All in the Family

August 31, 2006  by in UnCategorized   

By Home Furnishings Business in on September 2006 Furniture remains an industry with a strong family business component on both the retail and manufacturing side. When it’s time for a change at the top, a lot of furniture company leaders won’t look to a board of outside directors or shareholders.

Likely as not, they’ll look across the dinner table.

That doesn’t mean, however, that a family business has an instant inheritor—or more typically, group of inheritors. There are plenty of furniture stores and plants whose operations have funded many a college education, often in majors that would take the benefactor into a completely different field than furniture. The next generation might decide they want to establish an identity outside the family enterprise,

On the other hand, some children seize and build upon the opportunities presented by their predecessors’ work.



The Big

Take Ashley, the biggest U.S. company in the business, where Todd Wanek already occupies the chief executive spot. He’s an individual whose father, Chairman Ron Wanek, has long been credited for the company’s commitment to technology that has made Ashley an operational leader in the industry.

“I am blessed because I have a very competent person to pass the business on to,” Ron Wanek said. “Not all family’s have a next generation that is interested in assuming the business, but I have an inheritor who’s helped to take us places already we might not have gone. You have to make sure whomever you’ll pass the business to wants to take it over. Lifestyle is a major consideration for a new generation that will take over a business—whether they’ll want to put in the kinds of hours and commitment it will demand.”

Ron Wanek’s daughter, Sherri Wanek-Wagner, also plays an important role in Ashley’s business, running the company’s extensive international sales effort. While it might be 10 percent of overall sales, Ashley’s business outside the United States represents sales in the hundreds of millions.

Still, Todd Wanek is the man who’ll run the show in the future, and he earned his place spending what amounts to years overseas developing and honing Ashley’s sourcing structure, and pushing for investment in operations technology and logistical systems that has some calling the company the “Wal-Mart” of the furniture industry.

While Ron Wanek was reluctant to share details about Ashley’s succession plan, he did identify a key financial issue for companies large and small when considering a changing of the guard.

“The biggest issue in succession is the tax implication,” he said. “It’s not necessarily on the value of the business, but what the government perceives to be its value.”

Wanek isn’t going anywhere yet, though—at least businesswise. While Todd Wanek takes over at the head office in Arcadia, Wis., Ron will be moving in the near future to Las Vegas, where Ashley will open an office based in its showroom operation at the World Market Center.

“I’ve been enduring Wisconsin winters all my life, and I’m looking forward to spending winter in a warmer state,” he said.



The Not So Big

While there are a lot of large furniture companies that remain family owned, cases like Ashley remain the exception in the business, which has an abundance of single-store operations that in some cases have been in the same family for decades. Some of those don’t have an heir-apparent.

Blackledge Furniture in Corvallis, Ore., for example, has operated under that name for more than a century. President Eric Blackledge is in a situation where there are no family members who’ll take over the business when he retires, but he’d like the business to continue as he lessens his role in day-to-day operations.

“I have a little bit of an ego involved here,” he said. “There’s been a Blackledge Furniture here since 1901, and I’d like to see the store continue. If it does, there might be another name on it, though.”

His solution: Groom a non-family successor to take over operations, and oversee the 43,000-square-foot downtown location and 40,000-square-foot warehouse as a parent company would a branch operation, with the business helping fund what’s essentially a “working retirement.”

“For most furniture people, the store is their major asset,” Blackledge noted. “I own the property, all the real estate.”

There’s another reason Blackledge views the store as a going concern.

“A lot of these facilities in downtown areas like ours aren’t really appropriate for other uses,” he said. “They don’t lend themselves to cute little coffee shops or boutiques.”



Keeping it Rational

When they begin considering the issue of who’ll run their business after they retire, many chief executives and owners of family enterprises run into completely different sorts of decisions than the ones they faced for years running their operation.

“Most of what you do until that time involves rational business decisions—cost control, marketing strategy, operations management,” said Stanley Mandel, executive professor and director of the Angell Center for Entrepreneurship at Wake Forest University in Winston-Salem, N.C. “When you start talking about succession, other things come into play, and sometimes they’re irrational.”

Mandel’s academic expertise has a particular focus in issues affecting family businesses, and he also teaches a class on the subject at Wake Forest’s Babcock School of Management.

He pointed out that succession planning can involve extremely emotional factors such as relationships among siblings, ensuring the future of children or grandchildren, or—with life expectancies rising—even the care of aging parents.

Mandel suggests that business owners need to consider four different areas of planning when figuring out how to pass the enterprise along. The succession plan itself obviously is a critical step here, but there are other issues the owner needs to face before tackling that process.

The first planning priority, Mandel said, is to determine the level of family commitment to the business.

“Problems can arise if the next generation doesn’t have a commitment to the business,” he said. And commitment, or lack thereof, doesn’t mean a lack of interest among the business owner’s family. “The baby-boomers’ parents are dying—trillions of dollars of net worth will be passed into the baby-boomer generation over the next 10 years. A lot of that involves family businesses, so this is a huge issue.”

Another issue involving family commitment is that potential inheritors of the business might still be too young or inexperienced to take the helm.

“If the business is large enough you can have the luxury of hiring non-family professional managers till another generation is ready,” Mandel said. He gave Ford Motors as an example, which went for decades without a Ford family member at the helm of the automaker. That, however, also involves giving the non-family manager the right incentives to be willing to run the show with the understanding that family members might be groomed to assume leadership.

Once the level of the next generation’s commitment to taking on the business has been established, Mandel said the next step is to establish “strategic commitment.” That is, are the inheritors in agreement on exactly what they want from the enterprise?

“Are the family members who’ve committed to the business on the same page with respect to what they want to build this business into?” he said. “Should it be a nice income provider for the family, or do they want it to grow into a regional or even national entity? Do they want to grow the business to the point where they can sell it in 10 years?”

It’s only at the third planning stage that the actual succession plan—or as Mandel puts it, the “Family Enterprise Continuity Plan”—comes into play.

“The succession plan is a bigger plan that comes into third place after considering the first two issues,” he said. “If we have a (family) commitment and can agree on short- to medium-term strategic plans, how do we go about with the business moving forward.”

Key questions to consider include who can participate in the business from a family perspective and what kind of experience they need; the ability of non-family members in the business to make high-level decisions; compensation of family members; and the reporting structure.

Mandel’s fourth issue for succession planning involves long-term strategy, a “business strategic plan.”

“This relates to the strategy and tactics of the business, in particular the philosophy for investing in the growth of the business versus drawing off of the business for the family’s living and lifestyle,” he said. “All these issues are interrelated, and it’s difficult to make a decision in one without affecting another part of the process.” HFB