To get Jergens Inc. to the position it's currently in — a family business led by its third generation, President and CEO Jack Schron, heading into its fourth and fifth — Schron says he had some great advice early on when the business started to transition from his dad and grandfather to the next generations' shareholders.
"We put buy-sell agreements in there, and the buy-sell agreement had some constraints in it," he says.
Speaking on the Cleveland Smart Business Dealmakers Conference panel on deciding how to transition the family business, moderated by UBS Managing Director William Murphy, Schron says the value of having to buy-sell agreement came when the healthiest member of the family involved in the business, his oldest brother, a Marine colonel, died after exposure to agent orange.
"And all of a sudden that buy-sell agreement became really important to everybody out there, making sure that we didn't have a flash sale and we'd have to do something expeditious," he says.
To avoid that, the company engaged in a logical transition to buy his brother's shares back over time. It taught him an important lesson.
"Never think that your plans are going to work out the way you have them planned, because again, healthiest guy on our team died of agent orange," he says.
The company created business units to get the money to be able to buy somebody out if they wanted to continue with the business. Now working with toward its fourth generation and fifth generations of family leadership, the company is doing the same.
"Now we went from six members of ownership down to just two — my second oldest brother and myself," he says. "So, that's the philosophy we've used and we're getting ready to do that again with the next round of the business to look at creating subunits so that we can be putting ourselves in a position for the fourth generation to be doing the exact same thing in hopefully 10, 15, 20 years when they need to generate cash."
Ahola Payroll & HR Solutions CEO Jeff Ahola says it's taken a lot of a lot of energy for his company to sort out what succession looks like for his family business. Started by his mother and father, Ahola says three of the four siblings were involved in the family company, the one who didn't was Ahola. A disagreement with his father led him to go his own way and work outside the business at Progressive, which then was employing around 200 people.
"It was kind of interesting to be an outsider looking at the Progressive family," he says.
At the time, there were about three siblings in Peter B. Lewis family running the family business.
"And so I had that experience in background and really enjoyed working for a fast-growing family business," he says. "I didn't learn anything about transition with those people. But I learned how to be an outsider looking in."
Eventually, Ahola left Progressive after feeling compelled to rejoin the family business. There, his three siblings remained involved. His older brother was majority shareholder and his two younger siblings were less-percentage shareholders than his brother.
"When I joined the family business, it caused a little family rift because my dad made us all equal shareholders of the family business," he says. "So, that was one transition. And then it was pretty easy back then, my dad just threw the keys to my brother and said, keep sending me a paycheck. So that was pruning the family tree back then in the late 70s, early 80s."
Later, his older brother and younger sister decided to retire, which required a lot of gyrations to understand how the company would retire their shares.
"We finally got to a point that we could buy them out and they still keep a small percentage of the company, but they're not active anymore," he says.
Today, he and his brother are active and they've got a strong leadership team in place and Ahola's daughter is working in the business.
Peoples Services, Inc. Chief Operating Officer Darin Haines knows what it's like to be the outsider coming into a family business.
"And I'll start by saying it's scary," he says.
Coming into executive leadership at a family business, Haines says now working for Peoples Services, a third-generation family business, and others, there is a unique responsibility.
"As you learn more about the legacy and what these families went through to build their businesses and grow their businesses, you think about the normal pressures that you have inside of an organization — if you're in sales, leading to sales team and hitting a quota. I've been a CFO making sure that everything's balanced that we're doing the right things financially. But when you come into a position of leadership in a family-owned business that has that legacy, that additional pressure of not wanting to make any mistakes for the family, you understand what they've gone through, how they've grown, the trials, the tribulations."
For an outsider, he says coming into a family business can feel like you have the weight of the not only the company but the family on your shoulders, and you want to do the right things and move things forward.
"That's one thing I would say as the outsider coming in, it's just scary," he says. "It takes a long time to build trust"
Peoples Services is the first organization he's worked for that's utilized an ESOP.
"And I will tell you, it's been tremendous for our employees," he says. "Just this past week, our CEO and I have gone to six of our 45 locations to present new ESOP certificates to our employees. And this past year, 2021, we were able to contribute about 8.3 percent of everybody's W2 earnings into that ESOP. So, when you hand those certificates out and the look on everybody's face is one of the most rewarding things I've ever experienced in my career."
The Reserves Network CEO Neil Stallard is working for a business his father started. He says it was always part of his father's plan to start a business that would become a legacy and something that would give his children the opportunity to run with it. Stallard has been with the company 30 years, his brother joined about 10 years after him and his sister joined two years ago.
"I'm trying to build infrastructure. I'm trying to build some value to the company," he says. "We are doing a fair amount of acquisitions, both to grow geographically, as well as diversify the company and get into different segments of the staffing business. But a lot of the acquisition strategy is to acquire leadership talent. And we've been able to do that."
That, he says, has put the company in a position that the family isn't necessarily the driving force of the business, giving them flexibility to determine how they'll interact with the business. Still, the company is now actively fostering the second and possibly third generation's entrance into the business, not just as potential ownership, but also leadership.
