Editor’s Note: This is part one of a two-part series. In this column, we look at the importance of succession planning and how two different precasters have approached the task. In the next issue of Precast Inc., we’ll delve more deeply into the “how to” aspect of succession planning by highlighting the key aspects of a plan and showing you how to integrate them into your company’s vision for long-term success.
There’s a reason why the word “success” is part of the word “succession.” It’s because in order for a company to achieve success over the long term – and through multiple generations of ownership – it must have a succession plan in place.
Succession planning – defined as the process of identifying and preparing suitable employees through mentoring, training and job rotation to replace key players – finds senior executives periodically reviewing key employees to identify multiple backups for each senior position. In many cases, it’s the president or CEO who will eventually be replaced. And in the precast industry, it is often a family member who succeeds the top executive.
Succession planning is important because it can take years to develop effective senior managers, especially in family-run companies.
“When an owner has spent the majority of his adult life growing and managing the business, that business is typically unprepared for succession to the next generation, or sale to a third party,” says Brian Middleton, president of Bedminster, Pa.-based Brian Middleton & Associates Ltd., which assists firms with the development and execution of effective succession plans.
“While that owner typically does a good job of building and implementing basic order fulfillment processes within their business – and their employees develop high competence at running these processes,” says Middleton, “much of the business’ higher-level operating and planning processes exist only in the mind and activities of the owner.”
Paving their way
In the late 1990s, Joe Wieser started thinking about who was going to run Wieser Concrete, the Maiden Rock, Wis.-based firm he’d started on his own in 1965, when he was ready to retire. With three sons already working in the business, succession planning would involve dividing up responsibilities among brothers Andy, Dan and Mark, and then figuring out a way to slowly work his way out of the business, both on an operational level and on the financial side.
“Dad was nearing retirement age and wanted to keep the business in the family,” says Andy Wieser, president of the four-location, 140-employee company. The planning process went fairly smoothly, according to Andy, who sat down at a meeting with his father and two brothers to “elect” their positions (Mark is vice president and Dan is secretary-treasurer).
The fact that all three brothers were already handling their respective duties made the transition easy. “We had things pretty well divvied up in terms of our responsibilities,” says Andy, who oversees two locations, while Mark handles the other two. “We work closely together, of course, because we still run it as one company with one set of books, which are primarily handled by Dan, who runs the accounting department.”
On the financial side, Joe had previously used personal assets to cover some of the company’s debt, and through the succession plan he was able to structure a buyout that included a reimbursement of that money. About 10 years has passed since the “handing off” of the reigns, which Andy says was largely positive, both for the company and for the family.
“We’ve added one new location and have grown the business by three or four times what it was when we took over,” says Andy, who expects to do more succession planning in the future as he and his brothers’ children grow up and choose careers. “There’s no one working here full-time yet, but there are several children who will be good candidates. We’ll just have to wait and see.”
Paving their way
The fact that the Wiesers worked out an amicable succession plan that not only allowed the founder to retire but also ensured future company growth is unusual in family businesses, where a small percentage of companies make it to the second generation, and even fewer survive to the third.
Having worked with family-run companies for more than 30 years, Middleton says unresolved emotional, relationship and psychological issues tend to be the biggest obstacles standing in the way of successful ownership transfer.
Within the businesses themselves, Middleton says founders usually develop and refine what he calls “owner’s processes” to the extent that they rapidly, continuously, intuitively and sometimes even subconsciously implement them. This can leave potential leaders and managers out in the cold, particularly when those processes are stored only in their maker’s brain, and not in a written format.
“Unlike order fulfillment, employees cannot independently execute the owner’s processes, because the processes are unknown and/or undocumented,” says Middleton, who sees success planning as the “most difficult challenge” of an entrepreneur’s career. The proof is in the numbers: In the United States, only one out of three family businesses makes it to the second generation.
“Entrepreneurs build businesses, but add family to the equation and new questions arise,” says Middleton. Some of the pressing questions include: How do you choose which child will lead the business in the next generation? What happens to children who have no active interest in the business? How will a surviving spouse be cared for? And perhaps the most challenging question: How does a business owner relinquish control of the business he spent a lifetime building?
“In family businesses, there is a paternal governing structure, and often times when the founder is gone, it leaves a huge void in the company in terms of normal governing, who makes decisions and how they get paid,” explains Middleton, who adds that most strategic planning done by entrepreneurs is based on intuitive reaction to events. “A key component of a good succession plan is the documentation of that intuition into formal processes that can be used when the founder is no longer there.”
Chuck and Ron Babbert haven’t completely taken over their father’s company yet, but they are in the position to do so when E.C. Babbert decides he no longer wants to spend his days at the company he founded in 1960. Based in Canal Winchester, Ohio, the firm – also called E.C. Babbert – has two locations, 75 employees, and a president of sales (Chuck) and president of production (Ron) who divide up the duties evenly between themselves.
After working for the family company since they were youngsters, Chuck and Ron assumed titles in the early 1980s and then became part of the firm’s succession plan a few years later. “Our attorney suggested that we put a succession plan in place just in case something were to happen to our parents,” recalls Chuck. The plan was based on a sharing of the duties between the two brothers and the creation of
buy-sell agreements that – in the event that one of them no longer wanted to or was incapable of running the company – would allow the other to keep the firm running, rather than having to liquidate it.
“Our employees are banking on us to do the right thing, and they want to know that they’ll have a paycheck every week,” says Chuck. “We took the long-term approach with a plan that leaves them assured that there will be no disruption if something happens to prevent my brother or me from running the company.”
Knowing how difficult it can be for a founder to “let go” and relinquish duties to his offspring, other family members or third parties, Middleton says founders looking to create succession plans should start by developing a vision and purpose not only for their businesses, but also for themselves.
“Too many entrepreneurs can’t find a reason for living outside of the business,” says Middleton. “For succession planning to work the right way, these individuals have to come up with a vision, purpose and sense of what they want to do besides run their firms. Without that, they’ll never dig in and come up with a plan for the future.”
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is the winner of the 2007 Florida Magazine Association’s Gold Award for best trade/technical feature statewide.