Family firms face long odds Succession: Family-run companies often aren't ready for what will happen when the founder leaves the scene.

March 24, 1997|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

The Alban family has spent most of the 20th century selling and fixing tractors and backhoes.

Much has changed since Jim Alban began catering to farmers from his Baltimore shop in 1927. But the decades have brought one constant -- a succession of James Albans at the helm.

"We've been lucky, there's always been someone in each generation who's been willing and able to do it," said Jamie Alban, 32, soon to be president of the business founded by his great-grandfather.

A little luck and a lot of work and planning have sustained Alban Tractor Co. Inc., now in Rosedale and dealing in Caterpillar loaders and bulldozers in four states. But the company is something of an anomaly at a time when family businesses rarely make it past the second generation.

Over the next five years, family-owned businesses will face tests of survival in greater numbers than ever. A survey by Arthur Andersen & Co., the professional services firm, and Chapel Financial Group-MassMutual, a life insurance company, shows that nearly half of family-owned businesses will change hands.

Of more than 3,000 family-owned businesses surveyed, 28 percent said they expect the current chief executive to retire within five years. Another 14 percent expect the CEO to semi-retire. In Maryland, 26 percent of 36 companies surveyed expect their chief executive to retire; another 19 percent plan a semi-retirement.

"The sheer number of companies expecting management succession is unparalleled," said John Devine, associate director of the Arthur Andersen Center for Family Business. "There are a significant amount of businesses that are family run, and they're not necessarily small mom-and-pop shops."

Hardly. The companies surveyed in Maryland have combined revenues of $561.9 million. The median business is 49 years old, with 80 employees and annual revenues of $11 million. Nationally, companies have median annual revenues of $9 million and typically employ about 50 full-time workers.

Large numbers of businesses will be changing hands around the same time because so many came into existence after World War II. Business formation among companies surveyed reached a peak in 1946.

"Founders are getting to an age where they're 70-plus years, so we're looking at a significant number of family businesses that are going to change leadership, where the CEO is now the son or the daughter," Devine said.

Younger companies will likely be primed for a leadership change as well, including the many businesses formed by returning Vietnam War veterans, said Harsha Desai, professor of management at Loyola College in Baltimore and director of the Loyola Center for Closely Held Firms, which works with family-owned businesses.

But such businesses often find themselves unprepared for such monumental change. They might not even have plans for succession, Desai said.

"Unless the family is cohesive and works together, the business won't survive," he said. "Trouble arises when there are siblings, and parents can't quite decide who should be the heir apparent. One theory says you ought to have one person at the head of the business."

Sibling rivalries can play havoc with a family business as well, he said. But more often, the founder of the business has trouble letting go, letting the emerging generation make decisions -- and mistakes, Desai said.

That hasn't been the case for Jeff Elkin, 30-year-old son of Alan and Lois Elkin, who started Advance Business Systems in Baltimore in 1964. Jeff Elkin says his parents never pressured him or his sister to join them in their office copier business. In fact, they required him to go out on his own first. And he did, becoming a stockbroker. But in 1990, after coming to appreciate the family business, he went to work for his parents in customer service.

At first, "I had these grand expectations of how I wanted to grow the business," Elkin said. "Any next generation wants to make their mark and have a string of successes directly attributed to them." His parents always listened to his ideas, he said.

"They really understand the value of giving me enough rope to hang myself, letting me make some decisions and make some mistakes," said Elkin, who has worked his way up over seven years to chief operating officer. "I always felt like my input was respected, which is the reason it has worked out well."

Jamie Alban, successor to Alban Tractor Co. after Jim Alban, grandfather Buck Alban and father Jay Alban, never questioned joining the business. He worked there every summer during high school and college. After serving in the Marine Corps, he started full time in the sales department and got training from the ground up, as had his father and grandfather before him.

"From my father's perspective, he was ready to have me come in the business," Alban said. "He really wanted me to be able to run the business in five years so he could retire. He's been a great role model and great teacher, and has never been anything of the father who can't let go of the business."

In the Baltimore region, second-generation businesses make up about 30 percent of the 20,000 companies that have five to 99 employees and revenues in the $500,000 to $100 million range, Desai said.

But only about 13 percent survive beyond the third generation, Desai said.

For one thing, it's easy for the founder's vision to become cloudy from one generation to the next, said Devine, of Arthur Andersen.

The survey, done with the help of Loyola University Chicago Family Business Center and the Family Enterprise Center at Kennesaw State University in Georgia, also found that in Maryland only 6 percent of respondents have female chief executives, but that 33 percent expect the next CEO to be a woman.

Another emerging trend will likely be shared leadership, with more than half of the Maryland businesses surveyed expecting more than one succeeding family member to serve as co-chief executive.

Pub Date: 3/24/97

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.