Day & Zimmermann prepares for the next 100 years

By Dave Donelson

To build a foundation for the future, the third-generation owners created a trio of leadership bodies.

Hal Yoh believes in preparation. The 52-year-old CEO of services conglomerate Day & Zimmermann and his two younger brothers are decades away from retirement, but the Yoh brothers recently completed a plan to ensure their $2.5 billion company can remain in family hands for generations to come. To help the family owners run their sprawling concern, they created multiple leadership bodies: the Yoh Family Business Council, the Leadership Council and the Board of Advisers.

“It’s important to have the family involved in the company,” says Hal, whose full name is Harold L. Yoh III. “When you start considering it simply as an asset, the structure falls apart and the power of being a family business falls apart. You need to be proud of the business…. You need to tie the family to the business on something besides the numbers.”

Strategic growth and historic significance

Walking through the display-lined halls of Day & Zimmermann’s office in Philadelphia is like touring a museum devoted to America’s industrial history. The company was founded in 1901 as an engineering firm that provided clients (mostly manufacturers) with reports on how to increase their productivity through technology. By 1908, it was building the Gatun Lock system in the Panama Canal. In 1914, Hershey Foods called on Day & Zimmermann to design the machines that wrapped foil around the company’s famous Hershey’s Kisses. A decade later the company got into the utility management business by acquiring Penn Central Light & Power. Construction of munitions plants for the war effort in the 1940s led to contracts to operate them in later years, a business that continues today.

In 1961, the brothers’ grandfather, Harold Yoh Sr., acquired Day & Zimmermann and folded his contract engineering firm into it. The eponymous subsidiary, Yoh, continues as a high-tech staffing company. Yoh staffers worked on projects like designing the Mercury and Gemini capsules for the U.S. space program. “This company was very active in putting a man on the moon decades ago,” Hal proclaims.

Day & Zimmermann’s construction company handled projects as large as Philadelphia’s Veterans Stadium, the now-demolished former home of MLB’s Phillies and the NFL’s Eagles. In the 1970s, the company combined staffing and construction forces to work on 645 modernization projects for the U.S. Postal Service. Harold Yoh Sr.’s son Harold Jr., known as Spike, bought the concern from his father in 1976 and a spate of acquisitions followed that took the company into naval engineering, nuclear and fossil fuel power plant maintenance, and security services for sites like the Los Alamos nuclear laboratory in New Mexico.

The third generation, Hal and his four siblings, took over from Spike in 1998. One of the brothers, Jeff, left the company in 2003 to pursue other interests and their sister, Karen, passed away in 2007, leaving ownership in the hands of Hal and two brothers: Mike, now 50, who serves as president and CEO of the company’s Munitions and Government business division; and Bill, now 42, who is chairman of Yoh. Through further acquisitions and organic growth, sales have more than doubled since the third generation assumed control.

Today’s Day & Zimmermann operates four distinct divisions whose capabilities are often combined to serve commercial and government markets. As Bill Yoh puts it, “We are a century-old family business that specializes in construction, engineering, staffing and defense.” More specifically, within its four operating divisions reside engineering firms, construction companies, security services, munitions plants, employment and staffing services, and dozens if not hundreds of other specialized businesses in 150 locations worldwide.

What kinds of things does Day & Zimmermann do today? Through its staffing division, the company played a major role in producing the science fiction video game Halo 4, which generated $220 million in sales on its opening day in 2012. Its construction division designed and built the 101st Airborne Command and Control headquarters in Fort Campbell, Ky. The largest single unit in the company operates and maintains more nuclear power plants (70 at latest count) than any other firm in America. It provides security services to military and industrial installations around the world, and it helped NBC Television bring you the 2012 London Olympics. Day & Zimmermann is a major government contractor but also serves more than 1,300 other customers worldwide, including nearly half of the Fortune 100. The company employs about 25,000 people.

Shareholder strategy

Success like this doesn’t happen accidentally. Family business consultant Nancy Drozdow, who works with the Yohs, points out, “A big and successful family business like Day & Zimmermann has an interest in being ahead of the curve on issues that show up in family businesses. The Yohs are really diligent about getting themselves informed and prepared. They take this work very seriously.” To handle the work—and in anticipation of the future—the Yohs created three governance groups with distinct but complementary missions.

First is the Yoh Family Business Council, which had its roots when their father, Spike, started working with them on the transition to third-generation ownership. “We had been doing family meetings for many years leading up to the transition,” Bill explains. “We had spouses involved, and we went on a few retreats. About a year and half before Dad actually retired, he told us we five needed to start meeting together.” The five siblings met every month and worked with consultants for the 18 months leading up to the transition.

Today, the Yoh Family Business Council consists of the three brothers and meets formally to work on four areas: acquisitions and divestitures, the CEO’s position, values and vision, and succession and governance. They meet off campus for a full day every other month and always have an outside consultant with them. “Having that time together every two months keeps us aligned,” Bill says. “We spend our time talking about nothing other than us, the company, where we’re going as a group, the next generation, and things like the voting trust and our shareholders’ agreement.”

One of the six meetings is a two- or three-day retreat, enabling them to dig into deeper topics. Mike explains, “We discuss CEO succession every year and look at other things in five- to ten-year time frames.”

“We also spend a lot of time talking about hot spots between us,” Hal adds. “The consultant helps with that. We try to get everything out in the open because if you don’t, it’s going to fester.”

The second body is the Leadership Council, which basically runs the company operations and consists of Hal and his direct reports (including Mike and Bill in their roles as division managers). The Leadership Council meets monthly for two hours and conducts a day-and-a-half-long quarterly business review as well as a two- or three-day annual retreat.

“The purpose of the Leadership Council is to help us make decisions that make sense for the company as a whole,” says council member Beth Albright, the senior vice president of human resources. “Each business unit and staff leadership is tasked with being the leaders of our areas, but there are things we’re responsible for that infiltrate the entire organization.” The Leadership Council also aids communications, ensuring that the word from the top is as close to uniform as it can be across the multiple operating divisions and locations. For example, Albright says, in conducting performance ratings, “we all have common boundaries for how we judge our -employees.”

Anthony Bosco, senior vice president and chief information officer, has been with the company for more than 30 years and has served as a member of the Leadership Council and its predecessors since 2003. “I’ve seen it work like a tiger team attacking a specific issue, but typically it’s more dealing with the underlying approaches on how we’re going to navigate,” he says. “We rely on our values to be consistent. How we articulate those values and reconcile them back to the organization as it continues to grow and change is where there is challenge. We are also there to provide counsel to Hal as CEO.” Decisions aren’t necessarily made by majority vote, but the group strives for consensus. Ultimately, of course, Hal makes the final call.

The third body is the Board of Advisers, which Hal created. “It’s a very functional board, even though it is not a board of directors,” he points out. “The folks take it very seriously.” The Board of Advisers meets five times each year and has a lead director. Every meeting ends with Hal out of the room so the board can discuss matters independently. Although Mike and Bill do not serve on the board, one of the five meetings each year includes them.

“We usually take a deep dive on one business each year,” Hal says. “They review our overall strategy each fall. In December, our head of HR and I go through our formal succession planning process. We have a financial presentation. We talk about acquisitions. There is more rigor on the things that drive the business long term and a little less on the day-to-day.”

When he formed the Board of Advisers, Hal didn’t just recruit a group of friends to tell him what a great job he’s doing. Among the members are the retired CFO who worked for both Spike and Hal, another family business owner who currently serves as the lead director, a retired Air Force general and former director of the Construction Industry Institute, and a retired executive vice president of Lockheed Martin. “Given their individual expertise, there have also been some one-off projects like help with a specific industry or making connections with a given business,” Mike says. “Last year, some of them sat on a panel we ran at one of our annual management meetings.”

“The Board of Advisers also rules on management promotions of any Yoh family members,” Bill says. “We want the whole company to see that having the last name of Yoh doesn’t automatically mean you get a senior position.”

Looking ahead

One might think, given the young ages of the three Yoh brothers, that the question of what happens during the next generational transition would be on a burner far back on the stove. Only two of the fourth generation of Yohs work at Day & Zimmermann now, not surprising since most of the group is still in school—many in grade school, in fact. Though a transition isn’t imminent, the third generation is already discussing that eventuality.

“Some families just put it off because it’s easier, but the Yohs are not doing that,” consultant Nancy Drozdow says. “The longer the time horizon, the better chance you have to catch things you might have not caught otherwise.” By starting early, Drozdow says, the Yohs “can really concentrate on the education of the fourth generation, find out what their interests are, what their talents are. It gives them some options they might not have if they didn’t have such a long time horizon.”

Mike’s son Ryan, 31, considers himself a lifer already. Ryan, who currently works in information technology, has been with the company for seven years; previously, he worked for two years at the U.S. Small Business Administration and at System Planning Corporation. Kristen, Hal’s 25-year-old daughter, signed on at Day & Zimmermann after college and is working on a project to implement a formal mentoring program.

Kristen says she hasn’t decided whether she wants to stay at the company for the rest of her life. “I’m still at an early point in my career,” she says. “So far my experience has been really great. I know I’ll always be connected to the company, whether it’s through the G4 meetings we recently started, or as a shareholder.” After their aunt Karen passed away in 2007, they started the Karen B. Yoh Foundation with other G4 members to provide disaster relief. Their projects have included rebuilding efforts in areas of New Orleans affected by Hurricane Katrina.

Ryan and Kristen have been kept in the loop about what the future holds for them and the other members of their generation. “We don’t have a formal G4 council yet,” Ryan says, “but G3 has asked us to start thinking about that. We’ve both been attending family business conferences and seminars to get a better understanding of some of the best practices. We’re also starting to meet with other local family business owners to discuss what’s worked in their business and what hasn’t.”

When Spike Yoh led Day & Zimmermann, only family members who worked in the company were permitted to have an ownership stake. Under the three third-generation members, that rule has changed. “Our fathers’ generation realized that maybe they ought to let their kids do what they want,” Ryan explains. “If they want to work for the company, that would be great, but they’re not going to force it on them. Changing the structure in that way has been nice.”

That substantial change is formalized through creation of a voting trust, which the brothers and their various advisers have been working on for the last three years. “We want to keep the family involved with the business, and the business as part of the family, for a long time to come,” Bill says. “It’s something we’re very proud of, and we try to instill that in our children.”

When all the cousins, their potential spouses and offspring are taken into account, the ownership group may change substantially in the next couple of decades. The voting trust makes a distinction between voting control of the company and economic benefit from the stock. “By putting a voting trust into place and being much more prescriptive about who has the voting rights for that trust, we feel we can keep the business’s interests much more paramount,” Bill says.

The voting trust “helps mitigate the dichotomy between family members in the company and those outside it,” Kristen says. “It fosters unity … you can go out and do your thing, as long as you are responsible shareholders.”

Trustees of the voting trust will vote on “very infrequent but very important issues around sales of all or part of the business, changes to the company bylaws, our S corporation status and some of those things,” Bill explains. “If and when we migrate from an advisory board to a fiduciary board, it will pick the directors.”

Hal says the brothers set up the trustee structure with an eye toward the future. “We’re spending a lot of time discussing how we make our G4 be good owners,” Hal says. “We thought long and hard about how many people should be on the board of trustees, and we came up with four. All decisions will be made by supermajority, so you don’t have to worry about 50-50 ties.”

Hal notes that currently, the three brothers are the only trustees; eventually, a fourth trustee will be added. “We don’t know if that fourth position will be filled now or ten years from now,” he says.

Bill explains the criteria for trustee candidates: “To be a trustee of that voting trust, you have to have a strong affiliation to the company,” he says. “If you’re a family member who is an owner and has an executive-level role at the business and/or a role on the board, you could be a trustee. If there is nobody in that category, it would go potentially to a non-family member who is somebody closely affiliated through a director or executive role in the business.”

Hal adds another important point: “We also thought a lot about whether a seat belongs to one branch of the family or not. We decided not to do that. We’re all in this together. If one seat comes open and there are two family members [competing] for it, the board will decide based on [the candidates’] qualifications.”

Bill summarizes the purpose of the voting trust by saying, “The whole idea is, we want the business’s interests and the 25,000 employees’ interests to continue to be represented even when ownership becomes more dispersed.”

The family believes that as owners of Day & Zimmermann, they have concerns and responsibilities beyond collecting dividends. As Mike puts it, “We don’t look at this like a collection of investments. This is what the Yoh family does.”

Dave Donelson is a business writer in West Harrison, N.Y., and the author of the Dynamic Manager Guides and Handbooks.

 

 

 

 


 

 

 

 

 

From our Articles Library

 

When Family Business Magazine profiled Day & Zimmermann in 2001, second-generation leader Spike Yoh had been retired for about three years.

The Yoh Family Business Council —which at the time consisted of the five second-generation siblings—was then a subgroup to a larger family council, which encompassed Spike Yoh and his wife, Mary, plus the five siblings and their spouses.

“We’re always preaching that the company is bigger than the family,” Spike Yoh told Family Business.

To read the full article, see our Articles Library at www.familybusinessmagazine.com.

 

 

 

 


 

 

 

 

Copyright 2013 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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May/June 2013

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