.

Nacht's doctoral dissertation ("The Role of the Family Champion," Saybrook University, 2015) examined these individuals' contributions to their family enterprises. He interviewed 14 family champions, plus eight additional family members.

The individuals he interviewed had an abundance of energy, motivation and ideas for moving the family forward, Nacht says. They also had excellent communication and listening skills.

"What they did," Nacht says, "is concentrate on communication, interpersonal relationships and integrating different perspectives, and really respecting that there are a lot of perspectives out there in the family."

This often involved listening to viewpoints that were contrary to the champion's own opinions. "But they appreciated that those perspectives exist and respected people's opinions," Nacht says. "And that listening tied into people feeling more engaged, more respected and appreciated."

Hearing family members air their grievances requires "a lot of self-management," Nacht notes. Champions, for example, refrain from responding angrily to a relative's angry missive.

"It takes courage, and a willingness to really step out there," says Nacht, a married-in family director of Bird Technologies. "It takes some guts to stand up and say, 'We need to do something different.'"

Family champions must also be patient. Bringing a fractured family together can take years of work, Nacht says.

The champion role usually emerges from the next generation, Nacht comments, because the senior members tend to be entrenched in the dysfunctional family dynamic. "It takes a fresh face, a fresh perspective, to say, 'We're going to do it differently,' " he says.

Nacht says one of his goals in studying family champions is to help families identify next-generation members who have the potential to succeed in such a role, so those individuals' skills can be developed before family conflict arises. "Can we be proactive? Can we be preventative?" Nacht asks.

"The more we raise awareness of this role," Nacht says, "the greater the chance that someone in the younger generation will step up and say, 'That's what I want to do.' " —B.S.


How to create family 'stickiness'

Steve Lytle, a fourth-generation director of The Agnew Company (his family's single-family office) and a family business adviser, offers the following suggestions for family leaders who want to strengthen family connectedness:

1. Model inclusiveness. For the senior generation, this means making an unambiguous invitation to family members—particularly those in the rising generation—to share their views about what they want and need from the enterprise, and how they might participate in the enterprise. The successor generation's responsibility is to be proactive about stepping up.

2. Conduct family meetings. "You can't get clear about what you want collectively unless you're together," Lytle says. Working collectively toward a shared goal "builds the muscles" that help a family create sustainability, he says. Family meetings are the setting in which the four elements of a strong family system—cohesion, clarity, communication and competency—are developed, Lytle says.

3. Be vulnerable. Share what you know about yourself, and be curious about others' opinions. "True interdependence requires healthy independence first," Lytle says. "I think one of the biggest opportunities in family systems is to build emotional intelligence as a competency of the individual family members and the entire family system."

4. Create a safe space. Family members should not fear that they will be criticized for expressing their needs candidly at a family meeting. Indeed, Lytle says, family members have a responsibility to discuss their needs and values; if these remain unknown, the business will never be able to accommodate them.

5. Learn together. Set aside time during family meetings for education and competency building. Conduct educational sessions on communication and interpersonal issues as well as on the financial aspects of business ownership.

6. Model responsible ownership. Parents who complain about their children's entitlement attitude fail to acknowledge their own role in the development of that unhealthy worldview, Lytle says. "If, at the end of the day, parenting is about creating responsible adults, the question for parents is, 'How are you modeling adult responsibility every day?'" Lytle says. —B.S.


Three types of family business ROI

Family business owners tend to emphasize the financial bottom line, but family members actually receive three types of return on their investment in the family business, says Meghan Juday, the IDEAL Family Council chair and a member of the IDEAL Industries' board of directors.

Juday, who is also a family business consultant and director of the Initiative for Family Business and Entrepreneurship at St. Joseph's University in Philadelphia, describes the three types of family business ROI as follows:

Financial return. Family members need a financial return as an acknowledgment from the company that their assets are invested in an enterprise with a long time horizon.

Emotional return. Family members need to feel connected to the company—its history, its products, its relationship to the community, its loyalty to employees or its philanthropic activities.

Relationship return. Family members need to feel good about being business partners together. Getting together must be a fun, rewarding and fulfilling experience; family interactions should not engender feelings of dread or fear of conflict. —B.S.


Task force tips

Meghan Juday, a director of IDEAL Industries and chair of the IDEAL Family Council, instituted a task force process as a way of managing conflict in her family. She offers the following suggestions for those thinking of adopting the practice:

• Take the first step. "You have to start somewhere," Juday says. "So pick some topic—a subject that people are interested in, that you'll get a lot of participation on."

• Do some research. "Find out what other families do, and keep an open mind around what you may find," Juday recommends. "And don't jump to conclusions quickly when you're in a task force. Do a lot of research before you come up with any recommendations."

• Share your findings. Report the task force's findings to the whole family. Open a dialogue about the reasoning behind the task force's recommendations.

• Incorporate family feedback. The purpose of a task force is to represent the interests of the entire family, not just the task force members, Juday says. The job of the task force is to incorporate feedback from the family into their recommendation. This means that the recommendation must be revised—repeatedly, if needed—until all family members are able to endorse it. —B.S.

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

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On togetherness and inclusiveness

When a family business stakeholder group is small enough to fit everyone around the dinner table, the family values and business mission are communicated naturally, and important company developments are brought up in everyday conversation. But once the family moves into the third generation, it becomes harder to get everyone in the same place and on the same page.

At that point, it's important for family leaders to create ways to bring family members together to learn about the business and celebrate their legacy. If a conscious effort isn't made to unite the extended family, a range of issues could arise that threaten the future of the enterprise, including apathy, factionalism and entitlement.

Consider the Bancroft family, who owned Dow Jones & Co., publisher of the Wall Street Journal, for a century. In 2007, they sold the company to Rupert Murdoch, who offered an attractive price but was not the kind of buyer the family preferred. Because the family's younger generations had not been trained to be engaged stewards and had never coalesced into a unified ownership group, the deal became their best available option.

In many later-generation families, an "us vs. them" mentality develops: bloodline descendants vs. married-ins, those who work in the business vs. "outside" shareholders, younger vs. older generations, one branch vs. another. Members of factionalized families view their relatives as adversaries rather than business partners.

Inevitably as the family grows, there will be members who move far away and those whose passion lies outside the family business. If they have no interest in reading the family firm's financial statements or getting to know their third cousins, their ability to work together as long-term business partners is at risk.

The way to combat this dangerous fragmentation is to create communication mechanisms and face-to-face meet-ups that get family members thinking like one large clan rather than separate branches and interest groups. It's also important to allow family members who feel removed from the business to raise their concerns and know that they are being heard.

In this issue, we suggest some action plans for creating an atmosphere of inclusiveness. Charlotte Lamp, an owner of Port Blakely Companies and a family business consultant, offers tips on engaging the next generation and welcoming new in-laws into the family. And reporter Margaret Steen presents suggestions from family business stakeholders and advisers on organizing annual meetings that your extended family will look forward to.

Like other major collaborative undertakings, family meetings involve compromise—and some persuasion, trial and error, and drudgery as well. But the result will be a group of extended family members who know each other and are committed to working together as co-owners of a business united around a common mission.

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

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Make your family meeting a success

At this year's Laird Norton Family Summit, held in June, close to 300 members of the family that owns Laird Norton Company LLC gathered in San Diego—far from the diversified holding company's Seattle headquarters. They heard how the company is doing. They also learned from family president Allison Parks about family members' service to the company and philanthropic contributions in the past year.

Family members also had a chance to volunteer together, building doghouses for the Humane Society and putting together bikes for homeless youth. The World War II veterans in the family led a group to visit the USS Midway aircraft carrier.

"We have family members that come from all over the country as well as internationally," Parks says. "Providing ample time for them to truly connect is one important goal of our gathering."

Family meetings like Laird Norton's, which combines service, bonding, business and fun, help family members make memories together in addition to serving as a forum for discussion of key issues.

Many large families refer to their extended family group—including spouses, young children and other family members who may not hold shares in the business—as the "family assembly." Family assembly meetings are often held annually.

"The special challenge in family meetings is that you have family roles in addition to business roles," says Pat Armstrong, senior director of Family Dynamics and Education at Abbot Downing, a unit of Wells Fargo that serves ultra-high-net-worth clients. "You have siblings and cousins who have relationships that they established growing up, who are now talking about business issues and financial issues together."

Family meetings are essential for large, far-flung clans like the Laird Norton family, which is now in its seventh generation and has a total of more than 400 members. But even smaller families have found it beneficial to bring everyone together to discuss business and family issues and share quality time.

"The family business is the most complex organization you can have, because it's a business organization and a personal family," says Dennis T. Jaffe, a family business adviser and a professor emeritus at Saybrook University. "There are so many ways to misunderstand each other. A family business can't afford not to sit down and talk and make agreements."

Family business owners and advisers with experience in planning and running family meetings offer some tips that will help make your gathering a success:

1. Set goals.

A family meeting should have goals, an agenda and a focus. Little will get accomplished if the plan is simply, "We're going to talk and see what comes up," Jaffe cautions.

According to Armstrong, many families develop their meetings with the following objectives in mind:

Communication: to inform the larger family group about what is going on in the business.

Education: to provide information that will help family members be more effective stewards of the business and foster pride in the family legacy.

Decision making: to reach consensus on matters that affect the family and its relationship to the business.

Connection: to allow family members to get to know each other better—especially important for large families whose members don't live near each other, or in cases where a generational transfer is coming up.

Leadership development: to prepare family members to take on larger roles in the family or the business.

At Carriere Family Farms, which grows and processes walnuts and also grows other crops in California's Northern Sacramento Valley, the goal of the family assembly meeting is "communication and inclusiveness," says Jennifer Carriere-La Duke, grower relations manager. Carriere-La Duke, one of nine family members working in the business, also serves on the family council, which is the liaison between the board of directors and the more than 80 family members.

"When challenges potentially arise in the future, we will have the tools to be able to talk about it" because of the progress made in the family meetings, Carriere-La Duke says.

Many families combine fun activities with the business aspects of the meeting. The Smith family's meetings are "a combination family reunion, shareholder meeting and conference," according to Nick Shepard, the Smith Family Council's communications director and vice chair. For example, last year the family went on a sunset cruise on the Chicago River, which provided time for family members to catch up as well as to chat with some of the company executives.

Shepard helps organize meetings for more than 200 family members, about 130 of whom are shareholders in the family's packaging, logistics and marketing enterprise, Menasha Corporation. In addition to the shareholder meeting, "we really try to get the family to be educated about the business," Shepard says.

Family meetings can provide a forum for resolving problems—but even better is to use them for proactive communication so that minor disagreements don't turn into full-blown conflicts.

For Jo Anne Allen, trustee of the David W. Allen 1989 Trust, a management and property development company in the San Francisco Bay area, family meetings began after a crisis: her father's unexpected death in 1997. "There was no succession plan," Allen recalls. She and her six siblings "were thrown into how to work everything out. There was a lot of pain and contention."

The family meetings started out as therapy, "the process of trying to come current with each other as adults," Allen says. "We learned how to communicate. Then, slowly, we began to work with business professionals who helped us also organize our business. Slowly, over time, we got more help that was directly to do with succession, creating a family council and the first stages of a real succession plan."

The Smith Family Council was formed at a time when family members were at odds over the future of the business, according to Shepard. Among the early objectives for the family council, he says, was "how to make 'family' into something that was positive rather than divisive."

Thanks to the establishment of the council and the family meetings it has organized—combined with the strong performance of company in the past decade—the family has been growing closer and learning to work together, Shepard reports.

"The family gatherings became more formalized and more regular, with a lot of education and consultants coming in," Shepard says. "We've tried to spend a lot of time getting family members to socialize with each other. We have bought into this idea of the family's relationship to the company not necessarily being one of constant oversight but as a supporting entity."

2. Plan and prepare.

It's crucial to invest time and effort in preparing for the meeting. "You don't want to have people on the spot or surprised in the meeting itself," Armstrong cautions. "Have individual conversations in advance and review the preliminary agenda. Ask about any concerns [the agenda] should be sure to cover. Spend 80% of your time on pre-work so that the 20% of the time in the room together feels really productive."

"Every family should have a feel of the emotional intelligence of the family, as well as if there are any underlying issues—elephants in the room that have never been dealt with," says Barbara Quasius, chief financial officer of Windway Capital Corp., a holding company owned by family trusts for Terry Kohler and family. Quasius is a non-family member, but her job includes being a liaison with the Kohler family's 13 members, only one of whom (chairman and CEO Terry Kohler) works for the company. "Some families are very close and see each other all the time. Others are dispersed and don't know each other very well," Quasius points out. "Those are the different dynamics that can come into the meeting room."

One agenda item for an early meeting: establishing ground rules. "Spend the early part of the meeting identifying what the rules are going to be, such as not talking over each other or how someone calls for a time out if there needs to be a break," Armstrong advises. "Depending on the family culture, the ground rules will all look a little bit different, but spending time early in the process establishing those is important."

At Carriere Family Farms, having a detailed agenda—and a timekeeper to keep everything on track—has helped make the meetings progress smoothly. "We went from a two-hour family assembly meeting to a one-hour meeting and designated a timekeeper," Carriere-La Duke says. The agenda for a recent family meeting included updates on the family business, a conference that family members attended, the camp the family runs for young family members, matters that arose in a recent family council meeting and the business's involvement with the Boys and Girls Club.

After a meeting, it's important to assess what went well and what didn't, and plan to adjust accordingly. "We've had meetings where we were trying to provide too much information in one meeting," Quasius says.

3. Decide on logistics.

Meeting organizers must consider several logistical issues:

Who should attend? This depends on your objective, Armstrong explains. "If the objective is communication or education, you might have all of the identified family members there. Maybe you carve out a meeting for decision making that is just for shareholders."

The key, Armstrong says, is to be sure you don't have attendees wondering why they're there or asking, "Why is this person here? They shouldn't be part of this decision-making process."

Another question involves whether there should be age restrictions. For example, a family may want teenagers to attend at least part of the business meeting, so they can begin to learn about the business. Organizers may need to consider the logistics of babysitting for younger children while the adults attend business meetings.

Some families create special activities for younger children that take place while the business meeting is going on. For example, the Laird Norton Family Summit provides educational events and a fun day camp for school-age children that are scheduled concurrently with mandatory business sessions, enabling the parents to participate in the mandatory meetings. Other benefits: The young cousins who attend the camp are developing close ties, and the program helped boost attendance at the family summit—children push their parents to attend the meeting because they want to go to camp.

Laird Norton had about 80 children at its camp last year, Parks says. At age 14, children have to start attending the mandatory business meetings, but they can continue in a teen program the rest of the time. The camp has been run for more than 20 years, so the early attendees are now adults. "It's established fantastic social bonding with these kids," Parks says. "We can really see the fruits of our labor."

How often should meetings be held? "Frequency derives from your objectives," Armstrong advises. When family gatherings are just starting and you're still trying to establish ground rules and do strategic planning, more frequent meetings may be helpful. If family members are geographically scattered, annual meetings may be most practical.

Where should meetings be held? Generally speaking, a neutral location such as a hotel conference room is better than convening a family meeting at someone's home, Armstrong says.

For Laird Norton, a key consideration is finding a venue in an enticing location that can accommodate almost 300 people.

"As we have a bigger generation in the workforce with limited vacation time, we have to make the annual meeting as attractive as possible," Parks says. "We have seen through the years what a powerful opportunity we have to connect with each other, and the business, through intentional connection, education and service."

Shepard says the Smith family has traditionally gathered in Wisconsin, near Menasha's Neenah, Wis., headquarters. That has made it convenient for company executives who are asked to address the family group.

"I think the reason we go back is a little bit of nostalgia, but primarily it's easier for the business to stay there than for them to pack up and go off to Hawaii," he says. Cost is also a barrier to holding the family meeting in a more exotic location, he adds.

However, Shepard says, because the family is now more spread out geographically, alternative locations have been proposed. The 2014 Smith family meeting was held in Chicago; the family will go to Elkhart Lake, Wis., this year. "There's a balancing act between how to get people there and make it feel like a vacation, as well as something that works for the business," he says.

Who pays? Laird Norton covers the cost of family meeting attendance for all unit holders, Parks says. In return, participants must attend two mandatory sessions at the meeting.

Jaffe points out that for families who hold their meetings in locations where air travel is needed for most participants, costs could be quite high—possibly in the millions of dollars if the family is large. On the other hand, covering attendees' travel expenses results in increased attendance and makes it more likely that the meeting will meets its objectives.

Do you need an outside facilitator? Families just beginning to institute family meetings might want to enlist a third-party facilitator to ensure everyone's voice is heard. And of course, a facilitator will likely be helpful if a difficult topic—such as a conflict among siblings—is on the agenda.

Consider the complexity of the business and the size of the family, in addition to how well family members get along, Jaffe says. "The more argument and conflict and anger that you sense, and the more complexity, the more you need an outside person to help you run the meeting."

Taking the plunge

Planning a meeting may seem complicated, but don't be afraid to move forward. One of the biggest mistakes families make is putting off scheduling a meeting "because they're anxious about what will happen rather than seeing what they can do to prepare for it," Jaffe says.

Planning fun activities to complement the business agenda strengthens family bonds. Programming that emphasizes the family values and history fosters family pride. Members of succeeding generations who have fun together and are proud of their legacy will want to continue in business together.

"At every one of our family meetings," says Laird Norton's Allison Parks, "while we are there for business and we take that seriously, we are absolutely committed to having fun and making time for connections." 

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

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

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Beyond 'cohesion': Why terminology must evolve through the generations

Families experience significant and sometimes difficult changes over the years as elders pass on and new family members grow into leadership roles. Amid such transitions, doing things the way they've always been done can be a recipe for disaster. What worked for a two-generation family with five members may not work when the family reaches the fourth generation and now involves multiple households, varying wealth structures, different liquidity needs and geographical separation. For business families to succeed, we suggest they embrace a continuum of language that more accurately describes their circumstances and thereby supports their communication and relationship efforts.

Language greatly affects the way people think, how they interact and how they move forward. Having the right words to describe natural, generational changes in family relationships can help members understand and embrace their family's evolution, creating new opportunities for growth and improving the family's response to challenges.

The word "cohesion" has become a hot term in the the family enterprise field. Family business researchers and advisers talk about family cohesion, emotional cohesion, financial cohesion and spiritual cohesion. These terms can be confusing. Complex multigenerational families evolve over the years, and cohesion may not be the most important goal at every stage of family development.

Below, we describe relationships in business-owning families through the generations, using a range of terms that reflect subtle yet important variations in how a family interacts. These stages occur on a continuum, and the concepts purposefully overlap. One term or concept does not necessarily start when another stops, and managing the transition from one concept to another is art, not science.

Generations 1 and 2: Unified

"We are stronger together."

In the early generations, the family unit is small and often unified around the entrepreneur, who has a strong guiding vision for the family business. The leader of the business is usually the leader of the family. Relationships remain close, and being unified is the obvious way to operate successfully together. Unity is defined as the ability to work together as a tight family unit to achieve success through a shared vision. Although families should expect varying perspectives and disagreement even at this stage, unity as an aligning force provides many benefits to the family. The G2 sibling group may also accept a unity perspective as the basis for their relationships, depending on how many siblings there are and the group's emotional closeness.

An example of family in the Unified stage is the Smith family, a 12-person G1/G2 family with an operating company and an active entrepreneurial patriarch. Mr. Smith has worked hard to build his business, has set up a foundation to fund his multiple passions and has done extensive, visionary estate planning with the help of professionals. At this point, Mr. Smith realizes the need to address succession and transition planning in both his family and business, and is in the beginning stages of forming a family council in an effort to include the opinions of his sons and daughters.

The family has an annual retreat to discuss business-related issues, philanthropy and how to move forward as an ownership group with potentially unequal ownership percentages. Mr. Smith is the driving force behind decisions for both his business and his family at this stage, and the family is unified behind his vision.

Generations 2 and 3: Cohesive

"We stick together for our common good."

For the next development stage, cohesion is a wonderful term to use. Cohesion is defined as making the intentional choice to stick together for the common good of the family. The family is growing across generations and is no longer a single unit; children are growing up in multiple homes with an accompanying divergence in values, relationships and experiences that dramatically increases the complexity of family dynamics. As the range of perspectives and values expands, more frequent and meaningful disagreement is to be expected. The business may not be able to provide employment for all family members (nor do all family members want to work in the business), so the group of non-participating owners grows in size and significance.

These factors prevent family relationships from being "unified." The family's thinking and language must shift to emphasize how this more complex and diverse group can stay together. Cohesion works as a concept at this stage because it describes people who may be moving apart physically or emotionally, but purposefully maintain the bonds and relationships that perpetuate the advantages of a business family. At this stage, exploring what emotional, financial and social cohesion mean to the family can be informative and productive.

The Dunn family, a 43-person G2/G3 family, has realized the need for a more inclusive model as family members have increased in number and moved apart from each other. The focus has transitioned from a patriarchal view to a perspective of keeping the family cohesive and involved. They have a highly functional, nine-member family council that puts out a monthly newsletter and helps organize the annual five-day family camp. To encourage wide participation, the family has established various task forces made up of three to seven family members. These task forces focus on family vision, concerns, policies and education, reporting their findings to the family council. The family, which places a premium on communication, realized the current (millennial) generation was not reading emails but does use social media. As a result there is a social media policy in place, and social media are used to funnel information. The family is inclusive across branches and generations and shares a goal of building a cohesive ownership group to steward their successful business.

Generations 3, 4 and Beyond: Connected

"We choose to participate."

In the third and fourth generation and beyond, the family has grown in size and complexity and typically incorporates a wide range of values, wealth, wants and needs. Multiple generational perspectives also mean family members will see the family and its enterprise in a variety of contexts shaped by different worldviews. Because of the family's exponential growth, cousins of similar ages could be of different generations. As the family spreads geographically, cousins may grow up not knowing one another. Generational shifts may mean wealth structures are vastly different from household to household. Family dynamics can be quite complex, as the family tree now includes a number of different branches. Disagreements may have caused long-standing disconnects among various relatives. Segments of the family may have chosen to sell their ownership, under circmstances that could be amicable or acrimonious. The group of non-operating owners may well have majority ownership of the family business, or business leadership may have been transferred to non-family managers.

At this point, the family must consciously decide if and how members want to be connected. The concept of connection allows for greater choice and freedom in how people relate to one another. By the third or fourth generation, family ownership typically cannot be described as "cohesive" because the family itself is simply too large, complex and diverse to hold everyone together. Trying to maintain cohesiveness among a large G4 family ownership group may actually be detrimental because the concept doesn't allow for the differences that must be embraced at this stage. Connection, on the other hand, encompasses the ability to maintain close relationships if desired, or to be more distant yet still engaged. Connection, distilled down, implies that everyone has a say on if and how they want to be connected—without judgment.

An example of a connected family is the Watsons, a G8, 150-person family who sold their successful operating company years ago. They have a family foundation, but no one lives in the original hometown, and their geographic footprint is large. They realized that while trying to stay cohesive simply wasn't possible, they needed to remain connected. Among the important questions they asked themselves were:

• What does it mean to "be together"?

• What is the value of "getting together"?

• What is the value of doing good work together?

The family believes in the old adage, "A family that plays together stays together," and they use this approach to remain connected. The family has a destination reunion about every three years; about 120 people attend. They also encourage "mini-gatherings" in places near locations where clusters of family members live. They produce a newsletter, circulated twice a year, that focuses 50% on the family and 50% on the family foundation. Many believe that the shared interest in the foundation is what will continue to connect the broader family. Finally, they realize the need to become digital and have started to build an online family tree, adding video and pictures and depicting family members' hobbies and professions. All of these approaches are aimed at keeping the family connected even as they grow in size and location.

What is best for your family?

Unity, cohesion or connection? What's most important is that families take notice of the words they are using and embrace the concept that works best for their family's current circumstances. Be sure you are engaging in a meaningful dialogue about your family relationship dynamic. We encourage families to put serious thought into their specific dynamics and what they are trying to accomplish. Using appropriate words and concepts will help family members understand how they can best relate to each other, which we believe will lead to more favorable outcomes for the family and family ownership group.

Being adaptable, creative, attentive and, let's face it, a little humble goes a long way in the ongoing process of family development. Successful business families continually re-evaluate themselves and embrace a spirit of evolution in their thinking. A good friend once said, "It's not about best practice, but rather practicing what is best for you."

Joshua Nacht, Ph.D., is a third-generation, married-in member of the board of directors of Bird Technologies, based in Cleveland, and a second-generation owner of a real estate development and management company in Edwards, Colo. Andrew Pitcairn, a fourth-generation member of the Pitcairn family, is the chair of the Pitcairn Family Council.

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

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Creating a plan for realizing 'trapped' wealth

There are many reasons why a family company ceases operations, but one routinely missed by family business boards, CEOs and advisers is the failure to view the family business as an "investment asset" rather than an "operating entity." This often results in disruptive family dynamics over time, since individual shareholders have differing investment objectives and needs. It also exposes families to inappropriate investment concentration and unrecognized "tail" risks, and causes them to incur lower family shareholder realized return with less liquidity. The inevitable consequence is the silent and unseen evaporation of family wealth—often over a single generation.

Of course, family businesses have multiple reasons for existing, but ignoring sound investment management principles for your family company carries a huge hidden cost. For example, when I was the CEO of my family's businesses, we focused on the company's return on equity (ROE). Under that metric, we were very successful in posting great returns for several consecutive years. However, we failed to recognize the significant difference between "realized" and "unrealized" ROE—and, unfortunately, so do most family business owners. Simply stated, shareholder ROE is not realized until cash is in the shareholders' pocket. Prior to that, it is an "unrealized stock gain" with all of the associated risks.

Too few families understand these risks and the corresponding diminished shareholder ROE. They fail to recognize the importance of developing and implementing strategies to partially realize trapped family business wealth as it is being created. While many professional advisers focus on creating and preserving family wealth, few concentrate on realizing family business wealth prior to a liquidity event.

Realizing family business wealth

To address this issue, families should evaluate how to partially realize "trapped" family business wealth—prior to the sale of the business, or sometimes as an alternative to the sale of the family business. By realizing trapped family business wealth, the families can:

• Improve overall family wealth management investment performance by increasing realized internal rates of return, liquidity and diversification and reducing portfolio volatility and exposure to tail risks.

• Provide family liquidity to meet both family and individual shareholder needs and objectives.

• Provide retirement funding for succession planning without selling the business.

• Facilitate advanced asset protection and wealth transfer strategies to support estate planning.

• Improve family dynamics by providing multiple special-purpose entities for family member engagement as investors and directors.

• Introduce better financial management disciplines into managing the family business.

Implementing a wealth realization strategy

The first step is to evaluate the family business's cash flow generation capability, sustainability and volatility along with its capital needs. A combination of in-depth company and industry knowledge with an honest and objective operational and financial review of the business is essential to define parameters on how much wealth realization is feasible without negatively affecting the golden goose—your family business.

The next step addresses the "softer" issues associated with family business dynamics, the often-overlooked issues that undermine multigenerational business longevity. Thoughtful and objective individual confidential conversations with key active and passive stakeholders are critical to developing a conceptual framework that meets both business and family needs. Long-term success requires understanding and addressing the technical/financial structural issues, individual family members' needs, and family dynamics and culture.

Once these foundational steps are completed, the next step is to evaluate alternative business capital structures and shareholder distribution strategies against both the liquidity and diversification objectives of the family while meeting the current and future capital requirements of the business. A variety of options should be evaluated: recapitalizing the business through additional debt or sale-leaseback transactions; spinning off non-core assets (such as real estate) into separate companies or preparing them for sale; improving working capital management; and instituting ongoing annual distribution strategies. As part of this phase, investment models of the family's overall wealth portfolio, including the family business, are evaluated. We recommend constructing multiple investment portfolios based on differing investment asset class allocations. Each portfolio should be evaluated using a range of inputs to understand the potential investment results. The final portfolio design should best meet the family's investment management objectives and goals for shareholder liquidity, risk and returns.

In the final step, one or more special-purpose entities with specific investment strategies and customized shareholder agreements are created to house cash or other assets distributed from the operating enterprise. With properly designed special-purpose entities, one can mitigate any revised business capital structure risks while meeting both family and family business wealth management objectives. As part of this phase, estate planning and tax-efficient wealth transfer often occur with input from the company's estate counsel.

Common objections

Some family business CEOs state, "I would rather stay invested in my business, where I understand the risks, than diversify into other investment asset classes." On a superficial level, that response appears to have merit, but an analysis with real company data often proves the opposite. In fact, lack of diversification creates both a high risk and an underperforming family wealth portfolio.

Family business CEOs typically fail to account for a number of uncontrollable and unpredictable tail risks, such as:

• Loss of a major customer, critical supplier or key employee.

• Obsolescence of a product or a service.

• Governmental regulatory or product liability problems.

• Family feuds/litigation.

• Business interruptions due to uncontrollable events.

• Declining future business performance.

• Market changes in interest rates, equity multiples or tax rates that have a negative impact on business valuations.

Also, if cash is not distributed to shareholders, then their internal rate of return is zero, even if the business returns look great on paper. Unrealized cash returns create a significant hidden cost. As an example, by initiating an annual cash distribution strategy to begin partially realizing trapped family business wealth, one business improved its shareholder return on equity from 13% to 19%.

Another common reaction is, "Our family doesn't like debt," or "Our business has very little debt so we can maintain a lower risk business for future generations." In the short term, companies with lower debt have lower financial risks. However, over the longer term, families must consider the significant risks and costs associated with that strategy, such as reduced shareholder returns. This can prevent accumulation of the growth capital necessary to protect and grow the family business for future generations.

We often explain to families that no debt means the family is using its precious equity capital to finance accounts receivable and inventories. In today's marketplace, working capital lines from a bank are charging around 3%. As a result of self-funding, the family is making an unconscious decision to invest family equity capital into a 3% returning asset, a good example of wealth evaporation over time.

Every business owner should consider this fundamental question: How many years do you wait to begin partially realizing some of your trapped family business wealth through transfers into a well-managed family wealth investment preservation program?

Improved family dynamics

As an additional benefit, partially realizing family business wealth by creating additional investment entities will increase the opportunities for family member participation. For example, active business stakeholders could serve on the family business board while passive stakeholders could serve on one or more family investment companies. Other family members could serve on the family foundation, and others could run a family enterprise bank (for lending to other family members). In addition to financial benefits, implementing these strategies can improve family connectedness, engagement, communication and compensation. All these benefits together will support long-term positive family dynamics and enterprise longevity. Developing a family business wealth realization strategy can meet family as well as family business objectives.

George Isaac ( has 30 years of experience as a family business CEO, board member, consultant and executive coach and has served on 14 boards of public and private companies ranging in size from $30 million to $1 billion. He advises clients on succession planning, governance, family dynamics, performance improvement and wealth realization.

Copyright 2014 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

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