A team approach to succession

By Margaret Steen

At Chicago-based Magid Glove & Safety Manufacturing Co., the handoff of operations has taken seven years -- and counting. A four-person executive committee now leads the company in lieu of a CEO.

Most family businesses can note a specific moment when one generation steps back from management and the next takes over. But at Chicago-based manufacturer and distributor Magid Glove & Safety Manufacturing Co. LLC, the generational transition has been going on for seven years —and it’s not over yet.

The company has no CEO: It’s run by an executive committee that currently consists of two members of the third generation and two members of the fourth. The very gradual leadership transition has involved changes to the company’s governance—all of which illustrate both Magid’s unconventional structure and its stability.

Magid has been manufacturing gloves in Chicago since its founding 65 years ago by Sam Magid, his son-in-law Abe Cohen and Abe’s brother David Cohen. The company started out selling the gloves it made to distributors and wholesalers. But early on, Magid began offering its products directly to users. Today Magid, which generates annual revenues of more than $150 million, manufactures and imports personal protective equipment, including hard hats and glasses as well as gloves. The company now has two manufacturing facilities in the Philippines in addition to the one in Chicago. It employs about 1,000 people worldwide, about 450 of whom are based in the U.S.

“I like to think of us as the Walgreens of safety products: You can buy the brand name or the Walgreens brand,” says Adam Cohen, 40, one of four executive vice presidents at Magid.

Co-founder Sam Magid retired after a few years, and the Cohen brothers jointly owned and ran the business. All six of their children eventually joined the company, though one was later bought out. Today, five branches of the Cohen family own the company. The fourth generation is coming into its own; seven of that generation’s 12 members work at Magid.

Navigating new territory

The company’s management structure has its roots in its first big management transition, which occurred when Abe and David Cohen’s children joined the business.

Four of those children lived near each other and commuted together during the gas crisis in the 1970s, says Gigi Cohen, 52, the daughter of David, who is also an executive vice president at Magid. “They talked business, and things started getting decided in the car.” To keep the brother who didn’t live near them—as well as their fathers—in the loop, the family members started lunching together twice a week. These informal discussions led to the creation of an executive committee, which consisted of all the family members who were active in the business.

Because the number of people involved in the company’s first significant leadership transition was fairly small, it was possible to keep it casual.

When Rusty Cohen, now 61 and one of the executive vice presidents, joined Magid in the early 1970s, the company had just 40 employees. He recalls visiting the office as a child with his siblings on Saturdays. “We would cut the elastic for the back of the gloves,” says Rusty, the son of David. “We would play in the piles of leather.” In the summers, as they got older, they worked in the warehouse.

The company is no longer so simple, and neither is the current transition, which began when Greg Cohen joined the executive committee in 2004. The third and fourth generations had a dozen potential executive committee members—far too many to make streamlined decisions. The boundary between the generations was blurring, as well: Gigi is nine years younger then the next-oldest member of her generation, and nine years older than her eldest niece.

For the family, choosing leaders rather than simply making everyone a leader was new -territory.

“We didn’t even know how to talk to each other about each other’s kids,” Gigi says. “People were asking, ‘How do you get on the executive -committee?’”

The solution was a process akin to making partner at an accounting or law firm: Members of the third generation created a list of the characteristics they wanted in executive committee members, then rated the members of the next generation who were old enough to be candidates. Parents did not rate their own children.

“Then we could actually start to have a conversation about, ‘Do we want to add this person to the executive committee or not?’” Gigi says. They were also able to give feedback to those who had been evaluated. And they set limits on the executive committee: It may have no more than ten members, and retirement at age 65 is mandatory.

The process wasn’t always easy, since for the first time not everyone would be able to serve on the executive committee, notes Adam Cohen, son of David’s son Harvey. “It’s been tough,” says Adam, who has an MBA and was running the manufacturing division when he was asked to join the executive committee in 2005. “Like in any company environment, if you don’t get a promotion you desired it can be frustrating. In our parents’ generation, everyone was promoted to the [executive committee], so the fact that this practice has changed for our generation inevitably makes it more difficult for us.”

“But I think people are accepting of it,” Gigi says, “because we were all part of the process to put it together.”

Today, the executive committee has four members: the youngest two members of the third generation (Gigi and Rusty Cohen) and two of the older members of the fourth generation (Adam and Greg Cohen). Four more fourth-generation members are working full-time at the company.

The family has taken steps to smooth the transition. “When we were 13 we started having family council meetings—big family meetings where we talked about the transition,” says Lee Cohen, 31, director of corporate initiatives, who is one of a set of triplets—the children of Rusty—who all work for the company.

As part of his work toward a potential executive committee seat, Lee has had an initial 360-degree evaluation.

“Since I’ve been working in the business, I’ve known it’s not an automatic seat,” he says. “I believe it’s a very fair process.”

The feedback he got was that he needed more experience managing larger groups.

“They want to see that I can manage people,” Lee says. But he has not been left on his own to prove himself. “They’ve always outlined a path for me to get there: ‘Take over this region. Prove that you could be a high performer while managing this region and continue to wear these other hats. Show that you can balance a lot of work.’”

Gigi was the driving force behind the move to run the company with a “business first” focus, as opposed to “family first.” She became a student of family businesses and talked with consultants about best practices.

As a result, the company has created numerous policies. A participation policy states that family members who want jobs with the company must first work outside the business for at least two years, and they must be qualified for an existing job. In-laws are not permitted to work at the company.

“You learn a lot of theories in school, but working the two years somewhere else probably did help me,” Lee says.

The company also has a new policy that clarifies when and how a family member’s shares will be bought out, as well as a dividend policy.

The Cohens are also finding ways to improve communication within the family. Some family members who work in the company meet twice a year after work to address issues. There is also a conference call every other month for all shareholders, whether they work for the company or not. (Two adult shareholders don’t work for the business, and one works part-time. One shareholder is in graduate school.)

“We try to be very inclusive,” Gigi Cohen says.

A company without a CEO

No one at Magid holds the title of CEO. The four executive committee members all hold the title of executive vice president. Adam’s father, Harvey Cohen, who has retired from the executive committee, holds the honorary title of president.

Having a CEO is “not in our DNA,” says Rusty, one of the original executive committee members.

“People ask us, ‘How do you function as a leadership team and not have a single person with the final say?,’” says Gigi Cohen. In Magid’s case, the system generally works well, company stakeholders report. Each executive committee member oversees certain areas and makes many decisions involving those areas.

“I think it’s good and bad,” Rusty says. “There are some things that take longer to decide because now four people are deciding it rather than one. But on the other hand, four heads are better than one.”

“Sometimes decisions don’t get made in as timely a way as we’d like,” particularly regarding the strategic planning process, Gigi acknowledges. “We’re working on that.”

For those who have grown up with the company, Magid’s organization chart is perfectly normal. “I was never in a company” that had a CEO, says Greg Cohen, 37, a fourth-generation executive committee member and a grandson of David. He joined the company in 1998, after a stint at Arthur Andersen.

As an Andersen consultant, Greg helped Magid decide to automate its warehouse. “This was the largest overall capital project Magid had done in its history to that point,” Greg says. He came on board full-time to supervise the transition. In 2004, he was named a member of the executive committee.

One challenge, Greg says, is that many family members aspire to serve on the executive committee. “There’s obviously some comfort in a group; more people want to be part of it,” he says. “If you had a CEO, I don’t think as many people would want to be CEO. There’s more pressure involved in that.”

Although the executive committee now has an even number of members, Gigi Cohen says she can’t recall any 2-2 deadlocks. Were that to occur, she says, the committee would probably consult their council of advisers for help in resolving the impasse.

Despite its unconventional leadership, Magid is moving toward more formal management structures, as well as a formal strategic planning process. The company has added a layer of management underneath the executive committee: experienced managers, some brought in from outside the family.

“The executive committee is smaller and the business is bigger,” Greg says. “We’re requiring more key positions that are not filled by family members, which has been a transition as well.”

“They recognize that even though there are many family members involved, they can’t do it all,” says one of those non-family managers, Andrés Maldonado. “It’s definitely a cultural change, but I think they’ve made great strides,” says Maldonado, the director of marketing, who joined the company three years ago.

Magid lacks the politics that are typical of public companies, says Ron Podgurski, the non-family director of purchasing. Podgurski reports to two family members, replaced one family member when he came on board and is currently mentoring a fourth family member.

The flip side of a family business is the tendency to resist change, Podgurski notes. “In many ways, they’ve been doing business the same way for a long time,” Podgurski says. “Even though the family is committed to change, it has been challenging at times for them to do so.”

Overall, Gigi Cohen says, the business is evolving to become “a little more structured and businesslike. I think the culture has been very stable, family-oriented, casual and comfortable. In the old days, the building was closed at 5 p.m. so my dad and my uncle could be home for dinner at 6.”

Today, the building stays open until 6:30, though employees do sometimes arrive earlier in the morning or work later in the evening. “If you’re not able to get your job done and have a life, then we need to take a look at what’s on your plate,” Gigi says. Employees appreciate the work-life balance, she reports: “That’s one way we attract and retain some really capable people.”

Planning for the future

As Magid looks to the future, one issue is unresolved: how family and company governance will adjust to respond to the growing number of shareholders who are not part of management —including family shareholders who don’t work for the business at all.

“Ten years ago, every shareholder was on the executive committee,” Gigi points out. “Ten years from now, most shareholders won’t be on the executive committee. How do we structure that governance process?”

The company is working to design a structure that keeps shareholders informed and also gives them a voice in governance: “If management starts to do something they don’t want, is there a mechanism to stop it?” Gigi says. The company does not have a separate board of directors, though it does have an advisory council that includes three outside advisers.

One question that will need to be answered, Gigi says, is whether the company can continue without one person in charge or whether it will name a CEO at some point.

For now, though, Magid’s success speaks for itself.

Though the company suffered in the recent recession —“If people aren’t working,” Adam points out, “they’re not wearing safety gloves”—no layoffs were necessary. “We survived quite well,” Adam says. “We’re very proud of the fact that no employees lost their jobs.”

“The business being successful definitely makes the family part easier,” Greg notes.

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

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Autumn 2011

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