Focus and Banking & Finance

Don't let successors tank the family business

August 8, 2014
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The Stroh family had become one of the richest families in America by the 1980s, thanks to its burgeoning beer business, which was started in 1890.

By 2008, however, the family was forced to sell the Stroh Brewery Co. after a series of failed business decisions.

In July, a Forbes magazine article detailed the rise and fall of the Stroh family and its Detroit-headquartered business, in what can be deemed a cautionary tale of what not to do.

The title of the story tells it all: “How to blow $9 billion: the fallen Stroh family.”

Nick Reister, an attorney with Smith Haughey, said the story is an important lesson for anyone operating a family business.

“These are the same issues on a different scale that mom-and-pop shops down the street have to deal with,” he said.

Typical succession planning involves a slew of legal, financial, tax and management decisions, but often ignored is the equally important issue of preparing the next generation to run the business.

Reister said next-generation issues include understanding the family values that have helped the business grow, intentional and regular communication between family members, teaching business and financial management skills to family members of succeeding generations, and understanding the unique challenges facing successive generations whose experiences differ — often dramatically — from their predecessors.

“Those things are really, for me, what is at the core of trying to keep the family business alive and enable it to succeed in the future generations,” he said.

Using the Stroh family as an example, Reister said its successive generations seemed to lose track of the values that built the business.

“It sounds like there was a lack of direction. Some of the values and ethics that built the empire weren’t effectively transferred down to the succeeding generations,” he said.

Reister said current generation owners should have conversations with the next generation about the values that are steering business decisions to help them understand how the business is growing.

He suggests quarterly or at least yearly meetings with family members to discuss “family investments and family creed” and to settle on values the business will use as a foundation for the future.

“I find communication is huge between family members,” Reister said. “The Stroh family started out 150 years ago with a small core of individuals and families, but as the generations succeeded, those families tend to grow. You have a larger number of people, and the communication becomes that much more critical.”

Reister said growing up in a wealthy family has its own trappings, often including not understanding how to make tough decisions, or that sacrifices sometimes are necessary for successful outcomes.

“Too often, when a generation has been raised in a successful family, they are somewhat insulated from having to make tough decisions and the stressful things that all of the former generations had to deal with,” he said. “There is a bit of naiveté that they come into the circumstances with, and perhaps they don’t understand all the considerations.”

Those differences in experience need to be bridged through communication and education.

Reister said current generation business owners should be realistic about who in the family has the skills to run the business, noting one person often doesn’t have everything it takes to succeed, and sometimes the person best fitted to run the business doesn’t want to.

He said professional advisors who can help transitioning owners move the business forward are imperative.

By developing a firm foundation of soft skills within successive generations, Reister said the family business should be able to prosper for years to come and avoid the fate of the Stroh family.

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