Creating a family strategy
The fourth-generation chair of IDEAL Industries Inc.'s family council describes the process of family leadership transition. As the fourth generation prepared to assume greater leadership roles, the company was in the midst of great growth and change.
The family members of IDEAL Industries Inc. refer to ourselves as the IDEAL family in jest. Ideal isn’t a name that suits our modest family members, and our family interactions at times have been far from “ideal.” It took us years to figure out that when our founder and my great grandfather, J. Walter Becker, chose the name for the business, IDEAL referred to the relationships he hoped to cultivate; it didn’t refer to himself or the business.
Our family—which consists of 49 owners, partners and spouses, representing the second through fifth generations—shares little in common except the business. Since the founder had two daughters, none of us even shares the founder’s name. We are spread across the country and have been for generations, so our context together is the business.
We call ourselves the IDEAL family, recognizing that it’s a state to which we are always striving, rather than something we have achieved. We get together as a family for three to four days once a year to talk about the business and our family governance. We also leave plenty of time for fun. The family council, made up of 12 volunteers, meets quarterly and is responsible for putting together these annual meetings and executing our family strategy. Our family council has done a lot of work to prepare for transition to the fourth generation.
IDEAL Industries, with over 1,200 employees, manufactures more than 6,000 products for the electrical, datacomm, OEM, wire processing, security, automotive, telecommunication and industrial markets. IDEAL has a global reach, while maintaining a local focus. IDEAL’s headquarters is based in Sycamore, Ill.; manufacturing plants are located in Sycamore and DeKalb, Ill.; Massachusetts; Canada; Ireland; England and China. International sales facilities are located in Canada, England, Germany, Australia, China, India, Brazil, Mexico and Puerto Rico.
The company, nearly 100 years old, is in the midst of great growth and change. The business is currently executing a ten-year plan to triple sales while maintaining an EBITDA that would distinguish IDEAL in its industry. A majority of the growth will come through acquisition; the balance will be achieved through organic growth. During this same time, the family chairman of the board is in the process of transitioning out of an active role in the company. The chairman is the only family member in management, with no plans for any other family member to succeed him in the near term. In this transition we are moving from a few family members in leadership to the whole family taking a more active role as stewards.
The family, realizing that this is a critical time in the history of the business, renewed our commitment to remain family-owned and concluded that we need to be the best possible partner with the board and management for the continued stewardship of the business. In light of the changes that needed to take place, there were several critical issues that the family had to address in order to be prepared stewards of a company much larger than it is today:
• Grow the family through education and development opportunities.
• Create dispersed leadership opportunities for many family members and a deep bench of family members qualified to serve on the corporate board of directors (contrasted with the single or dual leaders in the second and third generations).
• Create an education and development process that would not only help create and support diverse leadership, but also build an education plan to bring the family up several notches in their understanding of the business and their role as stewards.
• Maintain effective communication among the family, board and management to ensure alignment.
The case for change
Our first step toward change was to help the family understand what impact, both positive and negative, they could have on the business. Up until this point, the family had always thought that if they “stayed out of the way and didn’t create public conflict,” they would be doing their part. The truth is that if the family isn’t actively pursuing growth, sound governance and partnership with the business, then the business will have difficulty achieving its growth objectives. The board, management and family are all in a dynamic partnership that requires each role to be as highly functioning as possible.
We recognized that a business-owning family that has strong governance and a plan for growth would be more likely to attract and retain top talent. Attracting and retaining top talent in the business is critical to achieving the business goals. No matter what the economy is doing, the best talent can afford to be picky about where they go and what is best for their career. Good family governance can play a key role in recruiting and retention because solid governance structures demonstrate to candidates that the company mangers and the business-owning family are partners working toward the same goal.
Defining a plan
We determined that if the business had a ten-year plan, so could the family. We adapted a business strategy model for our purposes (see Figure 1). We determined that a family strategy (adapted from J. David Hunger and Thomas L. Wheelen, Essentials of Strategic Management, Fifth Edition, 2011) would be the best way to define what we needed to accomplish; it would help us set the proper objectives to achieve our ten-year vision.
The process took about 18 months, but we had been building to this point for the last ten years. We finally had the right relationships in the family and people who were willing to take on additional leadership roles. Without these elements in place, we wouldn’t have been able to take on such an ambitious plan.
The first step was to educate the family about why we needed to change. We started a series of webinars where we could share with the family what we needed to do and why. This became our rollout mechanism. We used presentations and webinars to gain buy-in without spending a lot of time on document preparation. (This was key to meeting our aggressive timeline.) We recorded all of the webinars so that individuals who couldn’t attend a webinar could still get the information.
We started the process with four task forces. Each task force was led by a fourth-generation family member and was supported by the family council chair. We used this opportunity to build leadership skills with these new leaders. It was critical that the family had more diverse leadership in the fourth generation.
Elements of the family strategy
Our family strategy has three components: strategy formulation, strategy execution, and evaluation and control.
Strategy formulation. We started by defining our shared values, the mission and our ten-year vision. We needed these elements to determine what steps we needed to take to achieve our goals. We have made all decisions based on these three elements:
>• Our core values: Stewardship, inclusiveness, transparency, relationships, empowerment and engagement.
• Our mission: Be the best possible partner with the business and act on our shared values.
• Our vision: We remain family-owned and ensure our governance structure creates accountability and inspires confidence in our family, board, management and employees.
Without these three elements, we wouldn’t have an agreed-upon direction for our family. Here’s an example of how we use one of these elements—our values—in all of the decisions we make. The family determined that we needed to have an information security plan to ensure that we were being good stewards of the information that the company distributes. We want to be good stewards of the information and ensure that it is secure, but we also need to be transparent and inclusive. This means that we can’t make the family come to the office to read quarterly updates, just as we can’t e-mail our corporate financial statements. Our solution was to create a website on our corporate portal and e-mail links to the information. Everyone has access to the information, yet the information remains secure.
Once we had the vision, values and mission, we were able to create the objectives and strategies that will help us achieve our vision. These strategies and objectives were based on where we want to be in ten years, and how to best bring our values to life in everything we do.
Strategy execution. Our next step was to build a new governance model to support our direction. The new governance model supports our vision, mission and values (see Figure 2). Four standing committees were established that would operate inside our family council to carry out the family’s objectives in four key areas: Governance and Ownership, Development and Education, Business and Financial, and Family and Philanthropy.
Evaluation and control. No matter how thoughtful our family is in creating the family strategy, we will need to adapt and revise as we go along. If there is one thing that I have learned as family council chair, it’s that the family is a moving target. We are constantly evolving, new family members are added, we mature (hopefully) as a group, and we lose family members over time. The plan we set out today will not be the one that we will execute five years from now. The important element is that the family has a plan, the means to execute it through governance and a process to gather feedback and modify the plan. We will report each year on our plan and our progress, and we will gather feedback from the family on what should be different or how we can improve. The feedback will help us modify our plan.
Mitigating the leadership vacuum
One of our family’s biggest hurdles was (and is) building strength, expertise and leadership among the fourth generation. Up until these last few years, the family relied solely on the third-generation leaders. The third generation formed a family council in 1986, although they had been having family meetings for years. Our third-generation family council chair was also a lawyer who specialized in estate planning; our third-generation chairman of the board had been working in the business for 40 years and had been CEO and/or chairman for the last 30 years.
Such effective leadership in the third generation led to a leadership vacuum in the fourth generation (ages ranging from 22 to 55). We spent a lot of years as “the next generation”—not quite knowing how to make the transition while still keeping access to the third generation’s expertise.
Recognizing that we had big shoes to fill and not enough leaders in the fourth generation, the family council came up with a plan. The goals of the plan were to create some space for the fourth generation to build skills, use task forces to create supported leadership opportunities, and build a funding mechanism to support the growth of individuals and the whole family.
• First, we had to separate the third generation from the fourth. This would help the fourth generation learn to work together and build confidence in themselves. It would also enable the third generation to see the leadership qualities of the fourth generation. There were challenges involved: The third generation wasn’t comfortable being uninvolved, and the fourth generation didn’t know what to do without the third generation in the room. It took a few months for the fourth generation to get their feet under them and start on the strategy process. We had spent several years up to this point trying to figure out this step. It took an outside consultant to push the generations apart (temporarily) so the fourth generation could find their voice. Our family could bring only what we knew to the transition. We needed an outside perspective to “dislodge” us from our historic patterns of deferring to our strong third-generation leaders.
• Secondly, we created four task forces, corresponding to the four standing committees, and asked for a fourth-generation volunteer to lead each one. The fourth-generation family council chair worked closely with each leader to ensure that they understood the process for getting buy-in from the family and, particularly, from the third-generation leaders. We found that although the third-generation members weren’t directly involved on a day-to-day basis, if they had concerns or didn’t like the direction in which the fourth generation was going, the process could be stopped in its tracks. Over the year these four task force leaders built the skills, experience and confidence to become our first standing committee chairs.
• Lastly, several second- and third-generation family members created and committed $250,000 to a Development and Education Fund to provide education, leadership development, coaching, mentoring and exposure for all family members based on the conditions set by the funders. These conditions were that they would fund educational endeavors that advanced the cause of the family, not necessarily the individual. This allowed equal access to leadership development no matter how many shares an individual had or the level of income in their family branch.
Development and education
The Development and Education Fund created by the third generation opened up huge opportunities for the family and allowed us to “dream big” when it came to creating a culture of learning and personal development. Without this initial funding, we would not have even considered putting together such a robust education program.
The Development and Education Committee (DEC) plays a key role in the successful implementation of our family strategy. It has several key responsibilities:
• To coordinate education and development activities for the whole family, the family council, the fifth generation and the standing committees.
• To coordinate development for individuals, including professional coaching, skills assessments, clear expectations and a 360 evaluation process.
• To administer funding for development and education.
• To recommend candidates for leadership positions based on 360 evaluations and feedback.
The DEC also replaces the “gatekeeper” role that the family chairman played when helping guide family members into the proper family role. This is perceived as more fair. Even though the family chairman was evaluating family members on the same expectations as the DEC does (without having them written down), the fact that he controlled the process led to a sense that any evaluation he made of a candidate was personal.
The DEC ensures that there is proper support for each individual to meet the expectations for his or her desired role. Through the 360 evaluation process, the DEC is able to evaluate individuals subjectively and objectively. Each role has clear expectations, recommended curriculum for development, access to coaching and mentoring, and interactive dialogue with the individual and the DEC.
The family council created a case for change, a plan for change and a governance model to implement the change. But the biggest challenge was how to get buy-in from the larger family.
Although the family council believed that this was the right direction for the family, convincing the 49-member family group to approve this change was going to be difficult. We were not only proposing a dramatic change to our governance model and a ten-year plan, but also asking shareholders to give a portion of their dividends to support the ongoing funding of the program. Asking for money was a true test of support.
Given the amount of change the family council wanted to get approval on, we put together a rollout plan spanning the six months before our annual family meeting. We sent out a monthly e-mail update that provided a high-level overview of the material that we wanted the family to get familiar with, as well as links to more in-depth material on our newly implemented website.
We followed up that e-mail with a webinar two weeks later in which we discussed the changes that we were proposing in that month’s e-mail. We recorded these webinars for family members who couldn’t attend the live session. This rollout was markedly different from anything we had tried before because everything we did was in a presentation format, rather than written documents. This was key to getting buy-in because the material was easily digested and updated with feedback. Using PowerPoint presentations to get buy-in on the concepts before putting anything in writing saved us hundreds of hours in document preparation and editing.
The family approved the concepts of family strategy and the addition of standing committee chairs to execute the strategy in their domain, and they also agreed to ongoing funding of the development and education program. Because we based the plan on the family’s values and vision, we were able to get the family’s commitment to allocate 1.75% of dividends to the development and education program. This was a sure sign that the family was in agreement with the proposed family strategy.
We are grateful that our family recognized our need to change in light of the impending transition and business direction. To stay the same would have decreased the likelihood that we could remain family-owned for another generation. Our ongoing task is to stay focused on the business direction and ensure that the family growth and expectations are in alignment with the business.
Our family strategy and new governance model have eased the worries of the family. Having a plan has made the family as a whole feel less worried about how we are going to manage as our third generation moves away from active roles in the family and the business, and it also allows us to be proactive owners who can adapt to our changing environment, rather than react. We have a plan on how we can be the best stewards and partners. Now comes the fun part of acting on it!
Meghan Juday is chair of the IDEAL family council and a member of the IDEAL board of directors. She is the founder of Family Business Strategy Group, a consulting firm (www.familybusinessstrategygroup.com).
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