Preparing for a generational shift

By Margaret Steen

Members of the Lyles family, spread throughout the country, realized they needed to overcome a number of challenges in order to bond together as a committed and knowledgeable ownership group.

When he was in fifth grade, Will Lyles wrote a paper outlining his future career path in his family's business. Although he didn't end up taking time off to get an MBA, as he had predicted at age 10, his career has largely followed his childhood vision.

Today Will Lyles, 57, is senior vice president of Lyles Diversified Inc., an S corporation that oversees the Lyles family's construction businesses and provides management and administrative services to the family's other holding companies. The broader Lyles Family Enterprise consists of various California businesses and ventures in construction, real estate and agriculture, as well as investment partnerships.

The family is working to establish a family governance system that will see the business and family through a tricky generational transition.

"We're in the early stages of the journey," Will says.

Will's grandfather, Bill Lyles Sr., and grandmother, Elizabeth Lyles, founded a pipeline-building business, originally called W.M. Lyles Co., in the oil fields of Avenal, Calif., in 1945. Today, Lyles Construction Group, now headquartered in Fresno, is California's second-largest contractor specializing in environmental and water treatment plant work.

Construction remains a key part of the business: In 2015, the companies generated construction revenues of $267 million. The construction division has about 150 salaried employees, plus about 500 unionized workers who work on specific projects.

Two members of the second generation work in the business. Gerald Lyles, 74, is senior vice president of Lyles Diversified and president of two LLCs through which the family makes investments, Lyles United and Lyles Investments. Gerald's brother, Bill Lyles, is chairman of the joint company advisory board that oversees all of the family's business enterprises and president of Lyles Diversified.

Along with Will Lyles, two other third-generation members are active in the business: Will's wife, Tami, 53, runs one of the family's construction companies, and Kathy Porter, 51, the daughter of Gerald and Bill Lyles' sister, Marybeth, is shareholder services manager.

Although the ownership structure varies slightly among the three companies, more than 90% of the business is owned by members of the second and third generations. No single person has a majority stake. The companies' salaried employees are also owners through an employee stock ownership plan.

A storied history

Gerald Lyles was 2 when his father founded the company. "By the freshman year of high school, we were working in the fields in the summers with the crews and also doing office work, breaking down the costs of each element of the work," he recalls. He joined one of the company's subsidiaries full-time in 1966, after college and a stint in the Navy. After a few years, he returned to school to get an MBA, then worked in finance for a number of different manufacturing companies outside of the family business.

In 1973, Gerald's brother Bill, who had been working at the company since their father's death in 1965, asked him to return to the family business to help it expand.

"That was a big turning point," Gerald says. When he returned, the company started investing in multifamily housing and development. In the 1980s, Lyles bought its first manufacturing company. In 1987, Lyles became a 50% partner in Pelco, a security camera maker that 20 years later would provide a large cash boost when it was sold. The family has invested the proceeds from the sale primarily in apartment buildings and agriculture.

Now the family is looking to the future, making the transition from the second generation to the third. Family members are also laying a foundation that will allow the fourth generation, and those that follow, to continue steering the family enterprise.

"They are facing some of the classic issues that most family businesses encounter: how to support their ownership goals, how to position themselves as an ownership group to grow the company and add value, and the ever-present challenge of generational transition," says Joshua Nacht, Ph.D., a consultant with The Family Business Consulting Group who has been working with the family.

Will Lyles prepared himself to meet those challenges by following three generations of his family to Purdue University. During the summers, he worked at the family business, laboring on construction crews. He majored in civil engineering with an emphasis on construction—all steps designed to prepare him for a career with the family business.

"I have always loved the construction business," Will says. "To have been born into a family that does something you really enjoy—it's given me opportunities to do things at an earlier age than I would have otherwise."

During summers in high school, Will worked for the company in a variety of capacities, from accounting to pulling up tumbleweeds from the field outside the office. He joined full-time after college as an engineer in training, moving up to project manager, then to division manager and eventually to company president.

Family council formation

The most recent family member to join the business came on board partly to help with the generational transition.

Kathy Porter knew about the business growing up, but her parents pursued their own careers outside the family business, so she did not have the same up-close look at the company as her cousins did. She spent 25 years working in commercial real estate in Los Angeles. In March 2014, she joined the company to provide enhanced shareholder support and communication.

"For a transition to happen 10 years from now, you have to be contemplating it now," Porter says.

It has been a long, slow process.

The Lyles family first realized in the early 1990s that as the family grew with successive generations, they would need a more structured way to keep everyone involved. They formed a nascent family council at that time, but because generational transition was not an immediate concern, its activity gradually tapered off.

About five years ago, Will Lyles realized that the family had both grown and changed—and that it would take some effort to make sure the business transitions were smooth.

"My cousins and I had grown up knowing each other," Will says. "My sisters and cousins have been extremely supportive of my efforts at the company. But they're spread out all over the country, and our kids don't know each other the way we knew each other. If we really wanted to keep what's been created together as a family, we needed to work on it."

The family council was reborn, and this time was stronger.

"As the family and businesses grew, and when we had fourth-generation teenagers, we realized it was time to get more serious about coordinating, educating and engaging the family," says Annarie Lyles, 55, the family council president.

Today the council includes representatives of seven of the 10 third-generation families. The extended Lyles family gathers once a year. "We have started reaching out to Generation 4 to be involved in the family council also," Will says. The council's early goals are to focus on family events and education.

A weeklong event for fourth-generation teenagers was updated. Instead of staying in Fresno, as they had done in the past, they toured various sites in Northern California. This gave the next generation a clearer picture of all the industries the company is involved in, not just construction. They saw one of the company's apartment buildings in San Jose, for example, and visited a tech startup that the company has invested in.

In the summer of 2016, the entire family gathered at Tumbling River Ranch in central Colorado for a week of meetings and family bonding. Activities included whitewater rafting and horseback riding, as well as a video presenting the second generation's hopes for the future of the business and the family. A session on cyber security was presented. The family also broke into generational groups to discuss some governance issues.

"We were introducing [the younger generation] to all the things we do and trying to create excitement about opportunities with the family enterprise," Will says.

The family has developed a family employment policy, recommending though not requiring that family members work outside the business before joining it.

"One of the challenges we have today is, if someone in the family is interested in construction, how do you create a leadership path in a reasonable time?" Will says. "Construction requires a lot of experience. The company's size has grown, as has the complexity of our jobs and our market—as well as the diversity of our company beyond construction."

The family council is looking at potential career paths within the company. Historically, there has been only one path, through construction. "We're recognizing that we have lots of other paths, potentially, but they need to be developed," Will says.

Improving communication

As the family looked for ways to coordinate, it found that communication was a challenge. The third generation is spread out all over the country, and only a few third-generation members work for the company.

Steve Titus, 47, a married-in member of the third generation, researched the use of an intranet portal that would function as the family's communication hub. Titus—whose wife, Jennifer, is Gerald Lyles' daughter—recommended the online platform offered by Trusted Family, a technology firm; the family council accepted Titus's proposal. (Titus also joined the family council around this time.) The Lyles family has been using the Trusted Family platform as a centralized system for family communications for about two years.

The site serves as a secure repository for financial and other documents. The family is also building an education module that explores the history of the business and its accomplishments.

"It has completely changed the way we communicate," Titus says. In the past, family members might leave a meeting of the family council or family assembly full of plans and good intentions, but it was complicated to keep work going. The intranet site makes it easier for family members to keep collaborating on the documents they have started.

Titus, who formerly owned a display design/manufacturing business, saw strategic value in developing a family brand to engage family members and inspire family loyalty.

Titus says one key change was expanding the extended family's view of the business beyond construction. "We're not just talking about the family business—we're talking about the family enterprise," Titus says. "It's social, it's philanthropy, it's the businesses."

The Lyles Family Enterprise brand centers on the family's core values, the key benefits of being a Lyles family member and the family development plan. The family development plan focuses on five main areas: governance, education, family/social activities, philanthropy and entrepreneurship. Core values and benefits are currently under discussion as part of the family development plan process.

The family worked with Nacht to create the family development plan, which includes building their capabilities as a group of owners as well as the transition to the fourth generation. They recognized that each of the five areas is important for their long-term sustainability and for the development of the family as an ownership group, Nacht says.

Nacht calls the Lyles family "a very friendly and open group" that communicates well. "This is a family that genuinely likes to be around each other," he says.

Nacht notes that family members, including those who have pursued careers outside the family business, bring an impressive breadth of education and experience to the ownership group and the family council.

"Most of them have other jobs, but they recognize that they're part of a remarkable business," Nacht says. "They are really willing to put in the time to do the work of the family council."

Will Lyles says the family's short-term plans are to keep working to enact the plans they have made for family governance.

"Five years ago, I felt that I was carrying a lot of the load just by myself," says Will. "Now it is spread across a broad spectrum of the family. It's allowing me to focus a little more on the business as opposed to both the family and the business."

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


A family retreat at a family-owned ranch

When the Lyles family needed a place for a fun but productive multigenerational retreat to focus on the future of their family business, they turned to another family-owned business: Tumbling River Ranch in central Colorado, 62 miles southwest of Denver.

The ranch has room for 50 to 55 guests per week. Guests stay in individual cabins or in one of two historic lodges, including one that was built in the 1930s by the Coors family.

The Lyles family booked all the rooms in the ranch for their weeklong retreat. The ranch's owners, Megan Dugan, 43, and her husband, Scott Dugan, 45, worked with the Lyles family to accommodate the technology they needed to run their meetings, find a service project for the kids to do and consider the accommodations that would work best for the second-generation family members.

Megan and Scott Dugan are buying the ranch gradually from Megan's parents, Jim and Mary Dale Gordon, who decided in 2000 to retire after having owned the ranch since 1975. Megan and Scott are expected to complete the purchase in 2018.

Megan and her three brothers were raised on the ranch.

"My earliest memories are of being with my dad all the time," Megan says. "We would go on jeep trips with my dad, to the horse pasture with my dad. My parents absolutely stressed that this is a family effort. At 9 years old, we were expected to work like other staff members."

Megan started out helping clean cabins, and by high school she was taking on more leadership roles as a wrangler and a waitress.

"I get the question every week: How did the youngest daughter end up with the ranch?" Megan says. "It was timing—and marrying someone who was so passionate and excited about it."

Megan and her brothers all went to college "ready to find our own identities," she says. She studied speech communications in college with a minor in general business. "My dad made sure I did some accounting courses, which have proven to be very beneficial," Megan says.

Scott Dugan was born and raised in Atlanta. He came to Tumbling Ranch one summer to work because a friend from college was working there. He discovered that "he loves the Western lifestyle," Megan says, and he stayed in Colorado.

Taking over the ranch was intimidating at first, according to Megan.

"We were very young, and we were buying into a business that had year-round employees that were much older than us and had worked for my parents," Megan says. "Our strategy was to just keep it going."

Still, the Dugans had ideas for expanding the ranch's programs. They added a nanny program, guided hikes and shooting sports.

Just as Megan's parents did, she and Scott are raising their three children, ages 14, 12 and 7, on the ranch. "People constantly ask me, 'Will your kids take over?' " Megan says. "We just go season to season." — M.S.

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.
 

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