Integrating Non-Family Executives
into the Family Business
From Family Business to Business Family:
A Case Study
Clemens Family Corporation
• $700m + annual revenue
• 2,200 team members
• 260 Shareholders
– spanning 2nd - 6th generations
• Over 115 years in operation
• 4th Generation leadership
• Clemens Food Group:
– 9th largest hog production company in the U.S.
• Clemens Development:
– $80 million+ in real estate assets
Established 1895
Top 10 Pork Suppliers – Daily Capacity
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Smithfield Foods, Smithfield, VA
Tyson Foods (IBP), Dakota Dunes, SD
Swift (JBS) Greeley, CO
Cargill Pork, Wichita, KS
Hormel, Austin, MN
Triumph Foods, St. Joseph, MO
Seaboard Farms, Shawnee Mission, KS
Indiana Packing Co., Delphi, IN
Clemens Food Group, Hatfield, PA
J.H Routh, Sandusky, OH
115,400
76,775
47,000
37,800
37,300
20,000
19,800
17,000
10,600
4,200
Our Standing in the Meat Industry
Top 100 Meat Producers in North America – 2012*
1.
2.
3.
4.
6.
14.
23.
35.
36.
43.
64.
74.
83.
97.
Tyson Foods
JBS USA
Cargill Meat Solutions
Smithfield Foods
Hormel Foods Corp
Perdue, Inc.
Seaboard Foods
Boar’s Head
Johnsonville Sausage
Clemens Food Group
Dietz & Watson
Bob Evans Farms
XL Four Star Beef
Monogram Food Solutions
$33 billion (beef, chicken, pork)
$31 billion (beef, chicken, pork)
$18 billion (beef, chicken, pork)
$13 billion (pork)
$ 8 billion (beef, turkey, pork)
$ 3 billion (chicken, turkey)
$ 2 billion (pork)
$813 million (beef, chicken, turkey, pork)
$800 million (pork)
$735 million (pork)
$400 million (beef, chicken, turkey, pork)
$334 million (pork, turkey)
$300 million (beef)
$207 million (beef, chicken, pork, turkey)
*Meat & Poultry Magazine, March 2013
DWB Background…
• Joined Clemens Family Corporation in 1987
– Initially began as Controller
– Promoted to Treasurer in 1995
– Became CFO in 2002
• 7+ years in Public Accounting prior to joining CFC
– 4 years with a regional public accounting firm
– 3 years with Price Waterhouse
• Received my MBA in Finance in 2004
JBW background…
•
•
•
•
Joined Clemens Family Corp in 2000
15+ years in Management Consulting
Formerly with Ernst & Young, Inc. Magazine
Focused on growth strategies in family/privately held
middle-market companies
How we met, Circa 1999…
The S-Curve
Stage I
Stage II
Stage III
1999
a changing
REALITY
10
Financial Performance Dropping
Costs
increasing
faster
than
revenues
Capital projects
not yielding
return
on investment
Sales flat
Net
earnings
and
return
on
capital
declining
11
Value of HQM Declining
Return On Net Assets from 1993-1998
12%
10%
7%
Median of
Group
Hatfield
Quality Meats
Cost of Capital
12
Sales have increased, but the bottom
line has decreased!
Fiscal 1998
Fiscal 1988
Sales $
$379.3
$214.8
Investment
$115.8
$54.3
Employees
1538
880
Net Income $
$6.7
$7.9
Net Income %
1.77%
3.67%
($ in millions)
13
Transition Issues circa 1999
• Multiple family members active in the business
in “leadership” capacity
• Family members over-identified with the
business
• Culture of Entitlement and loyalty trumped
performance and accountability
• Philanthropic giving (as % of sales) was declining
• Decision-making paralysis
Attempts at Making Change
•
•
•
•
First Attempt…mid-90’s
CEO engaged a Strategy consultant
Failed due to lack of buy-in with entire team
Never got to root of the problem
This Time Around…Consulting Projects
•
•
•
•
•
Vision and Strategic Priorities
Balanced Scorecard
Capital Project Rationalization
Performance Management
One year later:
–“This isn’t going to work…”
Choices
Do nothing, and stay the same
Sell the business
Make dramatic change
Succession Planning Committee
• Goal was to map out an organizational structure that was
best for the business, not for the family
• Unanimous agreement was required from the committee,
and a majority vote from the Voting Trusts
• Facilitated confidential sessions over three months
• Looked at positions, not people
• “Are you doing what’s right, or what’s
easy?”
There was not enough room for all the family
members to be at the top
Family Business
Vs.
Business Family
What’s the Difference?
Family Business
Business Family
• Family Harmony
• Loyalty
• Tradition
• Performance
• Competitiveness
• Profitability
Decision Criteria
Family Business Complacency
Performance
expectations
based on
objective factors
Non-Performing
Business
Performance expectations
based on
cash needs of owners
How we Define Shareholder Value at CFC
•
•
•
•
•
Increasing Stock Value
Dividends
Liquidity
Philanthropic Giving
Connectivity to the business
• 4 out of 5 take cash – this requires cash/performance
– Pursuit of Harmony vs. performance
– Harmony is often a by-product of performance
“Family Business” to “Business Family”
Board of
Directors
OUR
Owners’ Advisory
TRUST
TRIANGLE
Council
Management
The Aftermath…
• Family members were stunned, some felt betrayed
• Family business leaders were designated to manage the
family drama behind the scenes
• It took a great deal of intestinal fortitude
Results
12 Year Average as a
Family Business
CAGR
12 Year Average as a
Business Family
CAGR
Business
Revenue
4.6%
Revenue Growth
5.8%
Operating Income
11.5%
Free Cash Flow
10.9%
Family
Operating Income
0.5%
Focus
Free Cash Flow
-2.2%
CFC Stock Growth Since 2000
350
300
250
200
150
100
50
0
Putting Stock Growth in Real $
• CFC shareholder has $150,000 of stock in 2000
• That CFC stock is now worth $1,248,000 in 2013
• Cumulative gain of 732%
• CAGR of 17.7%
DWB perspective:
- As a long-time inside non-family executive
•
•
•
•
•
2 different approaches to the business
Politics
Emotions
All jobs on the line
Relationships
JBW Perspective – Should I Join?
• Hiring decision
– From the company’s perspective
• Objectivity
• Outside experience (vs. insular)
• Strategy/leadership expertise
• Catalyst to get hard things done
The Hiring Decision
• From my perspective
– A look under the hood
– Established relationships
– Proved the future stability of the company
– Lifestyle change
• From both perspectives
– Trust
– Shared Values
Lessons
• An objective outsider is extremely helpful in navigating
tough decisions
• Know when to push, when to hold back
• Trust is critical
• Timing and readiness is everything
Tips for Hiring Outside Executives
1. Be absolutely clear on defining decisionmaking scope and authority
–
–
–
New decisions may fly in the face of “the way we did things”
No more fuzzy lines
Get everyone on board with the role and authority
Tips for Hiring Outside Executives
2. Get Other Family Members on Board
–
–
–
Critical mass of support prior to starting
Share in the vision of the new leader’s role
Deal with sabotage attempts up-front
Tips for Hiring Outside Executives
3. Expose the Sacred Cows
–
–
–
Admit to the slush funds
Don’t expect an outside exec to accept without question
Discuss what is off-limits, and what is up for discussion
Tips for Hiring Outside Executives
4. Identify the Cultural Non-Negotiables
–
–
–
–
Preserving the culture is critical to the organization
Cultural fit often exceeds skill level requirement
Write down the unwritten rules
Use cultural fit as interview screening mechanism
Contact information and resources
• Jim Wood, 215-368-2500 x8331
jwood@clemensfoodgroup.com
• Dave Budnick, 215-647-6399
daveb@clemensfoodgroup.com
• Resources:
– “The Next Level: Essential Strategies for Achieving Breakthrough Growth”
(Perseus Press, 2000)
– “Business Family vs Family Business” Family Business Magazine, Jan/Feb 2013
– “The Struggle from Family-First to Business-First” Kellogg School of
Management Case Study