Turning a family business into a family legacy

By Margaret Steen

John and Dyan Smith of Cedar Rapids, Iowa, had a yearlong discussion with their children to determine an ownership strategy for their company, CRST International Inc.

In 1955, Herald Smith lost his management job with a trucking company and decided to strike out on his own.

His son John M. Smith was 6 years old at the time. "That was scary, particularly as a young child," John says. "But when my father started to work again, things immediately went back to normal. My dad got started with no money and no credit, and he made a success of it the first year. I had no feel for the kind of risks he was taking."

Trucking was heavily regulated at the time. Herald Smith purchased the franchise to haul steel from Chicago to Cedar Rapids—hence the company's original name: Cedar Rapids Steel Transportation Inc.

He realized that Iowa farmers were transporting agricultural products to Chicago but the trucks were coming back empty, and he figured out how to fill the trucks on the return trips with iron and steel products from Chicago. "He was able to figure out a legal way to have a rate that was lower than the competition, and he promised the owners of the trucks that when they got to Cedar Rapids, he would pay them off right away," John says.

The risks paid off. CRST International Inc., headquartered in Cedar Rapids, Iowa, has grown significantly in recent years, partly through acquisitions. Today the company generates $1.3 billion in annual revenue, up from $680 million in 2009. John Smith, 67, is the company chairman. Herald Smith died in 2015 at age 91.

The company is owned by John Smith; his wife, Dyan; and their three children, Ian Smith, Cortney Howgate and Christine Smith. No single person is the majority owner or has voting control. The ownership structure involves one holding company that owns the family's main trucking and logistics companies, and a second holding company above it that owns the supporting transportation businesses and the family office. In addition, the family owns a separate real estate development company.

As both the family enterprise and the family have grown, the Smiths have faced choices about the family's involvement with the company. Today, the family is learning how to be active owners without having a family member running the daily operations.

Turning points

The first pivotal moment for the family and company came in the late 1990s, when John wanted to buy out his three siblings. After several months, during which the siblings seemed to be hesitating, he discovered that they were concerned about their father's reaction if they were to sell. "This is my dad's baby," they reasoned, according to their brother.

Once their father gave his blessing to the plan, "the actual negotiations of the sale were so quick, it was astonishing," John says.

"Now my family is in the same situation," he says. They are working out what roles the next generation will play in the company.

John and Dyan Smith have seen their own assumptions and feelings about their children's participation in the company evolve. They started out with the picture of their own lives in mind: John Smith worked for CRST during summers when he was in high school and college, and his education was geared toward working for the family business. He majored in economics as an undergraduate at Cornell College in Mount Vernon, Iowa. He later got an MBA at Cornell University in Ithaca, N.Y., with a concentration in finance. He returned to the company after graduate school.

Dyan, now 66, met John in high school.

"My exposure to the company started the first time I met his parents," Dyan says. "We had dinner at his home, and everything revolved around the company: the problems, the opportunities. My father worked for the government, so we did not have discussions about the family business around our dinner table. It was very new and quite interesting to me."

Those experiences colored their initial thoughts about their children's roles.

"We started out with the full expectation that they would all work in the business," after initially gaining experience elsewhere, Dyan says. "We took that expectation and lived with it for a while. Then we decided we did not want to force any of our children into the business, so we backed off totally."

Finally they realized they needed a middle ground: The kids should be involved in the decision about the company's future. Would they work full-time for the company and run it someday? Would they continue as owners? Or did they feel little emotional connection to the company and prefer that their parents sell it?

"We had a full-year discussion about how they felt and where they wanted to go," Dyan says.

Family conversations

The Smiths had already turned the running of the company over to a non-family member, David Rusch, who today is president and CEO of CRST International Inc. Rusch is a CPA by training; his background includes seven years as an FBI agent. He worked for North American Van Lines from 1980 through 1990. The CEO of that company retired and joined CRST's board, then recommended Rusch as a good fit for CRST.

"The talk was about growth and entrepreneurship, things that I wanted to hear," Rusch says. He joined the company in 1991 and assumed his current posts in 2010.

The Smiths' three children were at different stages of their lives and all felt a connection to the company, though they were not certain they wanted to run it, or even work there.

Ian Smith, 33, who is currently a senior financial analyst and board member at CRST, held summer jobs at the company during high school and college, working in areas including customer service, driver recruiting and freight brokerage.

"When I entered college, I pretty much wanted to come back to the family business," Ian says. "But in college I kind of wavered. I majored in economics but also developed an interest in the performing arts."

For several years after college, Ian performed fire dance and modern dance. During that time he concentrated on performing; a few entrepreneurial ventures helped him to pay bills. He wasn't certain he wanted to return to the family business, but after about six years, he decided he would. He went to Cornell University for an MBA, then joined CRST as a senior financial analyst.

For Cortney Howgate, 32, CRST "is like the fourth child in our family."

"My parents talked business at the dinner table," she says. "We visited my grandparents' house every Sunday, where my grandpa wanted detailed updates about the company."

The company also provided Cortney, who today works on special projects for CRST on a part-time basis from her home in London, with valuable early work experience.

Her first job for CRST was in its billing department when she was 16. She later worked in departments including customer service and accounting. "One summer, I was a dispatcher, where I had a mini fleet of 20 trucks to take care of and direct all summer," she says. "That was the most difficult job—I have always had a very soft voice, so I needed to learn to assert myself quickly, since my job was getting truck drivers to listen to me."

Cortney's current position may not lead back to a full-time CRST job. "I never had a solid plan to move back, and once life starts moving it's hard to stop," she says.

Christine Smith, 24, an intern at the American Legislative Exchange Council (ALEC) in Arlington, Va., is just starting her career. She hasn't ruled out returning to the company.

"In high school, I became more aware of how special the company is and the uniqueness of a family business," Christine says. "I would get questions from my friends and became more aware of the company, its history and its legacy."

Ian had grown up with the assumption that if he returned to the company, it would be to see if he could run it, as his grandfather and father had done. But a family business seminar "opened all of our eyes to what the options were," he says. "There is a lot more to having a family business than running it."

Ian now evaluates potential acquisitions for the company—CRST recently acquired a business that transports blood plasma, for example—and works on financial reports.

After many discussions, the family reached a conclusion in 2010: They wanted to keep the business in the family, with the children as active owners and at least one on the board of directors. They created a family council and a constitution to assist with family communication.

They had several reasons for this choice, Christine says. "It's been in the family for more than 50 years. My grandfather started it and put his entire life into building the company. My dad loves it. We all thought, this is such a cool opportunity to keep the family together for generations to come."

This evolution is "classic family business," says Daniel Van Der Vliet, the John and Dyan Smith Executive Director of Family Business at Cornell University's Smith Family Business Initiative. As family businesses grow, Van Der Vliet says, it takes a more specialized skill set to run them. It's not as easy to step into the CEO role fresh out of graduate school.

At the same time, families grow larger with the passing of each generation, and family members' career interests may lie elsewhere, Van Der Vliet says. "Especially in a traditional industry like trucking, it might not be as sexy for the next generation," he says.

"My parents were wonderful," says Christine. "They didn't put any type of pressure on us. Their ability to let us go out and explore on our own has really led us back to saying, 'We've experienced these things out there, and now we're coming back. This is a great opportunity, and we do want to keep the business.' "

"I think the Smiths have been very deliberate" about the company's future and future leadership, Van Der Vliet says.

Family and community roots

John and Dyan Smith have been active in philanthropy, both locally and outside their community.

"They walk the talk in terms of how they treat their employees, how they treat their family and how they treat their community," Van Der Vliet says.

The Smiths funded the Smith Family Business Initiative at Cornell University, which Van Der Vliet has been hired to run. The program is currently searching for a full-time faculty member to teach courses and conduct research on family business as well.

"Family businesses are the backbone of the economy," Dyan says. She says she and her husband chose to fund the initiative at Cornell because "both my husband and my son got great educations there." John credits his Cornell education with helping him steer the company through deregulation in the 1980s, when a lot of other companies went out of business.

"The vision is to create a world-class program in family business," Van Der Vliet says. "This type of gift really helps put Cornell at the front of the pack fairly quickly."

When Cedar Rapids was hit by devastating floods in 2008, the Smiths helped fund a program called Block by Block to rebuild homes and another fund to help small businesses recover. Rusch says people in the community have told him how much they appreciate the Smiths' help with the flood recovery effort and all the other contributions they have made to eastern Iowa over the years.

Rusch says he found the Smiths' connection to the community "exciting after all those years in conglomerates and government."

As for the next generation, the family has an ownership and leadership structure in place, but there are still decisions to be made about the future.

The family started having regular family meetings about five years ago, working at first with an outside facilitator. They now have them three times a year, with Cortney serving as the facilitator. The agenda includes philanthropy as well as business.

"It's really important to keep communication alive in between our meetings, and that is my biggest goal and challenge," Cortney says.

There are discussions about diversifying the family's portfolio of businesses, Ian says. He adds that he's very interested in this strategy. "I do think our trucking company will remain a trucking company," Ian says, "but I think we might do some things outside of it."

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

Copyright 2016 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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May/June 2016

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