Case Studies

Case Study One

The Sibling Power Struggle

Otto Cresmer founded the Cresmer Manufacturing Company (CMC) in 1955 upon his immigration to the United States following World War II. He was an engineer in his home country of Switzerland. He and his wife, Katarina, started CMC. CMC designed radio tubes and eventually television tubes for the expanding postwar markets.

Over the years the company had to endure the loss of market share as new technologies were developed such as the transistor and the silicon chip, which rendered the company products obsolete. However, Otto’s core competency was in product design, and he continued to create new products that met the needs of newly developing and growing markets. The company is now the world’s largest provider of electrical components for the marine, auto navigation, and GPS industries. Sales have totaled $119 million for fiscal 2017, an increase of 9 percent over 2016.

Otto and his wife had three children, all of whom entered the family business. John, the oldest at 47, was an accountant and serves as vice president (VP) of finance. He joined the company 11 years ago. Sandra, who has an MBA from Columbia, is VP of sales and marketing and previously worked at large advertising firms and did a stint at Proctor and Gamble in product management before joining the family business 7 years ago. Jackie is a manufacturing engineer like her father; she joined the company 3 years ago after working for several small Silicon Valley startups. She is the most well-off family member, having received several hundred thousand stock options in her former firm that went public. She is the VP of manufacturing. Ken, the youngest at 34, is most like his father, who can be hotheaded and stubborn. Ken is a former musician who now wants to join the company.

Part One

“I don’t know what we are going to do regarding the kids,” Otto said to his wife. “I thought it would be great to have all the children together, but with Ken joining the company, we now have out-and-out sibling warfare. I told Ken he could join the company, and now all the others are mad at me. Jackie is not speaking with me, and John and Sandra are screaming at each other.”

“Well, Otto, you know how close Sandra is with Ken, she has a soft spot for him, just as you do,” said his wife.

“I know,” Otto said, “it’s just that he has not had it as easy as the others.” Otto was referring to Ken’s previous drug usage and arrests. “When he was in the band it was pretty prevalent, and he got caught up in the whole ‘rock star’ thing, but he has been clean now for 3 years. I think it would be wonderful for him to join the company. The problem is he announced it to the others before I could, and said he was going to be a VP.”

“A VP of what?” Katarina exclaimed.

“I did not tell him he was going to be a VP,” said Otto.

“Good!” said Katarina, “no wonder the children are upset; they all have good college degrees and work experience under their belts, and Ken has none of that.”

“Oh, said Otto, he’s just getting a late start.”

“There you go again!” said Katarina. “You always favored Ken.”

With that comment, the discussion broke up and Otto stalked out of the room.

Part Two

“Hi Mom,” said John, “can we talk?”

“Of course, said Katarina.

“It’s this thing with Ken,” said John. “I just do not understand it. We have all worked hard to be in the positions we have, and for Dad to bring in Ken at a VP level with no experience is . . . . . . . . .”

“I know,” said Katarina, “but to be fair, it’s the family business, and we feel it’s for all the children. And, just to let you know, your father did not tell Ken he was going to be a VP.”

“Well what do you call being put in charge of design?” asked John.

“What?” Katarina replied.

“Yeah, evidently he is our new design chief! Jackie is ticked! She is well off, she does not need this drama. She is actually thinking of leaving.”

“Oh my!” said Katarina, “I’ll talk with your father about this, John.”

“Thanks, Mom,” John said.

A few minutes later, the phone rings. “Hi Mom,” said Sandra.

“Oh, hi, honey,” Katarina replied.

“Mom, this thing with Ken has gotten out of hand. I am a big fan of his joining the company, but not at that high of a level; it is just not right. He needs to earn it. I still remember when the police . . .”

“All right,” said Katarina, “we all remember that. It was a long time ago.”

“Not long enough, Mom. Our reputation is at stake. If this gets out among our key customers, I cannot overcome the ding on our reputation. Our competitors will make a huge deal out of this.”

“OK, honey, I will talk with your Dad about this.”

“Thanks, Mom; by the way, have you spoken with Jackie yet? No? Well, she stormed out last night, shouting life is too short; I think her and Brian are flying to France this morning to rest and cool off.”

“France? I’ll talk with your father,” Katarina said.

Katarina calls Jackie on the phone. “Jackie? Hi.”

“Hi, Mom,” Jacki said. “I don’t have a lot of time, we are packing for a trip.

“I heard” Katarina said.

“Oh?”

“Yes, your sister called me and told me you were upset.

“Upset? I am not upset! I am livid!” Jackie screamed into the phone.

“Well honey, we will get this figured out,” said Katarina.

“No, Mom, there is nothing to figure out. Dad gave Ken a key position in my department, and I will not oversee him. I have all the responsibility but no authority! And I am not going to be responsible for that drug-addicted, no good . . .”

“Now, Jackie,” Katarina interrupted, “it has been a few years, he is clean and served his time.

“Served his time? Dad bought him a great lawyer who had him serve his time at a beach resort rehab hospital. I am not dealing with him. I cannot believe Dad would give away a vital position in my department without talking to me! I have to go now, Mom.”

“OK, honey,” Katarina said, “just know, I will speak with your father about this.”

Part Three

Ken stopped by Otto’s office later that day. “Dad, why is everyone mad at me? John and Sandra aren’t speaking to me, and Jackie is nowhere to be found.”

“Well, Ken, I wanted to give you a chance here, you deserve it. Our business is open to all family members. I thought design would be the best place for you, with your creative mind, but I did not have a chance to discuss it with the others first. That was my plan. You jumped the gun and told them instead. I should have been the one to tell them. And you told them you were going to be a VP!”

“Well, we had discussed that,” said Ken.

“Yes,” Otto said, “but that was going to be after a few years, and after everything settled in.”

“Well, everyone else is a VP,” said Ken.

Questions

1. What are the issues? From the sibling’s point of view? From Otto’s?

2. What do you see as the key problems?

3. If you were a family business consultant, what advice would you give? To Otto? To the family?

Case Study Two

The Missing in Action Brother

The BNC Corporation was established in 1969 by Joseph Colby. It had enjoyed tremendous success both domestically and internationally and was doing $200 million a year in annual sales. It was firmly in the hands of the second generation with Joseph’s two children, Robert, 45, and Jolene, 43. Robert is the president and CEO, and Jolene is the vice president for sales and marketing. The company is privately held, with Robert and Jolene sharing 75 percent of the shares, and Joseph and his wife with 25 percent.

Robert and his wife had been having marriage problems on and off for many years. In 2013, the pair decided to separate. Robert took this hard, became depressed, and started to abuse alcohol. His performance at the company started to decline. He started missing a day or two here and there, then multiple days in a row. In June of 2014, he did not come to work and would not answer his phone.

Jolene had no choice but to take over some of Robert’s responsibilities. At first, she thought it would be temporary and Robert would be coming back. She continued to pay his salary until the checks came back as undeliverable. He was nowhere to be found. Three years later, owing to Jolene’s hard work, the company was more successful than ever. Sales were now approaching $600 million annually. Jolene saved Robert’s ownership dividends in an account to be given to him at some point in the future.

In June of 2017, Robert arrived at the company, seemingly as if nothing had changed, and wanted to resume his previous job. He wondered why his sister was driving the expensive luxury car he saw in her parking spot. He also demanded a job for his young girlfriend.

Questions

1. What are the associated risks and problems with Robert coming back?

2. If you were Jolene, how would you feel?

3. What are the options in this situation?

4. If you were a family business owner or consultant, what would you advise?

5. What should Jolene do?

Case Study Three

The Out-of-the-Loop Family Shareholder

Mary Smith is 61 years old and is an owner and former employee (for 20 years) of Smith Mechanical Inc. in Minneapolis, Minnesota, the firm her father, Sam Smith, started. The firm does approximately $15 million in sales annually. Mary’s husband, Don, developed medical issues, and they felt the need to move to a drier climate for his health. It has been 3 years since Mary and her husband left the company employment. She used to enjoy daily chats with her father and brothers, but now only gets short e-mails providing brief information regarding the company.

Her father, a certified engineer, is semiretired. He has slowly been turning the management and leadership of the firm over to his two sons. Mary’s older brother, Robert, has an MBA and is responsible for sales and marketing. Her younger brother, Peter, graduated 7 years ago with a mechanical engineering degree and is now in charge of production. The company has, over many years, successfully carved out a niche in aircraft parts and has recently expanded internationally. To reduce their dependence on a single industry, the brothers and their father together decided to enter other industrial markets. The investment has been costly, and profits are down.

Over the years, the dividends have been cut twice, and now there is talk of suspending the shareholders’ dividends altogether. She has become increasingly angrier at her family and the decisions they are making as it has put her retirement income at risk, especially since she no longer has employment income from the company.

She has had several phone conversations with her father and her two brothers, and has increasingly grown more confrontational and hostile. The last one ended with her hanging up the phone on her brother.

She has considered hiring a lawyer to protect her interest in what she now considers to be a company that is increasingly mismanaged by her two brothers.

Questions

1. What is the real problem Mary is experiencing?

2. Could it have been prevented? How can it be managed?

3. Should Mary and Don be treated as one?

4. What governance needs does the family and business have?

Case Study Four

The Substance Abusing Family Employee

The Kenney Manufacturing Company is an Ohio-based family business situated in a farming region of Ohio. It is one of the largest private employers in the state with over 3,500 employees. It is the biggest employer in the local region and a manufacturer of farm equipment. It has been in business for over 75 years. The Kenney Manufacturing Company is 100 percent owned by three sibling partners from the second generation. The children of the owners all work in the business as well.

Issue: One of the third-generation family members who has a rumored substance abuse problem crashes the company truck into a fire truck responding to a fire in the local downtown area near their corporate headquarters. Several people are injured. Because the Kenney family has significant regional and statewide importance, the story is covered by the news media. The company has significant liability for the accident, as well as public relations damage to the family name as it is associated with this event.

Two of the sibling partners are livid and want to terminate the family employee who was in the accident. The family has a constitution that states the remedy for the first offence of the substance abuse policy is that the employee must undergo counseling. The two partners do not feel this is enough. The family members knew in advance about the existence of the substance abuse problem, and so did the public. They feel the business is at great risk owing to this event and that quick action is called for. They have called an emergency meeting of the BOD to discuss the situation.

The situation becomes more complex day by day. Reporters and TV trucks are parked outside the company headquarters daily and are holding a vigil at the local hospital for the injured. The daily newspaper carried a story headlined “Kenney Heir at Fault in Serious Crash” after a drug test came back positive and was leaked to the press. The town is angry after the family member posted a million-dollar bail owing to the family’s significant wealth. Local farmers are canceling their orders. The company’s salespeople cannot get their customers on the phone. The word “toxic” has been suggested by some of the customers if they were to buy from the company.

Questions

1. What should be done regarding the employee at fault?

2. Could this have been prevented?

3. If you were on the BOD, what would you do to mitigate this situation?

4. Is the constitution effective as it is presently written?

5. Assess the strength of their governance procedures.

Case Study Five

Early Stage Pressure

Marc Watson started his software development company 5 years ago while working for a large high-tech company. It is now doing 5.7 million in annual sales and is 100 percent privately held by Marc and his wife. The company is run from a small facility in Southern California. His two children, Arlena, 25, and Mitchell, 23, have worked at the company since they graduated from college. Arlena studied computer science, and Mitchell has a business degree and is presently pursuing an MBA. The two have been pushing for more of a say in the business as their father makes all the decisions without much input from them. They want their father to have regular family meetings, a family constitution, and form a family council. In addition, they would like to have a board of advisors to gather ideas and advice from a broader perspective. Mark is 49 years old, feels as full of energy as the day he started the firm, and sees no scenario where he would reduce his control and decision-making authority (especially to his relatively inexperienced children). Presently, they have no outside managers. Sales are conducted directly online by a sales force of commissioned agents, and there are only 12 employees.

Questions

1. Is Marc wrong?

2. What stage is this company presently?

3. Do you see a need for governance for the family at this time? For the business?

Case Study Six

Large Family Rumors

Nancy Lloyd was on the phone with her cousin Mary and remarked that the family had gotten so big and, what with all the marriages and grandchildren in the past few years, she did not know who was who anymore.

Mary agreed: “Remember when we used to have quick family meetings when we were small when our dads ran the company? Now we get an e-mail or a newsletter. One of Bob’s kids is now in management; I do not even know who he is!”

“Oh,” said Nancy, “that’s Jake. He has an MBA from one of those prestigious universities back east. He is sharp.”

“How do you know that?” Mary asked.

“Oh, Bob and I talked last Christmas,” Nancy replied.

“Well, I heard he got fired from his last job for a DUI.” Said Mary. “And another thing,” Mary said. “I heard we aren’t going to get any dividends this year due to the high costs of that new machinery they bought.”

“Oh! I hadn’t heard that,” said Nancy. “That’s going to hurt; we just put the girls in private school; I hope that’s not true.”

Questions

1. What is the problem here?

2. What aspect of governance could be improved here—the business, the family, or the owners?

3. What can be done to alleviate their concerns?

4. What can be done to prevent misinformation in the future?

Case Study Seven

The Overbearing Patriarch

Michael Snyder was the founder and main owner of Snyder Systems, a fast-growing software company specializing in data management and security. He started the firm and grew it to over $25 million in sales. Now that his children were becoming involved, they wanted more communication, more transparency, and more of a say in decisions. Michael had recently started gifting his children stock as an estate planning tool. He owned 75 percent of the company, and his four children owned the remainder.

The family business consultant recommended a family council be instituted to increase the level of shared decision-making and to increase communication. That was 2 years ago. Michael is not excited about reducing his power in decision-making. After all, he thought, “I am the one that built this company. What do they know? I am not going to give them a say in my decisions.”

Questions

1. What problems are occurring?

2. Do you see more problems occurring in the future?

3. How can both Michael and the children be satisfied?

4. Make recommendations using governance tools to improve the situation.

Case Study Eight

Being Heard

The Target Acquisition Group is a large family-owned real estate investment firm started in 1975 by John and Samantha Sanchez. It had a successful generational succession of leadership from the first to the second generation of the family. John is chairman of the board, and his three children are all officers and in management at the firm. There are nine grandchildren, ranging in age from 27 to 39. The firm had been run by John and his wife until the recent succession only 3 years ago. The second generation feels as if they paid their dues while working hard collecting rents and developing properties and are now enjoying being in control and the fruits of their labor. The business has been very successful as the family has considerable real estate holdings in some of the nicer areas along the California coast.

The third generation is chafing under the patriarchal and authoritarian style of management. They want a larger say in the business and more participative decision-making. They are also not happy about some family members being treated differently than others. For example, some family members are driving Fords as company cars, and others Lexus and BMWs.

Questions

1. What is the problem or situation?

2. What can be done here?

3. Are government mechanisms the answer?

4. Does the company need to bring in outside resources?

5. What can be done to enable the second generation to “share power”? Should they? Or is the third generation feeling entitled?

Case Study Nine

The Inattentive Board

Smith Laboratories is a 48-year-old manufacturer and wholesaler of chemical compounds used in the beauty industry. When Steve Smith first formed the company, it was difficult and he had many sleepless nights. It was a financial struggle for many years. Over the long term, the company has prospered and grown. Now in its second generation of family leadership, the company is experiencing some problems with its BOD. The directors are paid well, yet seem unprepared and lack initiative. When succession was discussed at the last board meeting, there was some murmuring that the successor should not be a family member. The family representatives on the board were dismayed as they fully desire the next CEO to be a family member. They engaged in a successor development program a decade ago. The potential successor went to college, one is an engineer, one has an MBA, and the other is an accountant.

The board was formed by Steve Smith 20 years earlier, right after the succession to the second generation. Most of the same board members are still serving on the board. Stan is the chairman of the board, his son is CEO and has run the company successfully, expanding its product lines through organic growth as well as positive acquisitions. The son grew the company from $12 million in sales when he succeeded his father to over $97 million presently. It is the desire of Steve, his son, and the entire family that the company be run by a family member.

The family has a constitution and utilizes a family council to make decisions that concern the family and present their decisions to the board. All the members of the board are friends or business associates of Steve Smith. Their ages range from 60 to 81. They include the company accountant and the owner of the local bank that Smith Labs has used for over 30 years.

Questions

1. Assess how well the company is utilizing the various governance tools at its disposal?

2. What do you think about the composition of the board?

3. Concerning the governance mechanisms used, is Smith Labs currently structured well, considering its size, generation, and age?

4. What would you change and why?

Case Study Ten

Gaining Wisdom

Future Technologies Inc. is a family-owned technology company with proprietary software for the aerospace and transportation industries. When Stan Moore and his wife, Susan, ran the company by themselves they had efficient and quick decision-making. If they needed advice, they spoke with their accountant or their banker. All three of Stan and Susan’s children entered the business after graduating from college in engineering, marketing, and finance, and after working elsewhere for a few years. Stan felt it was important that they find success on their own before entering the family business.

On the advice of a family business consultant, they wrote a family constitution and formed a family council. They instituted an informal board of advisors of respected business people and professionals. The second generation worked for 15 years before Stan and Susan decided to slow down and begin the succession process. The family council created a succession identification plan. Eventually, the two older siblings were seen as CEO material and were interested in the position. The choice of CEO will be the biggest test of the governance mechanisms put in place by the family. The family hired a family business consultant, who assessed the capabilities of each of the candidates and prepared a report. The report, presented at a family council meeting, stated that the two candidates were comparable in strengths and weaknesses and suggested some assignments outside of their regular areas of responsibilities to gain important experience. The son went to Europe to start an international division, and the daughter moved from finance to operations.

Stan and Susan became increasingly uncomfortable with making a choice between the two siblings for the next CEO. They were concerned the one not chosen would be upset and feel less loved than the other. They felt it was reasonable, on the basis of their sales growth and size of firm (they were approaching $1 billion in sales), to create a BOD. On the advice of their consultant, board members were recruited on the basis of their strengths matching the needs of the firm. The board consisted of:

It was seen by the family as another step in the professionalism of the business. In a family council meeting, both potential CEO candidates agreed to be bound by the recommendation of the board. Recently, Stan and Susan have begun to have second thoughts about hurt feelings and have considered a co-CEO position to be shared by both their children.

Questions

1. Do you think the creation of the board will be successful in helping choose the next leader?

2. What are the possibilities of hurt feelings among family members?

3. Does the board have the right composition to help the company for the future?

4. What do you think about the co-CEO idea?

5. What should Stan and Susan do?

Case Study Eleven

The Absentee Owner and the In-Law

The Carlucci vineyards is a thriving business now in its second generation. Bob Carlucci is CEO and president; his sister, Anna, is VP. Their parents founded the firm in the 1970s. The parents are co-chairs of the board. On weekends, the vineyard is known for having the most popular wine tasting room in the area. The tasting room is crowded, with standing room only, and often full, with an overflowing crowd outside. The firm has grown well under Bob’s leadership, with sales totaling $12 million a year, up from $2.7 million when Bob took over. Bob lives on the property, and that is one reason why the tasting room is so popular. He works 12-hour days. He loves his job and will often drop by the tasting room to mingle with the guests. Since he lives on the property, he can “sense” when business is off by the sheer volume of voices coming from the tasting room.

The stock is evenly split three ways between Bob, his sister, and their parents, each having 33 1/3 percent. Bob earns a salary for his hands-on role in running the operation. His sister Anna, who lives in the northern part of the state and visits irregularly, receives dividends. Anna’s husband has been very vocal about reports, data, and spreadsheets being sent to them weekly and monthly, asserting that they needed to have a full picture of what was going on at the company, and has pushed for changes in the way the company was run. The couple was also upset with Bob for “basically running everything without their input.” Conversely, Bob was livid at their request for reports. “If they want to know something, maybe they should get off their tails and come down here and see for themselves,” Bob stated.

A family business consultant was brought in. The first recommendation was to institute a family council with regular meetings. The family business consultant was utilized as the facilitator. Ann and her husband readily agreed since they would now have a say in decisions.

Later, when discussing the effectiveness of the family council, Bob stated he still did what he wanted to do but that it just took longer. He now had to wait for a meeting of the council and to have a vote. Since he lived on the property he saw no need for a spreadsheet to tell him what he could plainly see. His parents lived in town and came to the winery every day. If he successfully lobbied them for his proposals, he now had the winning votes for whatever he wanted.

Questions

1. Is a family council the most effective tool in this instance?

2. How can corporate governance tools best be used in this case?

3. Should pruning be considered? What are the risks?

4. What do you see as the need for improvement here?

Case Study Twelve

Power Struggle with the Board of Directors

Charles (Charley) Ellison and his wife, Nancy, started Ellison’s Masonry in 1973. Charley has a very prickly personality: a quick temper and proneness to outbursts of anger. He does not suffer fools well at all and is very vocal when he disagrees or is angry. Charley and Nancy have been working for over 40 years in the business and have grown it to over 450 employees in three states. Sales recently reached 325 million dollars. Charley serves in the dual roles of chairman of the board as well as CEO.

Over the years, with a view to increasing professionalism and effectively managing the firm, they instituted several governance mechanisms, such as a family council, a constitution, and a BOD. The board was created following the sale of 20 percent of the firm to Charley’s brother James and his family. James worked for the company for over 30 years and is the main salesperson or bidder. He has an engaging personality, is very likable, and is described as a people person. The company has moved into larger public works projects owing to James’s relationships with cities and property developers. James has the title of executive VP.

Through the years, the board has been very useful in financial oversight, making sure the company does not run out of cash through too many acquisitions, and has several board members with contracting experience. Recently, stress has been starting to show in the relationship between Charley and the board. He has been unprofessional at meetings and drags his feet on recommendations made by the board. It has recently approached James about becoming CEO.

Questions

1. Why is the board considering this move?

2. Can the relationship be fixed?

3. What are the risks here?

4. Will the board be successful?

5. What should James do?

6. If you were a family business consultant, what would you advise?

Case Study Thirteen

The Charity Case

Maggie Resson is the granddaughter of Benjamin and Cheryl Resson, the founders of Fast and Quick, a regional hamburger chain that grew to 475 restaurants on the east coast. The chain is headquartered in Boston, where they put their business name on a local stadium. The chain has become very successful, and the family wealth has increased so far as to give several family members, including her grandparents and her parents, billionaire status. The business went public 3 years ago, and the family was able to cash in a portion of their shares for a significant amount of cash. The family decided to open a family office to take care of the business (financial and legal) needs of the family. Maggie worked in the business as a teenager, flipping burgers as most family members did. When she was 32, she married a medical school student, who is now a surgeon in Colorado. Maggie, although a shareholder with significant dividend income, is not able to participate in the family business as many of her cousins and aunts and uncles do. She has decided to get involved under the auspices of the family office and create the philanthropic arm to represent the charitable interests of her family.

Questions

1. What should Maggie do first?

2. How should the philanthropic arm be funded?

3. How should the foundation be led?

4. Will the foundation need a governance structure?

5. What costs are involved?

Case Study Fourteen

Pruning the Family Tree

Praxis Technologies is a 67-year-old firm, with 46 shareholders distributed among seven branches of the family. Started by patriarch Louis Plant and his wife, Stella, the company has grown to be a large player in their industry, with sales approaching $2.7 billion. The Plant’s children, Louis Jr., Stella Jr., Martina, Bobby, and Cassandra, all had several children each. There are now 39 grandchildren.

Recently, both Bobby and Cassandra’s branches of the family (totaling 13 people) have complained that the company is being mismanaged and that they are unhappy with their dividend payouts. They have been very vocal critics during the family council meetings and at the last two annual shareholder meetings. They have begun lobbying other branches of the family and have begun to get their mother involved (triangulation). The board has decided the company has been adversely affected by their dissonance and the other siblings want to buy out their shares. They offer a price that is fair based on current business conditions and the company cash flow; however, Bobby and Cassandra strongly disagree with the valuation and consider it undervalued and unfair. They have become very hostile and have contacted a lawyer and will be suing the company. They are charging that the board is incompetent and suspect embezzlement is afoot.

Questions

1. How could this have been prevented?

2. If you are a family business consultant, what would you recommend to the family? To Bobby and Cassandra?

3. What are the risks with each of your recommendations?