2016 Smart Manufacturing Summit: Solutions Exchange Takeaways and Best Practices

Manufacturing CEOs came together at the Smart Manufacturing Summit to discuss the challenges they face on a daily basis, including recruitment, automation and other systems advancement, such as Internet of Things, Robots and 3D, as well as ways to generate growth, including sales improvement strategies, lean, continuous improvement and more. Here are summary notes from these private meetings.

FAMILY OWNED BUSINESS ISSUES

Th is discussion by a mix of business owners and non-family executives focused on the major challenges faced by owners and managers in the business.

Thirty-three percent of businesses make it to the second generation, 10% to the third.

The need to carefully assess business strategy as well as the long-term viability of the business was emphasized, including the importance of considering legacy as perpetuating a business
family, rather than operating a business.

The entrepreneurial risks of starting a business were contrasted with second- and third-generation members who are oft en gift ed the business. Th e point was made that businesses
should not be gifted, but rather that wealth and values should be transmitted, and wealth should be gifted, to allow the next generation to decide if they really wished to buy the business.

This assures a proper valuation and realistic collaborative decision-making with regard to succession.

There were several examples of members who had taken over the business from their parents—the founders. These transitions were relatively uncomplicated. The parents simply announced their intention to retire and asked the children if they had an interest in taking over the business, which they did very successfully.

The transition challenges are more signifi cant as G2 considers G3 coming into and taking over the enterprise. How to transition most effectively, with minimal tax consequences was one issue raised. Effective tax savings strategies, including the use of grantor trusts were emphasized by one member.

Strong concerns were raised about wealth transfer to the younger generation who did not have to work in the same way to earn the money—how should the wealth be transferred and what was the best way for the business to be purchased by G3. How would the next generation afford to purchase the business?

Non-family executives raised the complications of working in a family business environment, at the same time emphasizing their strong recommendation that family employment policy insist on family working outside the business before working in the business.

It was mentioned by one member that the Pfister Hotel was family owned and operated. Their challenge was to diversify their assets, a not uncommon challenge for many of the larger companies.

Other issues raised for discussion included:
• Making non-family owners by issuing the best employees stock
• ESOP as an exit strategy
• Whether the parents actually want their children to be involved in the family business?
• Whether the next generation will perform well in the family business
• How to assure G2 can take out of the business what they are entitled to
• How to work with complex structures like 120 family shareholders
• The need to base employment on competence, rather than nepotism

Finally, there is a need to professionalize the business with a board that includes outside board members. The problematic definition of “outside” was mentioned as was the advantage to have truly outside unconnected board members. The transition of the board from one that chiefly oversaw operations to one that focused on overall strategy and transition planning was discussed.

The following books and resources were recommended:
Inside the Family Business, by Leon Danco
Every Family’s Business, by Thomas Deans
The Millionaire Next Door, by Thomas J. Stanley and William D. Danko

Facilitator: Steven S. Rolfe MD, Merion Advisory Group LLC | Boswell Group LLC

 


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