Top private company boards are change agents driving success
Five of the six Private Board of the Year award winners for 2018 were family business boards.
By April Hall
Forward-thinking owners of private companies understand the value that independent directors can add. Though privately owned businesses are not required to have independent boards, the objective perspective of outside directors can help a company develop and execute a growth strategy, navigate transitions and foster harmony among the ownership group. Excellence in governance tends to result in higher profitability.
Family Business Magazine and its sister publications, Directors & Boards and Private Company Director, are honoring six companies for outstanding governance at the Private Company Governance Summit, taking place in Washington, D.C., May 16-18. Five of the six award winners are family companies.
The five family companies being honored are The Larry H. Miller Group of Companies, Sandy, Utah; Vertex Inc., King of Prussia, Pa.; Sasser Family Holdings, Schaumburg, Ill.; South Central Inc., Evansville, Ind.; and Richmond Baking, Richmond, Ind. A sixth award winner — Vets First Choice of Portland, Maine — is a private-equity-owned company.
The companies’ annual revenues range from less than $100 million to more than $1 billion. Both fiduciary boards (those with legal obligation to exercise proper oversight) and advisory boards (more informal boards that have no binding role) were honored.
Here’s what makes the family company boards stand out from their peers.
The Larry H. Miller Group of Companies
Fiduciary Board, over $1 billion
The Larry H. Miller Group of Companies has grown from a single Toyota car dealership to a $5.5 billion business in just under 40 years. Married couple Larry and Gail Miller bought that first dealership together. When Larry died in 2009, Gail wanted to keep the company within the family in perpetuity. That goal was shared by Larry, who was a proponent of good governance.
Several years after Larry’s passing, Gail found a note he had written that said, “Need to organize an independent board of directors.” That prompted Gail to seek out the help from a host of sources, including the National Association of Corporate Directors (NACD). The board was established in 2015.
“We’re a pure entrepreneurial business, but the business is too big to manage without some help — and that’s why we formed the board,” says Gail, who serves as chairman. “We had 80 companies under one umbrella, but no formal board. We had committees of senior managers, but no board to help lead coordination between the businesses.”
The board is made up of four family members, one employee (the CEO), one former executive of the company and six independent directors.
Currently, the business focuses on five primary areas: automotive; sports and entertainment; finance and insurance; real estate; and philanthropy. The company also owns the Utah Jazz, an NBA team.
“We bought the Jazz in 1985 for $422 million — worth north of a billon now,” Gail says. “But we didn’t buy it to sell it, and there were many questions from the community after Larry’s death on what might happen to the franchise. So we put our sports into a legacy trust, with some other companies to provide continuing financial support, with the intention that the Jazz will stay in Utah in perpetuity.”
Sasser Family Holdings Inc.
Fiduciary Board, $100 million-$350 million
The board at Sasser Family Holdings Inc. has helped the company successfully navigate hiring the first non-family CEO, acquisitions, a complex international realignment, short- and long-term incentive plans and succession planning throughout the organization.
Sasser, founded in 1928 and in its fourth generation, established an all-family board in 1960. Since then the board has evolved to three independent directors, three family directors, the non-family CEO and Fred Sasser, former CEO and executive chairman (his position ends at the end of 2018). There is also an “associate director,” a non-voting seat held by a family member chosen by the family council.
“We’re looking ahead,” says Bill Hudson, president of the H.D. Hudson Manufacturing Company and an independent member of the Sasser board. “We’ll have one of our board members terming out, and so we’re now going to start laying the groundwork for starting up our process for recruiting our next independent director.”
The company has an exhaustive selection process identifying key skill sets and aligning which skills will be needed to meet the organization’s future goals. “We’ll identify the gaps, and that’ll help us write up the specifications for our director recruitment,” Hudson explains. “And then we’ll go out to the marketplace in an organized fashion to find that.”
“We are looking outside at best practices from public companies, but then we’re always cognizant of how we have to adjust those for our environment of being privately held,” says executive chairman Fred Sasser.
Shares of Sasser are 100% owned by family members. The shareholder group consists of about 15 adults and 10 minors (some of whom are owners via trusts).
The enterprise consists of the holding company and seven business units: CF Rail Services, CFCL, CF Asia Pacific, Union Leasing, Express 4x4 Truck Rental, Xced Aviation Services and NxGen Rail. The subsidiary businesses provide rail and vehicle transportation equipment solutions, including asset leasing, repair and maintenance, fleet administration management and rail technology services throughout North America, Australia and Europe.
Fiduciary Board, $100 million-$350 million
Vertex Inc., providers of tax technology and services, has seen a host of benefits from good governance, including greater accountability and strengthened succession planning.
In 2000, the three children of Vertex’s founder, Ray Westphal, bought the company from their father and immediately sought to create an independent fiduciary board.
“We knew the value of creating a board and filling it with folks far wiser and experienced then ourselves,” says Jeff Westphal, former Vertex CEO, co-owner and board member.
“Over time,” Westphal says, “our independent directors have been invaluable assets to us, be it through objectively evaluating and contributing to company strategy, insisting on accountable operational/financial performance, executive succession planning for our first family president in 40 years, and all the joyful, stressful, complicated and intricate issues that arise for families that co-own a growing business in a dynamic market together.”
Finding directors with diverse talents, even if they were outside the Westphals’ network, was important to the siblings. It was also was a top priority to set the board in place as soon as possible after taking over ownership.
The decision to build a board wasn’t to mediate any conflict between the owners; the family wanted good governance in place to prevent conflict.
“They’ve really taken the view they want to treat this as a public company in terms of governance,” says former PwC partner Ric Anderson, one of Vertex’s independent directors.
Vertex provides cloud-based and on-premise solutions that can be tailored to specific industries for every major line of tax, including income, sales and consumer use, value added and payroll.
South Central Inc.
Fiduciary Board, under $100 million
South Central Inc. has had a fiduciary board for 30 years. The family office and investment company owned by the Engelbrecht family was initially rooted in media and telecom. The company’s investments continue to be wide-ranging in spaces such as healthcare, consumer package goods, technology, banking, real estate, HR/PEO services and contracting services.
John David Engelbrecht pushed the family to set up strong independent governance three decades ago. John David was an experienced public board director and brought that expertise back to the family business, while “melding it with our family values all those years ago,” says his son, John P. Engelbrecht, who is CEO of the company. His dad is president and chairman.
The board started with two independent members and now has five, with only two family directors. Each board member meets independent standards and has shown leadership as a CEO, CFO or managing partner in various industries.
The board is “independent to a fault,” says one independent board member, noting that company executives and owners are transparent and willing to be challenged by the board.
Independent director Andy Goebel is an expert in governance, having served on other boards and as a corporate secretary. Goebel, who served on another board with John David Englebrecht, was chosen because of his financial expertise.
Goebel says the family takes their governance cues from public boards. “They see value in the governance model,” he notes. “John David, being an independent member of Vectren, knows board members need to be independent.” (Vectren is an Evansville-based utility company.)
Advisory Board, under $100 million
Richmond Baking, founded in 1902, is one of the oldest family-owned cookie and cracker bakeries in America. The company went through a reorganization two years ago, when chairman and patriarch Jim Quigg died.
And it was the board that helped the family and company through the painful loss.
“I cannot imagine how difficult my father’s passing would have been if we didn’t have a board,” says Bill Quigg, Jim’s son and CEO of the company. “The six of them became dads to us. They took their loyalty and dedication and just stepped up, and took on that leadership role for our company.”
The family put an advisory board in place about 10 years ago with six non-family and two family members.
The one business decision Bill said really showed the board’s value was closing down the company’s struggling Oregon operations.
In 2010, Bill found himself stretched thin, especially having to travel to keep tabs on the company’s only West Coast facility. “Frankly, I had to swallow my pride,” he explains. He had started that business in 2000, and it was supposed to be his mark on the company.
The board flew out to Oregon to see the operations. That inspection solidified the board’s decision to advise him to pull the plug. “I wasn’t upset with them, but I needed them to help me push that last 1% of the decision,” Bill says. “They provided the catalyst.”
The Quigg family now operates three baking facilities in Indiana and Georgia.