9 minute read
Strategies
Culture Crash: Merging Generations in Family-Owned Businesses
By Nicole Mitchell, editor, Inside Rubber
Family-owned businesses are extremely prevalent in the US; in fact, there are 5.5 million family businesses in the country, according to Grand Valley State University’s Family Owned Business Institute, located in Grand Rapids, Michigan. Family Enterprise USA, Washington, D.C., reported that over 90% of family businesses feel that what sets them apart from non-family firms is long-term investment philosophy, commitment to employees and suppliers, and contributions to their communities. The same could be said for two ARPM members: Verona Rubber works, Inc. and Custom Rubber Corp. family and work as much as possible – which can be difficult when working with parents or siblings on a daily basis. This can be as simple as paying attention to how one addresses their family members while at work.
Verona Rubber – previously H+M Rubber – was created in 1986 by Cathy and Mike Othon and their friend, Harvey Van Cleave. The business has gone through a variety of changes throughout the years, including Van Cleave leaving the company; Verona now is located in Blackstone, Illinois, and is run by Cathy and Mike Othon and their two children, Ben and Cindy. The company does work in agriculture, valve and water industries, construction, military and trucks. “When I worked here in 2000, I called my parents by their first names,” Braun said, whose parents have since retired. “It was important. It mattered a lot to me.” Braun worked at Custom Rubber while he was in high school, helping around the shop wherever he was needed. But after college, his parents requested that before coming back to the company, he first work somewhere else. After gaining more experience, Braun decided to rejoin the company.
Othon, whose parents still are actively running the business, said he functions similarly. “When people ask me, ‘How is your dad doing?’, I answer, ‘Oh, Mike’s doing great.’”
Custom Rubber serves a few different markets, including consumer products, oil, gas and wastewater treatment to name a few. The company was created in 1956 and has been owned by the Braun family since 1980. Now, Charlie Braun, the second generation, is the president and owner of the company.
While family businesses are prevalent in the US, there still are questions that many ask themselves on what it’s like to transition ownership from one member to another. Each family member has their own role in the business – although sometimes those roles overlap or one person may take on more than his given title. However, it’s important to understand the roles that family members play in the company and appreciate the different skillsets and capabilities each
Family dynamics matter
The dynamics at family-owned businesses are bound to vary from business to business; however, the number one suggestion from both Ben Othon and Charlie Braun are to separate The Braun Family
The Othon Family
person brings to the table. “When my parents leave at the end of the day,” Othon said, “I step back and realize what they do every day. I appreciate their work.”
Jealousy in the workplace is nearly inevitable, especially when a family member joins the company. There may be employees who feel that the younger family member may only be there since they’re family. Othon and Braun noted the importance of working for their position. “Make sure you do what’s possible of your skills and don’t just sit there because you’re related to the owner,” Othon shared. “Do the extra work to prove that you’re there because you’re valuable.”
Ownership transition plans
There are many considerations and much planning to be done before transitioning from one owner to another, particularly when family relationships are involved. If siblings are involved in the business, is it best to name co-owners? Should primary ownership remain with the parents, even after they leave the everyday demands of the job? What other factors should families think of before changing ownership?
Othon and his sister have had minority ownership in the company for many years. “We’re already considered owners,” he said. “But my parents own the majority stock.” Starting small has helped Othon and his family slowly transition together. “It’s always been the plan that I will take majority ownership with my sister,” Othon said, with his parents working for as long as they please. Similarly to plans at Verona, Custom Rubber was slowly transitioned from one owner to another as it felt right. “When we were in college,” Braun said, “my parents started transferring shares into a trust that my siblings and I couldn’t touch.” As each sibling graduated and ultimately decided what they wanted to do with their lives – work at Custom Rubber or somewhere else – the children active in the business could buy the shares from the trusts of the inactive siblings. “I executed that option and bought the shares from my brother and sister,” Braun said. It wasn’t until 2021 that Braun bought all the existing shares from his parents, making him the sole owner of the company.
Working with family members
Like any business, there are pros and cons – and with familyowned businesses, there are some specifically when it comes to working with relatives. Some challenges faced might include family members struggling to keep business talk separated from home life, troubles when decision making and more.
“My dad and I are competitive and stubborn people,” Othon said. “We butt heads with how we want to do things. And, the more I take over, my parents somewhat feel left out.” Both Othon and Braun agreed that it can be hard for the original owner of the company to find the right balance of letting their family member take the reign while also providing help when needed.
Braun has experienced a different challenge of his own: Having patience. If the business transition had moved at his desired pace, “I would’ve bought the shares and assets 10 years ago that I got only a few years ago,” he said. Having patience serves as a reminder that things don’t have to be done right away. Since Braun’s family required him to work elsewhere before rejoining the company, he had to remind himself why he was there and what drove his desire to stay at the helm of his family business.
Custom Rubber Corp. now has a board of advisors who help assist in decision-making processes; and this was another aspect of the company that Braun wishes he had implemented sooner. The board of advisors helps ensure that decisions being made benefit the company as well as reduce potential conflict within the company.
There are plenty of positives when it comes to working with family. For starters, the experience has given both Braun and Othon a solid understanding of what it means to be a good employee. “It instilled a work ethic in me,” Braun said. “I didn’t want to be the son who just sat there.” Putting in the work allowed both men to find themselves and their own places in their companies.
t page 27
Importantly, working for a family-owned business where someone you trust is willing to take on ownership of the company gives a sense of comfort. “As a family business,” Othon said, “you know that they’re not going to leave you. They’ll do what’s best for the business, but also they are family. I can rely on them.”
When asked what advice they would give to those who are planning to transition into an ownership/leadership role in a family-owned business, Othon noted the famous The Godfather quote – “It’s not personal. It’s just business.” While the quote is originally referencing Michael Corleone’s declaration that he would kill the men who attempted to assassinate his family, Othon uses it as a reminder that company time and family time are separate. “If someone gets angry or feels like they have their toes stepped on, they can’t go to Christmas dinner and continue the argument,” he said. “They have to let go and just be their family member outside of the workplace.”
Braun’s top recommendation for families in business together is to educate themselves on the best ways to collaborate and communicate successfully. “I took a great course at Case Western Reserve Business School taught by Ernesto Poza, family business expert, where he listed the five things to do successfully,” he said. Poza is an internationally recognized speaker and consultant for family-owned businesses. He’s also the author of Family Business – a book Braun highly recommends to those in the business.
Braun also recommends that younger generations joining the business ask questions. “Before I came back to Custom Rubber, I interviewed my dad’s friends who work in family businesses to ask them what went well, what to do, what not to do,” he said. “So much of this transition relies on the older generation to let go.” u
How to Legally Protect Each Party
Joe Keglesvitch, attorney for ARPM and partner at Ice Miller, recommends that family-owned companies be aware of the tax implications of a transfer of equity first and foremost. “There can be negative tax consequences to the transferee,” he said, “and also, opportunities to avoid those downsides with proper planning, particularly dovetailing and estate planning.”
For those considering transferring ownership to multiple people – such as multiple siblings or cousins – note that there can be an impact on voting and governance, risking a once-fitting governance structure becoming ill-fitting in the future, Keglesvitch said.
Lastly, businesses should keep all documents up-to-date to avoid further issues. “If there are shareholder, buy-sell or similar agreements,” he said, “it is critical that they be updated as necessary and that any new owners become party to them.”
Missing out on these important steps could disrupt plans of transition or, worse, impact the next owner. Owners – current and future – also should take steps to protect themselves in case anything were to happen to the business during or after the transition.
“Current owners should be sure that they have both offensive and defensive protections in place,” Keglesvitch explained. “As for defensive protections, you want to know your partners are bound by obligations as to when and how they can (or are required) to get rid of their equity.” Some examples of this are mandatory redemptions on events, drag-along rights and rights of first refusal.
“On the offensive side,” he continued, “you need to know any buy-out provisions are adequately funded so as to ensure payment without rendering the business insolvent and that all the tax angles have been considered and covered.”
