Issue May 14, 2007

Success and succession

Author: Dee Gill

Firms need a plan, whether Dad's retiring today or in 20 years

The Hester brothers, Jeff, left, and Stephen, took over the family decorating business from their father. Photo: Stephen J. Serio

What do you do when you're ready to take over and Dad's dragging his feet on leaving?  

That's a good question, and a common one in family-owned companies, where children dedicate themselves to learning the business, only to reach middle age to find they may never get control. After 20 years with the company, they can find themselves in their 40s with no place else to go.

Statistics provide little comfort for those waiting in the wings. More than 13% of 1,143 owners of family businesses polled in a 2002 national study by MassMutual Financial Group and the Raymond Institute said they would "never retire."

"The hardest thing is figuring out how to let go," says David Pistrui, an entrepreneurship professor at the Illinois Institute of Technology.

For adult children in this situation, family business experts have two words: succession plan.

'COULDN'T BE HAPPIER'

Tom Hester made it easy for his sons to take over the company he started 40 years ago, Hester Painting & Decorating, despite his qualms about retiring. He knew he would have trouble quitting cold turkey, or even keeping quiet while his sons took over decisions he normally made at the 60-employee Skokie operation. So he and his lawyer drew up a three-year succession plan, which called for him to take a series of well-orchestrated vacations.

In 2005, Mr. Hester spent two months in Florida. The following year he left for four months. Each time he returned, his sons, Stephen and Jeff, had taken over more responsibility at the company, which specializes in decorative home painting, such as creating a marbled or textured look on walls and cabinets. Its clients include interior designers as well as homeowners, and the sons divided the work according to their talents.

Jeff, 46, who had union training in the trade and had worked at the company since high school, started handling more customers and managing more projects on his own. Stephen, 39, who has an MBA and worked in real estate finance before joining the family business 10 years ago, consulted his father on fewer and fewer business decisions. Company managers also took on greater responsibility.

The slow transition was particularly comforting to the company's clientele, who had worked with Mr. Hester for decades. During the first year of the plan, the patriarch continued to meet with all customers. But he prepped them for his retirement and stayed with them until they felt confident about the managers who would be taking over.

“I am positive I would not have been ready to leave if it was done all at once," says Mr. Hester, 69. "I probably would have felt like I was being pushed into retirement. Instead, I was able to leave when I was 100% ready, and I couldn't be happier."

'JUST NOT READY'

Besides easing the pain of letting go, another advantage of succession plans is the openness they bring to the process. They eliminate the guessing heirs often secretly indulge in about their futures and lets them know where they stand.

The plans also give them a time frame for when they'll get the reins and tell them what they have to do to get there. They may be required to share the top job with Mom and Dad for a while, or report to a non-family member brought in to lead until they have more experience.

Even with the best-laid plans, however, relinquishing control can be difficult for an entrepreneur who's dedicated his life to the company. In some cases, it's impossible.

Bernard Liebowitz, president of Chicago consulting firm Liebowitz & Associates P.C., recalls working with a 70-year-old owner who said his son, age 40 and a longtime employee, did not have enough experience to take over his business. Mr. Liebowitz asked what the son would need to do to prove his qualifications. Develop a certain geographical sales area, the father said.

The son passed the test within a few months, a fact the father did not dispute. But the father could not bring himself to keep his end of the bargain.

"He wouldn't quit," Mr. Liebowitz says. "He said, 'I'm just not ready.' "