When Business Is All in the Family, Grooming a Successor, Training and Outside Experience Matter

By Nancy Kaffer

Sep. 16, 2008

Cadillac Looseleaf Products president Kurt Streng’s father had a steadfast rule for his children: If you want to join the family business, submit a résumé.

Streng was 15 when father Bill Streng bought Troy, Michigan-based Cadillac Looseleaf. It was then a presentation-binding company, and the younger Streng was not initially tempted to join the family business.

When Streng did decide to become an entrepreneur—at his father’s urging—he didn’t join the family business. Bill Streng pointed his son toward an opportunity in recycling and gave him 25 days to write a business plan.

After years running his own business, Kurt Streng joined Cadillac Looseleaf in a part-time sales position in 1991, moving up through the ranks. Streng, now 41, sold the recycling company in 1995.

Grooming the next generation for leadership at a family business can be make-or-break time, and businesses can founder when the older generation can’t or won’t make tough choices—and doesn’t adequately prepare the younger generation to take charge.

Good planning, though, can pave the way for a smoother transition.

The best way to navigate the challenges is to make decisions early on and make specific training plans.

“A big thing is grooming the successor, and they have to make the decisions. Is it going to be a family successor, is it going to be a nonfamily successor?” says Phil Bahr, managing principal of Troy-based CPA firm The Rehmann Group. “And if it’s family, sometimes the parent is afraid to make the decision of who will be the leader. They leave it to see what happens, and invariably, if there’s not a clear direction, it fails.”

Controlling emotion
    Emotions and family feelings can play strong roles in family business decisions, but for continued success, decisions must benefit the business, not just individual family members, Bahr says.

Setting a succession protocol early on can protect family relationships.

Alan S. Schwartz, vice chairman of the board of directors and partner at Detroit-based Honigman Miller Schwartz and Cohn, says that creating a family charter can be a wise idea.

“If a family charter has been done in advance in the first generation, then when an event occurs, they’ve got an agreement,” he says. “Sometimes the agreement will bend; sometimes one sibling is stronger than another. But it helps to have something to point to.”

It’s important to decide early on how to prepare the second or third generations for leadership roles within the family business, and which person should be directed to what role.

At Cadillac Looseleaf, Bill Streng made youngest son Kurt president, though older brother Kerry had been tapped for the role years earlier.

“There was a big issue between my brother and I,” Kurt Streng says. “He was the chosen one … there was a lot of head butting. If I made a decision and didn’t consult him, he took offense to it. We had a hard time even as brothers. One of us had to go, but it actually helped our relationship as brothers. It was a tough time, and we literally wanted nothing to do with each other, but now our relationship couldn’t be better.”

Cadillac Looseleaf, meanwhile, reports annual revenue of $5 million.

Communication, Schwartz says, is key.

“The business side has to be run like a business, but the family dynamic is much more about human relationships,” he says. “This is why I use words like ‘honesty’ and ‘communication’ and ‘sensitivity.’ Those are not business terms, but they are family terms.”

A time outside
Next-generation family-business leaders must also gain credibility with their long-term workers, Bahr says. “It can’t just be handed to them.”

Gaining outside experience, consultants agree, can prove a boon.

Adam Lutz, president and CEO of Farmington Hills, Michigan-based Lutz Real Estate Investments, worked as an investment banker for five years in New York City before returning home to work with father Eric Lutz, now the firm’s chairman.

“I got tremendous exposure on a scale that couldn’t be replicated here in Detroit, I got exposure to major players in commercial real estate, and the real estate finance industry evolved quote a bit during that time,” Adam Lutz says. “I would look at billions of dollars of transactions a year, but after five years of working 80-, 90-hour weeks, I started to long for not just being a cog in the wheel but being able to control my own destiny.”

Eric Lutz says Adam’s experience outside the family business helped prepare him for a leadership role.

“When he came back, he was an accomplished businessman. It wasn’t as though he had to prove something, but he had proved himself,” Eric Lutz says. “He came back with knowledge and skills the business did not have, and he could make a contribution to the business.”

The situation is more complicated for a family with a sprawling tree, Schwartz says, when succession isn’t always linear. It can be a good idea to pair second-generation family members with uncles, aunts or nonfamily managers for training.

Stephen Polk, president and CEO of Southfield, Michigan-based R.L. Polk & Co., was studying wildlife biology when he took an entry-level position with the company his great-grandfather had started.

Doing fieldwork for the company’s now-defunct city directories, Polk returned to company headquarters in Detroit after his father died in 1984.

Polk never expected to lead the company, but his brother passed away the next year, and he became responsible for family decisions. Polk didn’t immediately assume leadership of the company.

“There was a fairly lengthy interim of senior managers,” he says. “But at that point I became responsible for family decisions. I was fortunate to have some experience with the business. That gave me some confidence.”

Today, Polk reports annual revenue of $353 million.

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