December 1, 2008

Cover Story

Succession Planning

In early June, the powerful leader of one of Utah’s largest business empires ...Read More

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Succession Planning

Execs Reveal How to Keep It All in the Family

Heather Stewart

December 1, 2008

In early June, the powerful leader of one of Utah’s largest business empires had a major heart attack. As Larry H. Miller lay in the hospital, struggling with heart problems, kidney failure, complications from diabetes and internal bleeding, his son Greg quietly stepped into his shoes and kept the family businesses on track. But as Larry Miller explained in an August press conference, Greg was more than ready to take on the role. For more than a year, Miller held weekly meetings with his wife and three sons to transfer his knowledge about the “conglomeration of 80 or 90 companies” within the Larry H. Miller Group of Companies. “We talked concepts, we talked philosophy, we talked knowledge of the businesses specifically,” he said. “We knew someday I wouldn’t be able to answer the bell.” In fact, the family held practice drills to figure out what to do “one day after my funeral,” said Miller. So even while his father fought for his life during a 59-day hospital stay, Greg Miller began making critical decisions for the Larry H. Miller Group of Companies, which range from sports franchises to automobile dealerships and to restaurants and retail establishments. “I wouldn’t say there was a formal plan in place,” says Greg Miller. “When the time came to actually transfer control of the company, the plan solidified based on [my father’s] perception of the needs at the time and for the foreseeable future.” Miller will have the support of a newly formed board of directors, which includes the company’s three COOs, two CFOs, the chief legal officer, the outside CPA, his three brothers and his mother—and Larry Miller as the chair. “I feel that one of the greatest resources available to me is the creativity and energy inside the people on the board,” says Greg Miller. “Once those qualities are engaged, there is very little we can’t do.” Planning for the Unthinkable The story of the Miller family is a perfect example of why family businesses need to create succession plans. No one plans for a heart attack—but businesses do need to plan for the unexpected. So when is the right time to create a succession plan for your business? “Earlier rather than later,” says Thomas A. Mecham, an estate planning attorney and board member at Kirton & McConkie. Early planning allows you to minimize taxes such as federal estate taxes or gift taxes, says Mecham, and allows you to gain the cooperation and buy-in of your children or other successors, making it more likely the plan will succeed. The sad truth is that most family-owned businesses do not survive into the second generation. According to the Small Business Administration, more than two thirds of family-owned businesses fail in the second generation. Despite the grim statistics, Utah is home to many multi-generation family businesses. Indeed, the summer of 2008 marked the generational handover of some of Utah’s most prominent family-owned businesses: The Larry H. Miller Group, USANA and Opticare of Utah, the insurance arm of Standard Optical. As the new executives of these businesses begin steering their own course, they can look to other successful businesses in Utah for inspiration—businesses like W.W. Clyde & Co., a construction company that is now in its third generation of ownership. Building the Future “I actually started picking cherries on my grandfather’s farm when I was 8 years old,” says Paul Clyde, president of W.W. Clyde & Co., which was founded in 1926 and named for its founder. “When I was 13, I started working in our hardware store. When I was 16, I went out and worked on my first construction project.” While completing his formal education, Clyde also received a hands-on education in the family business. He did manual labor and operated heavy equipment for years. He traveled to worksites and learned how to manage people as well as projects. “That was very much my grandfather’s method of operation. We started from the bottom and learned from the bottom up,” says Clyde. “It took me 40 years to get where I am now.” The original business started by W. W. Clyde has multiplied into a set of five subsidiary businesses under the umbrella of the Clyde Companies, Inc. In all, these companies employ 2,700 workers in industries ranging from construction to insurance. So how many of these employees are Clydes? Well, according to Paul Clyde, only nine. “We have over 250 stockholders in our company. Most of them are family members, but they are not actively involved in the day-to-day operations of the businesses,” he explains. “The presidents of all our companies, except for me at W.W. Clyde and my brother at the Clyde Companies, are all non-family members.” The Clyde Companies provides a good example of a family business that has separated management of the business from ownership of the business. Some business owners, says Mecham, groom one child to become CEO of the company, while leaving equal shares of the company to all the children. This strategy doesn’t always work out, according to Mecham. If there isn’t sufficient buy-in, it can lead to discontent among the family and a power struggle that can topple the business. Mecham advises clients to make a clean break and find other ways to leave an inheritance to children not involved in the business by naming them the beneficiaries of a life insurance policy, for instance. “Plan so that those who are going to be actively participating walk away with the business, and those who are not walk away with the prize behind door number two,” he says. “But everyone should feel satisfied when the succession occurs that they got something equivalent in value.” But over the years, The Clyde Companies have increasingly separated business from family. The company has a strong focus on strategic planning and employee training, says Clyde, and will place the right people into leadership positions—regardless of their last name. “Family members get thrown in with the rest of them and they have to rise to the top like everybody else,” he says. “We were required to work harder than anyone else. That was the expectation. Even though I was a family member, I didn’t have a cushy start.” Young Blood in a Mature Business “Our succession plan has been formalized for years,” says Aaron Schubach, who took the helm of Opticare of Utah in April and is the COO of Standard Optical. Schubach first joined the company while he was a junior in high school and says he enjoyed a long apprenticeship under his father, Stephen Schubach. “The responsibility placed on me, as the fourth-generation Schubach, to continue the success of the business has been unbelievably challenging, but never burdensome. It’s not only an honor and an obligation that I provide the best eye care possible,” says Schubach, “but [also] to develop a great place to work and career longevity for the 130 employees and families that are counting on me as well.” As the new blood in the business, Schubach has been able to drive innovation such as a re-branding of Standard Optical with a new logo, new television campaigns, store remodels and new store development. “We have an incredibly motivated, aggressive and trustworthy management team that will embrace and believe in my initiatives to implement change and move with the market,” he says. The formula for a successful business transition clearly involves childhood exposure to hard work and hands-on experience with every facet of the business. “It was pretty much ingrained in my blood from an early age,” says John Garff, who as president and COO of Ken Garff Auto-motive Group represents the third generation of leadership. “There were no hand-outs,” he says. Garff recalls sweeping the shop at the age of 10, and he began selling cars at 16. “It was important to [my father] that I spend time in the different aspects of the dealership, from parts and service to sales.” After completing his formal education, Garff helped launch, allowing the company to take a leadership role in online automotive sales. He ran for six years, then transitioned into the operations of Ken Garff Automotive Group. Garff’s younger brother and a brother-in-law are also involved in the company, and a fourth-generation family member is currently a salesman in one of the dealerships. “We have a very specific estate plan and a very specific succession plan,” says Garff. “It’s fair to say we address it quarterly, and we have for 20 years. It’s just something that is very top of mind. It was very important to my grandfather to pass his legacy on to his grandkids.” Garff’s advice to business owners is to start talking about the succession plan early on. Is there a genuine interest in the business on the part of children and grandchildren? “That’s one of the first decisions you have to make. If there is, you go down one path, and if there isn’t, you go down another.” Family Fun Whatever form a succession takes—whether it is an inheritance, a gift, a purchase, a transfer or something else entirely—the plan should be crafted with the advice of an estate planner who has experience with the complexities of business succession. And nothing is more complex than a family—any family. “In estate planning, what you have to understand is a family system,” says Mecham. “In business succession planning, you have to understand the family system and then the business superimposed on that family system.” Family dynamics can certainly make things more colorful. “He actually fired me,” recalls Peter Mouskondis of his father. Mouskondis had spent 12 years working in the warehouse of Nicholas & Company. “And I told him I wanted to go into sales. I said, ‘I’m tired of you capping my salary, and I want to show you that I can do it.’” His father, William Mouskondis, agreed to the career change—but effectively fired and rehired him, stripping him of his benefits and forcing him to start as a brand-new employee. “He said, ‘If you don’t make it in sales, you’re done. You’re not going to work here anymore,’” says Mouskondis. “It was just his way of showing me that he wasn’t going to hand it to me. He wanted me to earn it.” Mouskondis proved his mettle with a grueling sales route stretching from Ely, Nevada to Park City. And his father eventually implemented a strategy to groom him for the presidency. Like many other family-business successors, Mouskondis began working for the company at a young age. When he was 12, he collected nails in the driver’s yard and used them to build pallets for the warehouse. Over the years, he performed every aspect of warehouse work from loading trucks to customer service to purchasing. After years of hard work and a bottom-up education in the business, Mouskondis began learning the operational aspect of Nicholas & Company, and became president after spending a few years on the executive team. The company remains a closely held family-owned business; the elder Mouskondis serves as chairman of the board. So while the path to the presidency may have been rocky, the goal of a father-to-son succession was never in question. Mouskondis describes his father as “firm but fair,” and says his father taught him intense respect for the company’s more than 500 employees. “We have made a conscious effort, from my grandfather to my father to me, to make sure that people know that they are welcome here with open arms.” A Father’s Legacy David Wentz knows a little something about working for a father who has a giant-sized reputation. “My father is a brilliant man who’s excelled in both science and business,” says Wentz of his father, Dr. Myron Wentz, who founded USANA in 1992. “It’s natural to feel like I had to measure up to him. But eventually I had to let go of that need to be exactly like him and run the business exactly the way he did.” Wentz became the CEO of USANA in July, after Dr. Wentz decided to focus more of his energy on humanitarian work. However, David Wentz had already taken on the role of president in 2002 at the age of 33. Despite his relative youth, he definitely was not inexperienced. “I’ve been with USANA since the very beginning,” says Wentz. “I helped name the company, design the first product labels, worked on the development of product formulas and prepared the company for its debut on the market.” But his early accession to leadership roles within the company did not come without controversy. Wentz had to show consistent results before the company’s management team and worldwide network of distributors truly accepted him. “With each successful year for our company, with each challenge we’ve overcome, with each market we’ve entered, I’ve felt greater confidence in my abilities to lead and make decisions,” he says. “Of course, it helps to have your abilities backed up by real numbers, and I’ve been bolstered by the growth in sales, profits and earnings we’ve achieved.” For all the young executives who are preparing to become the next generation of leadership in a family company, Wentz has a word of advice: “Don’t limit yourself to what your family members did before you. By all means, learn from their success and mistakes, but find a way to lead that works best for you and the people you work with.”
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