Sunday, March 14, 1999
Resources available for family businesses
Entry joins consulting field
BY JOHN ECKBERG
The Cincinnati Enquirer
A little competition in the field of family business advice is coming to Greater Cincinnati.
Union Central Insurance & Investments, a Cincinnati-based company since 1867, plans to open a local chapter of the Family Enterprise Institute with a kickoff seminar Tuesday.
The institute, a wholly owned subsidiary of the company, is a national group that brings together family businesses with experts and advisers in forums to allow businesses to share and receive information, advice and resources. Other branches are in Phoenix, Philadelphia and Dayton, Ohio. A Memphis chapter opens March 27.
“We are trying to create an environment where local businesses can work within a circle of advisers and have access to contacts and specialists,” said Ken Byers, who has advised family businesses for three decades and will be chairman of the local institute.
Family business issues have become a big concern among business advisers because of some significant demographic trends. According to the magazine Family Business:
• Family firms employ an estimated 59 percent of the work force, about 77 million people.
• Family firms account for an estimated 78 percent of net new jobs that are created.
• About 43 percent of family businesses in the United States will change leaders within the next five years.
Union Central Insurance & Investments opened the net work of family institutes in 1998 as a resource for clients and to differentiate itself from other companies in the insurance and investment industry, said Olga Staios, executive director of the Family Enterprise Institute.
“A lot of businesses that started post-World War II need to start planning for transition,” Ms. Staios said. “This is a value-added service.”
For about a decade, the lead group in the field locally has been the Goering Center for Family & Private Business at the University of Cincinnati.
High expectations
“We have high expectation of raising the awareness level of what the Goering Center offers in the months and years to come,” said Kent Lutz, director of programs for the Goering Center.
One goal of the center, which has 150 members and has served more than 2,000 participants during the past decade, is early consultation. Seminars and forums provide opportunities for businesses to share experiences, Mr. Lutz said. He estimated that about 90 percent of the businesses in Greater Cincinnati are family owned or operated.
“We are really reaching out to the membership to try to understand where the center can meet needs,” Mr. Lutz said. “We want them to come to the center as early in the process as they possibly can, and awareness is an important goal. Our motives are not to sell a product but to make education and research available.”
Sue Flottman Steller, 40, Cold Spring, turned to that center about a decade ago and has seen family business issues evolve firsthand as executive vice president in charge of sales and marketing at Flottman Co., a commercial and pharmaceutical printing company in Crestview Hills that specializes in miniature folding.
The firm was founded by her grandfather in 1921 and is now on the third generation of family ownership. It is too soon to tell whether it will make it to the fourth generation, but the chances are good, she said.
Part time to begin
:“We think the fourth generation will come in and work part time,” she said. “They're still too young to carry a full-time position. The oldest is 16, so we're still a few years away. If their interests take them somewhere else, that's fine, also.”
Principals with the company realized that generational transfer could become a problem, so in 1990, they contacted the Goering Center for advice. Besides Ms. Flottman Steller, two brothers were also interested in remaining with the company: Tom is president, and Peter is in charge of plant production.
“We got involved with the center as a backup to familiar ize the three of us with what we needed to stay abreast of,” she said. “We needed to stay on top of issues before they became problems.”
Key issues were compensation, stock buyouts, what happens should disabilities occur and what about unplanned events like a death. The company has $2.5 million in annual revenues and employs 25.
Donald Jonovic, a family business expert based in Shaker Heights, Ohio, will launch the institute's workshop Tuesday by discussing how to preserve and build value by compensating key management, defining an owner-investment strategy and building a consensus between the family and owner.
The seminar at Union Terminal begins at 8:30 a.m. It costs $45 for institute members and $75 for non-members. Reservations can be made by calling (800) 411-5594. Institute dues are $90 annually, which pays for subscriptions to two quarterly publications and a copy of The Ultimate Legacy by Mr. Jonovic.
“One central question is this: When to sell rather than hand the company down,” Mr. Jonovic said. “It's something that shareholders need to ask on a regular basis.”
A common hurdle is founders' tendency to be secretive.
“You ask a business owner what time of day it is, and they want to know why do you want to know,” Mr. Jonovic said. “The challenge is how do you go from being totally tight-fisted with the information to being totally open with the information. That balance is critical, and it can be achieved.”
Transition problems
He said transition problems today are heightened because businesses are generally larger than in the past. His advice to founders who have children who might not be interested in taking over the company is simple:
“The business owner who waits for a prodigal son to return is basically frittering away their time,” he said. “Instead, structure a business that has room for family members and key managers who are non-family. If a kid suddenly decides he wants to come back, it's up to them to figure out how to fit into the structure.”
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