Finding the right balance at Vertex

By April Hall

The Westphal family is deeply involved in the governance of their tax software company but stays out of management.

On a snow day in 2012, when kids had the day off from school and people were encouraged to stay off the roads, Jeff Westphal, second-generation CEO of Vertex Inc., called his sisters and asked for a meeting that day.

Stevie Westphal Thompson and Amanda Westphal Radcliffe are co-owners with Jeff of Vertex Inc., a tax software company in King of Prussia, Pa. Worried that something might be wrong, the sisters braved the snow to meet their brother at a local restaurant.

Jeff had an announcement that couldn’t wait: He wanted to step down as chief executive, a position he had held since 1996.

He told his sisters he had taken the company as far as he could, creating divisions including Vertex SMB, tax software for small and medium-sized businesses. Now it was time to turn over leadership to someone with the skills to scale up the family firm.

“He said the decision was six years in the making,” says Amanda.

In late 2015, non-family member David DeStef­ano was announced as Jeff’s successor.

“Jeff is a visionary,” says Stevie. “He thinks 20 years out. As part of that, he realized his strength was vision and culture.”

Many families in the Westphals’ position would have chosen to sell their company, especially since no third-generation members were working at Vertex. The Westphals opted instead to keep the business in the family under non-family leadership and focus their attention on governance. In so doing, they continued on the path they had forged in 2000 when they bought Vertex from their father and decided to professionalize the business.

From print manuals to cloud-based solutions
Ray Westphal, the siblings’ father, founded Vertex in 1978. The company provided businesses with paper copies of sales tax manuals that included information on jurisdictions, rules and rates. Ray’s wife, Antoinette Westphal, became his first employee, managing the books and serving as secretary. Jeff, Stevie and Amanda helped as kids, walking around the dining room table to collate rate cards. They particularly enjoyed using the shrink-wrapping machine.

The company grew as its products and services changed with the times. Today Vertex develops and distributes tax software for businesses, as well as cloud-based solutions and instant updates. Its products help companies manage sales, property, payroll and real estate taxes in the U.S.’s 11,000 tax jurisdictions.

All three of Ray’s children worked at Vertex in the 1990s. Jeff, now 56, became president in 1996 and took over the CEO role after the second generation bought the business in 2000.

Before the generational transition, the board consisted of Ray and Antoinette, their three children, and their family and corporate attorneys. The new owners wanted to make a change.

Building an independent board
After acquiring the company, the siblings started to search for independent directors. Their father left the board after the ownership transition. Their mother passed away from breast cancer in 2004.

Jeff is chairman of the board. Stevie and Amanda, who like Jeff have left their positions at the company, serve as directors.

“It was challenging to be [both] an employee and a board member,” says Amanda, 50.

The Westphals recruited large-cap board members to their mid-cap company, compensating them at a large-cap level.

Rich Teerlink joined the board in 2002, soon after retiring as chairman and CEO of Harley Davidson. Teerlink retired from the Vertex board in 2015 but remains a mentor to Jeff and an adviser to the board. Jeff credits Teerlink with helping him with the transition out of day-to-day leadership.

Today three independent directors serve on the Vertex board. Terry Kyle, the former SVP and CFO of Shared Medical Systems, helped take that company public and led the team that negotiated its sale to Siemens in 2000. Ric Andersen, a partner at Peak Equity, a Philadelphia-based private equity firm, has more than 25 years of consulting and management experience at IBM and PwC. Kevin Robert is the former global CEO of Wolters Kluwer Tax & Accounting. DeStefano, the CEO, also serves on the board.

Vertex’s board structure enables the three family directors to be outvoted by the three independent directors plus DeStefano.

The board has brought continuity and objectivity to company decisions.

“The initiative from the beginning was to do what we thought was best practice,” Jeff says. “Families bring family stuff, and you can’t take the family stuff out of yourself. We wanted truly objective directors.”

Amanda, who serves on the board’s nominating and governance committee, says the current structure helps avoid role confusion.

“Now that we don’t have a family member in an operational leadership role,” she says, “the various governing responsibilities are more clearly delinated between the voting shareholders, board of directors and ­management.”

Transition to non-family leadership
The independent directors helped the family and the company prepare for succession to a non-family member. With the mentorship of the board, Jeff had put the company in a strategic position that would enable it to succeed without family at the helm.

The company hired recruiting firm Spencer Stuart to conduct the CEO search. Together, the search firm and the board developed a five-year plan for the transition and began the process of evaluating senior leadership at the company.
“We were looking for a potential successor, but also wanted to work on executive development,” says Stevie, 55.

Spencer Stuart confirmed what the family already knew: They had a number of strong executives in place.

The field was narrowed to about four, and DeStefano pulled away from the pack. He joined the company as CFO in 1999 and then became executive vice president. He was elevated to president in January 2016 while Jeff remained CEO.

This trajectory was deliberate. “There was a transition so I could get my wings,” DeStefano says.

Stevie notes that when Ray retired, he “stepped down and away.” Having DeStefano work alongside Jeff would enable the non-family executive to grow into leadership. The gradual transition also helped reassure employees about continuity of the business.

“Jeff found opportunities for me to be the voice on company issues” during the transition, DeStefano says. In January 2017, DeStefano took over as CEO of Vertex.

Family culture
The Westphals say values and culture hold an important place in the business. The second generation followed in the footsteps of their father, who treated employees with generosity and respect.

“A very long time ago I remember an employee telling me how they had seen my parents hugging and kissing each other in the company parking lot at the end of a long and difficult day, and how they truly cherished working for a company like that,” Amanda says.

So when the search for a non-family CEO began, it was important to keep that “culture of care” front and center. Amanda says that in DeStefano, they found a leader well equipped to foster that culture.

“David embraces everyone, too, with respect, strong ethics, humility, laughter and genuine care,” she says. “There are tangible competitive strengths to being a family-owned business, and leveraging an exceptional culture is paramount among them.”

When Ray led the business, he showed his appreciation to employees by giving them an extra paycheck at random when the company was doing well. The staff never knew it was coming, “which was fun!” Amanda says.

Now that Vertex has 950 employees, that’s become impractical. But the company continues to have an elaborate holiday party and give away tickets to local sporting events. Last year, during a Super Bowl rally party, the company held a surprise drawing. The prize was airfare, hotel accommodations and two tickets to the big game to cheer the hometown team, the Philadelphia Eagles, on to victory.

The company emphasizes transparency and shares information on strategy with employees. “We treat everybody the way we treat each other,” Amanda says.

These are some of the reasons Vertex has been named as a “Top Workplace” by the Philadelphia Inquirer and was one of Working Mother’s “100 Best Companies” in 2016. In 2015, Vertex received SmartCEO magazine’s Corporate Culture Award.

Employee retention is about 95%, the family says, and nearly 100% for executives.

“Only one in the top 30 executives has resigned to go somewhere else in 20 years,” Jeff says.

The plan for the family
It’s still unclear whether any of the third generation will play an active role in the family business. Their ages range from 18 to 31.

Some third-generation cousins have participated in the company’s internship program. There is a formal family employment policy, but none of the third generation has yet shown interest in working for Vertex full-time.

“There are some really diverse interests in that group,” says Stevie, 55. Those who have embarked on their careers include an artist, an Army helicopter pilot and a couple in finance positions.

To promote connections among family members and engagement with the business, the Westphal descendants established KAFCA (“Kick Ass Family Council Assembly”). The assembly meets twice a year.

While it’s unclear whether anyone from the family will lead the company in the future, preparations are being made for succession after DeStefano.

“We’re definitely starting to build out the next [succession] process,” DeStefano says.                          

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