Succession Planning Brings Challenges, but Can Mean Long-Term Benefits
YOUNGSTOWN, Ohio – Family-owned businesses often are led by ‘benevolent dictator’ and that can present problems.
Penn-Ohio Logistics LLC’s founder and owner, F.A. “Bud” Hallsky Jr., recruited his only child, Kristen Taylor, two years ago to prepare to take over the company.
The transition represented a change for Taylor, who came to Penn-Ohio from a marketing position at Shepherd of the Valley Lutheran Services. It represents just one of the scenarios businesses face in succession planning.
Advisers to companies here that are looking to continue beyond the current generation often face such challenges, whether they are family-owned enterprises or not.
The vast majority of businesses in the five-county region are small and in large part are family owned, says business consultant James Dignan, principal at AMK Professional Services. In many cases, leadership training in these organizations comes through osmosis as family members work their way up though the business – doing things the way they have always been done.
“What we’re not doing a good job of is looking to the future and saying where do we want to be, actually doing strategic thought and laying out where we want to go and taking initiatives that all map right back to the strategy and the strategic objectives of where we want to go,” Dignan says.
“Here we tend to do either the ‘ready-fire-aim or ready-aim-fire-fire-fire and we just keep going,” without stopping to see if the desired results have been achieved, Dignan continues.
In some cases, organizations – particularly those family-owned – are led by a “benevolent dictator,” a “kind of larger-than-life paternal figure” who is the final authority, he says.
“In a successful succession planning, that individual, who sees all and knows all in the organization, needs to be able to dictate not only company objectives but also express what he knows and sees all the way down to the lowest level.”
One problem with a structure led by the “benevolent dictator” is that individual is often the one who solves the communications gaps, overcomes barriers and finds solutions to problems.
At Penn-Ohio Logistics, Taylor is operations manager for the company as well as a separate company the family owns, Black Lion Products. The companies do production, saw cutting, transloading, storage and steel fabrication. They have provided fabricated products for buildings for Amazon, Rocket Mortgage Fieldhouse, Ohio University and buildings being reconstructed following the Sept. 11, 2001 terrorist attacks in New York City.
“I’m 64 years old right now. I don’t plan on working for the rest of my life,” Hallsky says.
The two allow they have different approaches.
“I’m from the school of thought that I want to know everything I can to make sure that problems don’t even happen,” Taylor says. “If there’s a class, I want to go to it. If there’s a certification, I want to have that.”
Hallsky prefers hands-on learning. Many of the problems encountered in training won’t arise “but it’ll be something else,” he says.
Taylor acknowledges she won’t be running the shop or backing in trucks. She is working on the administrative side of the company – getting to know the customers and vendors, and learning about company processes.
“The guys in the shop are only as good as the people in the office, and the people in the office are only as good as the guys in the shop,” Taylor says.
And it’s not all on her, Hallsky says.
“I have good people around me that she can work with, and they will guide her through the hard times,” he says.
At this point, Taylor says she isn’t ready to tell her father to go ahead and retire. “I could never replace him,” she says.
He disagrees. He has full faith in Taylor’s management skills.
“I have no worry in the world that if I die tomorrow that this company couldn’t keep going. I know she could do it,” he says.
Where many family-owned businesses struggle is when there might be more than one individual among the children equally capable of taking over, Dignan says. The organization has to be structured so the right individuals are in roles appropriate to their skills and that there is accountability.
“You’ve got to let go at some point because it incentivizes the next generation. Of course, they’ve got to be ready to do it,” says attorney Nils P. Johnson Jr., owner and partner of Johnson & Johnson Law Firm in Canfield.
Many companies adopt a succession plan as part of their overall strategic plans, Johnson says. Larger companies often will bring in a consultant to help with that planning.
“When you’re doing it, you have to think about who are the key people in the organization, what’s the personnel pipeline, who are the stars, who are likely to retire, to die, to get stolen by competitors. And how do you plan for the proper talent component,” Johnson says.
“You’ve got to identify the managers that are important and you have to incentivize them,” he continues. “If you’re doing performance reviews, that lets you tell the people who aren’t up to snuff what skill development they need to be doing.”
Often, a parent who started a company encounters problems ceding control to the next generation, says Bruce Kiellor, chairman of Youngstown State University’s marketing department. “Often that can kill an established business,” he says.
Kiellor speaks of those challenges from personal experience. He and his father launched a software company in 1993. Early on, both had the same vision for the company, but as time passed they wanted different things out of the company, and Kiellor eventually stepped back.
“It got to the point where it was creating conflict. It was stupid to have a family conflict over a company,” he says.
There are dynamics in a family business that wouldn’t be present in a different situation, Johnson says.
“There can be a lot of tension in family succession planning. The key is don’t kill the goose that’s laying the golden egg,” he says. “It’s the company that’s important and you’ve got to do what you can to let the company grow.”
The attorney is preparing himself to become an employee of his son and daughter, Nils Peter and Molly Johnson in January 2021. Planning for that transition has been underway for the past four years, he says.
A consultant can help a family business through succession planning by providing a “more objective, separate set of eyes” on the company’s situation, Kiellor says.
A younger sibling might be more of a go-getter than the elder and is the one who needs to end up in control of the business, Johnson adds.
“Sometimes you can finesse that by bringing in a consultant,” he says. The consultant can then say that the younger sibling has the skill set to run the business, and the elder one might have a role to play but “shouldn’t be driving the boat.”
Johnson also points to issues for entrepreneurs in succession planning. Often, the same skill set that lets entrepreneurs focus, come up with new ideas, effect those ideas and “work ungodly hours” aren’t the skills needed as the business grows. “Succession planning in the sense of easing out the entrepreneur or letting him do his thing in the context of the organization while letting a new CEO or a new executive take over” is required.
The risk of not preparing a succession plan can be acute for a sole practitioner or a two-person shop, such as a medical or dental practice or law firm, Johnson says.
“You can wait too long and not be able to monetize it because you have a health problem,” he says.
Johnson cites the example of a physician who died two years ago without a plan in place and the practice lost value daily as patients went elsewhere while a buyer was sought. “We were able to have temporary doctors hold down the fort until we finally found a buyer. But man, that was tough,” he says.
Home Savings Bank has worked with companies on numerous transitions, reports Frank Hierro, Mahoning Valley president for Home Savings/First Defiance. Some have been within families and others with key employees.
“Of course, there are some companies where there’s an exit strategy from the owner and someone other than a family or employees take over the business,” Hierro says.
The larger a company is, the more alternatives are going to be available to the owner, he explains.
“It’s not as easy as it sounds – unless there’s family in there or an employee that would be in the senior management role that would be willing to step up or have the capability to step up,” says Josh Toot, Home Savings senior vice president for commercial banking. “A lot of times it’s a wait-and-see and hoping someone comes in and buys them.”
If there’s not a succession plan in place, in some cases a competitor will buy the company out, Toot says. “We’re working on a few of those right now,” he says.
“There’s a lot of the baby boomers in their 60s and 70s that just need to find someone to take over,” Hierro adds.
Steve Cocca, owner and president of the Cocca’s Pizza chain, stepped in as the company’s director of operations in the late 1990s, he says. His parents founded the chain in Boardman in 1992.
“It took me a while to get comfortable with the business and understand the ins and outs,” Cocca says.
One challenge in the transition came around 2003 when Cocca’s began opening new stores, requiring the chain to have “the right people in the right spot,” he says.
Cocca says his mother, in her 70s, still comes in a few days a week. “We don’t plan on her ever not being here because we still run everything by her,” he says.
Likewise, he plans to never retire. He has four sons – the oldest is a high school freshman – who already are wondering about the roles they might play in the organization. “I’ll always want to be a part of it” and “have a say in what’s happening,” he says.
Pictured: F.A. “Bud” Hallsky and his daughter, Kristen Taylor, are working through succession at Penn-Ohio Logistics.
Copyright 2020 The Business Journal, Youngstown, Ohio.