Andrew Cornell, the chief executive of Cornell Iron Works in Mountaintop, Pa., believes that no job awaits anyone by virtue of family membership.
By ADRIANA GARDELLA
Published: April 4, 2012
For this small-business guide, we talked to the owners of several businesses that have beaten the odds. From those conversations, we identified a few traits that the survivors seem to share: a willingness to reinvent, a belief that family members are not entitled to employment, a focus on succession and an openness to seeking outside help.
A WILLINGNESS TO REINVENT To endure, a family business must remain relevant. This can happen by chance if a company is fortunate enough to make a product that does not become obsolete. It can also happen by design, through continued reinvention. “If you do the same thing for more than five years in a row, you’re going to fall behind,” said Tom Flottman, chief executive of Flottman Company, a third-generation printing business that was founded in 1921 and has continued to expand into new markets.
The company, which is based in Crestview Hills, Ky., and has about 50 employees, began as a commercial job shop. By 1968, in response to market demand, it had evolved into a full-color lithographer. In the 1970s, when the Food and Drug Administration started requiring pharmaceutical manufacturers to include additional printed leaflets with each unit package shipped to health care practitioners, the company developed a niche in the area, acquiring special equipment to handle the work.
Today, this work makes up more than half of Flottman’s business. In the last 20 years, despite a shrinking market for printed products, the company’s annual sales have grown to $6 million. “To survive,” Mr. Flottman said, “we must be more than a company that puts ink on paper.”
NO GUARANTEED EMPLOYMENT Cornell Iron Works, which is based in Mountaintop, Pa., and employs 600 workers, has been reinventing itself since it began as a blacksmithing business in 1828. Today, it makes specialty metal overhead doors for industrial, institutional and retail customers. Its chief executive, Andrew Cornell, joined the business in 1992. Since then, sales have increased about tenfold, to $130 million in 2011.
Mr. Cornell attributes the company’s success, in part, to its approach to hiring and promoting family members. For 45 years, the company has followed a strict written policy: no job awaits anyone by virtue of family membership. Mr. Cornell, the only family member working in the business, said even one unqualified family member can wreak havoc. “A family business can’t be a home for wayward family members,” he said. “We’re building a business for the good of employees and shareholders.”
Maintaining rigorous standards for family involvement is also important at W.S. Darley & Company. Based in Itasca, Ill., and founded in 1908, Darley began as a maker of municipal firefighting equipment, including fire trucks. The company has about 215 employees, including 10 third- and fourth-generation family members.
Operations are overseen by an executive committee made up of Paul Darley, chief executive; his brother, Peter, and their cousin, Jeff Darley, both executive vice presidents and co-chief operating officers; and another cousin, James Long, an executive vice president.
The company’s family-participation plan provides that, while family members are encouraged to consider working in the business, the position must be mutually beneficial. It states that the business owes no obligation to any family member and no family member is obligated to work in the business.
Those who do are paid the market rate for their jobs and are subject to the same hiring, performance and termination rules that apply to other employees. Ideally, family members are supervised by nonfamily members. And, as at Flottman and Cornell, family members are encouraged to work outside the company first.
All of this, Paul Darley said, has helped the company thrive. As fires have become less common, the company has evolved into a provider of equipment for first responders, including paramedics and the military. Despite a tough market, annual sales, which were $52 million in 2005, have increased to $112 million in 2011.
SUCCESSION PLANNING When family is involved, crucial decisions regarding succession can become especially charged. Some family businesses strive to alleviate the potential for hard feelings by placing the responsibility for choosing new leadership in the hands of qualified members of the next generation. The fathers of both Tom Flottman and Paul Darley took this approach as they prepared to step down.
Mr. Flottman’s father, Rod, left the business in stages in 1992. At the time, Tom Flottman and two of his five siblings were interested in running the company. Their father told them to determine their compensation and titles among themselves. When Tom realized they all wanted to be president, he suggested a rotating presidency of 10-year terms, which the siblings agreed to and put in place.
Tom, now 60 and the oldest of the three, served as president from 1992 to 2002. He said the transitions had been smooth. “We all own a third of the business, and the three of us comprise the board of directors,” he said. “This is where the ultimate authority rests, irrespective of who has what title.”
Paul Darley’s father, Bill, began planning for his company’s transition more than 10 years before he stepped down as president in 1997 (there was no chief executive title at the time). After observing the company’s younger leaders — family and nonfamily alike — he narrowed his choice to three: his sons Paul and Peter, and their cousin, Jeff.
In 1989, Bill asked each of them to submit business plans that detailed what they would do following his death or retirement if they were in charge. He carefully reviewed the plans, but in 1995, he decided to leave the choice to them. They picked Paul after agreeing that he possessed the necessary communication and organizational skills.
OUTSIDE ADVICE Family businesses tend to make emotional decisions. Because of that, Paul Darley said, he believes it is particularly important to have outside advisers. When his company hit $35 million in annual revenue, he established a formal board. He said the value of the board became apparent when it moved to close the doors of an operation in Oregon that had been unprofitable, on and off, for 10 years.
Mike Petersen, president of Petersen Aluminum, agreed that it was important to seek input and guidance from outsiders. Based in Elk Grove Village, Ill., the company manufactures architectural metal products. Mr. Petersen’s father founded the company in 1965 as a provider of architectural aluminum, mostly for industrial clients. After Mr. Petersen joined the business in 1977, he persuaded his father to expand into steel as well.
Sales have grown from $20 million in 1987, when Mr. Petersen became president, to $102 million last year. And the company now has about 220 employees. Mr. Petersen, two of his brothers-in-law, both vice presidents, and a recently hired nephew who works in sales are the only family members who work for the company.
When Mr. Petersen’s father ran the company, he sought business guidance from a group of service providers: his lawyer, his accountant, his insurance adviser and his banker. They functioned as a “quasi-board of directors,” said Mr. Petersen, who opted for input from more independent sources when he became involved with the Chicago Family Business Council. He is part of a group of 10 family-business owners who meet monthly to share ideas.
Despite the particular challenges of running a family business, the successful ones recognize that their longevity depends on keeping customers, employees and shareholders happy. “We don’t like the idea of family business,” Andrew Cornell said. “We like the idea of business family.”