Family Business Round Table May 2010

Executives and experts talk about what makes family-owned businesses a different breed.

Stewardship, conflict resolution, adaptation. These are consistent themes when discussing family business. Even the most successful face challenges, but the difference is how they deal with them. Discussing how their companies have done so were key executives of this year’s North Carolina Family Business of the Year Award winners: Cliff Birch, president of Waxhaw-based Birch Brothers Southern Inc.; Jim Griffith, president of Charlotte-based Griffith Real Estate Services Co.; Mike Ziebell, executive vice president and chief financial officer of Goldsboro-based Pate Dawson Co.; and Jennifer Sexton, director of operations of Charlotte-based Partners in Care LLC, and her brother, Matt Olin, the company’s business manager. Offering expert insight were Kathy Baker, director of the Wake Forest University Family Business Center in Winston-Salem, which holds the annual competition; and Charlotte Office President Chris Cecil and Senior Partner Steve Salley of Palm Beach Gardens, Fla.-based GenSpring Family Offices, which sponsored and hosted the panel. Business North Carolina Publisher Ben Kinney moderated the discussion. Following is a transcript, edited for brevity and clarity.
2010 Family Business of the Year Winners

Griffith Real Estate Services, winner in the small category (fewer than 50 employees), grew out of the E.C. Griffith Co., one of Charlotte’s oldest family-owned real-estate firms. Started in 1912, the company has developed some of the Queen City’s leading institutions.

In 2003, Don and Sally Olin started Partners in Care, winner in the medium category (50-250 employees). The Charlotte company provides personalized in-home health services and helps elderly residents who don’t want to go into nursing homes stay independent as long as possible while providing peace of mind for their families.

Founded in 1885 as J.H. Pate Grocery, Goldsboro-based Pate Dawson has become the nation’s 27th-largest food-service distributor. Winner in the large category (more than 250 employees), the company has thrived in good and bad economies by being willing to change. In the past five years, annual sales have grown to more than $25 million.

The Century Award winner, for companies in business over 100 years, is Waxhaw-based Birch Brothers Southern. Founded 127 years ago in Massachusetts, it actually began 38 years earlier in England and evolved from a manufacturer of textile machinery into a maker of custom equipment used in the aerospace, automotive, nonwovens, technical textile, medical, paper, home-furnishing and other industries. It moved to North Carolina in the 1960s to be closer to its customers.

The Wake Forest Family Business Center will present its second North Carolina Family Business of the Year awards May 6 at Discovery Place in Charlotte. Former BB&T Corp. CEO John Allison will be the keynote speaker. Winners were judged on their success, innovation, contributions to their communities and industry sectors, involvement by family members and commitment to keeping the company in the family. “The event will provide a wonderful opportunity to celebrate the success our honorees have achieved in combining the best of family and business,” Family Business Center Director Kathy Baker says.

How has being a family business contributed to your company’s success.

Olin: I think a big part can be attributed to the family sensibility that we bring. When we meet a potential client, it is usually a family member or members who serve as sort of the spokespersons for the family and are trying to negotiate through a difficult time, a difficult situation. Since we’ve been through these situations with our own grandparents, Mom’s mom and dad, we’re able to bring that sensibility — and understanding — to their situations and help them figure out how to take that next step.

Birch: Something that’s contributed to our success has been that the people running the business have never been afraid to look at new things — new technologies and ways to branch out. When the business came over from England, the two brothers here were in engineering services. They did plant design and things like that and happened to get into selling the equipment that went into them. That’s happened through every generation — sometimes it’s marketing, sometimes it’s been technology, sometimes it’s been diversity of applications for the things we build. But that’s been probably the strongest thing that’s kept the place successful and moving forward.

Ziebell: We’ve adapted from a retailer to grocery wholesaler to a restaurant wholesaler. But also it’s due to the way we treat our customers. We were talking customer intimacy long before it was a buzzword. It’s not just ownership but stewardship of the company — initiative, whole-person servant leadership, which is very important to us, change, commitment to goal achievement, communication, growth, learning, superior performance and teamwork. Those are our core values that help us be successful.

Griffith: I’m very big on putting family businesses in good systems because it does tend to improve behavior when they are a part of the process.

Salley: In all the family businesses that we work with, we have tried to pull out and build upon best practices. You learn about family businesses by anecdote. But what makes a family business work is two things: It’s financially successful, but it’s also happy.

What about the stereotype of family businesses as dysfunctional organizations rife with conflict between generations, branches and siblings?

Griffith: All families are like this: We all have conflicts; we all have issues. Running a business is easy compared to being in a family business, which is compounded by family politics. But one reason I got involved in ours was that I kept hearing people tell me that family businesses shouldn’t exist — that family members can’t get along and that they should just sell out, become public. And I just sat there going, “No, I think a family business can work.”

Salley: The idea is, if you don’t have destructive conflict now, you will, so sell now. And it is so refreshing to see families resist that. I think the pressure right now to have a liquidity event — we used to call that selling — has probably gone down. We see a pain point more and more often when the older generation’s passion for the business is not shared by the next generation. That is where structure comes in: You have to diverge management succession from ownership succession. But to try and force the passion is ultimately self-destructive. The family that is able to offer the dream and have it taken has the best of both worlds. But second only to that is to be able to offer the dream and be able to graciously have it given back to you — very tough for some families.

Olin: In our business, we’re dealing on a daily basis with families in conflict. It may just be emotional conflict; it may actually be hand-to-hand conflict. It spans a spectrum. I think we assume the role of a rock in the storm. And as we’re trying to help families who are dealing with all these different types of conflict, we tend to avoid some of the pitfalls of family conflict that might come up in other types of situations.

"What’s different for a family-owned company versus a public company is long-term vision."

Mike, what’s your perspective as a nonfamily employee?

Ziebell: This wasn’t a family that fights each other or has conflicts. They’re very structured. When I was hired, I heard, “My sons are coming in; they’ll be the next generation. There’s plenty of room for you here if you want to be successful. We’ll help you be successful.” The company runs that way. I feel like I’m a very important part of the management team. I am. I have a lot of decision-making ability. I’m treated very, very well. I like being there, good team to work for. Good people, good sense of values. Like I said, the values are very, very important to our company.

How important is it for family members to start their careers outside the business?

Ziebell: Our CEO is an accountant like myself. He’s a CPA. He worked in a public accounting firm before he went into the family business, so he had his time out. And all of his family members work outside the business before they come in to work. That’s a great way to introduce people to being successful on their own, not just because of who they are.

Griffith: When I got out of college, I asked my dad for a job, and he said, “Nope, no work up here for you, go out and do it on your own. My brother the same way: He worked with Charter Properties before he came onboard.

Sexton: I worked three years as senior account manager for a temporary agency. I had hired everybody from executives down to warehouse forklift drivers, so I can interview all ranges of people and felt confident I could come in and help. It was two or three years into it when my mom picked up the phone and said, “Are you interested in coming?” I gave my resignation and said, “If I don’t work well with my mom, will you hire me back, please?”

Talk about how your businesses are structured?

Ziebell: We have outside board members. The chairman is a family member and the CEO is on the board, but the other members are all outsiders, which helps me, being an outsider, to have a board to hear my perspective and to provide a perspective different from the family view.

Griffith: We are moving toward a board of advisers and outside board members. And I think as you do, you get away from the family politics. People have got to understand that in families — brothers and sisters, aunts and uncles, cousins — there’s natural internal competition among them.

Birch: There is, and it’s not necessarily a bad thing. At different times through the generations, Birch Brothers has been solely owned by one member of the family and split between three or four. And the most successful eras were when there were three or four owners butting heads about what they wanted to do and how they wanted to do it. That’s where the best ideas came from. The company was well-stewarded under periods of sole ownership, but growth wasn’t as big, the accomplishments weren’t as remarkable. You want your company to be successful, and success means different things to different people. Since I’m sort of the one doing it now, I’m looking towards a board of advisers, someone to bring in some outside viewpoints. It should make things more interesting, I think.

Cecil: There’s a process for dealing with the conflicts that are going to naturally arise. You talked about the three brothers butting heads, but at least they butted heads, and that was conflict resolution. The other side of that story is when they never come together.

Salley: I’ve done a lot of work — I was a tax lawyer in a prior life — with very large publicly traded companies, and there was conflict there. But there was conflict that was not aided by love. A CEO of a large company I used to represent told me, “When I made CEO I knew that my No. 1 job was to look around and find the most talented person who would be the most likely person to succeed me and get the hell rid of him.” And he was dead serious. So this pushing people can be pretty vicious even without the family solidarity. I think the difference is that we feel it so hard when it’s family. It is two sides of the same coin, which is either really painful when you have conflict. But it also is that glue, the magnet.

Griffith: It’s fascinating because when the magnets come together, when they’re attracted to each other, a family can do more, faster, quicker, better than an unrelated group — if they’re all pulling on the rope in the same direction. It’s a synergy that’s very powerful. And that unfortunately unravels sometimes, and the magnets get reversed. It goes both ways.  

Baker: Only 30% of family businesses make it to the second generation, and then it’s something like a third of that. But if you look at how many publicly held companies make it three or four generations — you’re talking well over 100 years — there’s very few.

Ziebell: What’s different for a family-owned company versus a public company is long-term vision, not just quarterly profits. You can invest now and say, “OK, I know we’re going to have a couple of tough years, but this is the right thing to do for the company in the long term.” The stewardship you’re providing for future generations has to be focused on the future and not today, not the next quarter.

Baker: It’s called patient capital.

Salley: An easy catch for whether there’s a family business you don’t want to work with: Find impatient capital. That is, the ones that have grown dependent on fixed cash flow out of that business. They’re no longer stewards; they’re users.

Griffith: The illiquidity of the stock can work to our favor. We know we’re not going to sell the stock tomorrow, the next day or years from now. In fact, we don’t even know what the value is sometimes. For that reason, we make long-term decisions.

"Often we find the keep-me-awake-at-night question is: ‘Is my dream the same as my children’s?"

Of all these things we’ve discussed, what is the biggest issue a family business faces?

Cecil: One of the phrases we use over and over again is: “What keeps me awake at night,” a series of questions we’re constantly asking families we work with. It’s not necessarily the level of tax planning you’ve done. It’s not necessarily the level of investment management. It’s another, bigger issue. Often we find the keep-me-awake-at-night question is: “Is my dream the same as my children’s? And if it’s not, am I pushing my dream down to the next generation and it’s not their aspiration?”

Olin: It’s really interesting in terms of those dreams, aspirations and value sets that are the cornerstone of the family business is that we inevitably have to hire scores of people who are not family members.

Salley: And I suspect that the two of you embracing the business the way you have is probably the best gift you’ll give your parents.

Cecil: This is great input in the process that we do. And one of our missions — one of our key inputs — is that we don’t believe we know everything. Even a simple consensus on who is using an outside board, how are you using them, how you have different mechanisms for resolving conflict can be valuable.

Griffith: As family businesses, we are more alike than different. I think you hear it all the time: “Oh, I could never work with my brother,” or “I could never work with my father or sister or aunt or uncle.” The truth is, you can. And all families are really more alike than they are different. I give a lot of credence to the structure and systems.

Baker: That’s the whole point of the Family Business Center. Half of what we do is education and the forums, but the biggest part is just the peer group. It’s really about the families meeting each other and talking about what works and what they’ve been through and how they got through it. That’s the point.

This article originally appeared in the May 2010 issue of Business North Carolina magazine.