Massachusetts Family Business Summer 2014
In this issue: The 2014 New England Family Business Conference guide; Fallon Ambulance Co. is profiled; and planning ahead in case of emergencies.
Massachusetts SUMMER 2014 FAMILYBUSINESS A Sensible PLAN WITH AN EYE ON THE ECONOMY, FALLON AMBULANCE CO. CONSIDERS GROWTH Official magazine of the PROG R A M GUIDE INSID E ALL IN THE FAMILY! NOMINATE A FAMILY BUSINESS FAMILY BUSINESS ASSOCIATION AWARDS FOR MASSACHUSETTS 2014 Award Categories Do you know a Massachusetts-based Small Business family business that exhibits excellence in Medium Business management, community involvement and Large Business business practices? The Family Business First Generation Business Association Awards for Massachusetts 2014 Community Excellence is a chance to give them the recognition they Overcoming Adversity Marketing Excellence deserve. Finalists and winners will be recognized in the media and business community. Anyone can nominate a family business, or family businesses are welcome to complete an application directly. Nominations are due on Friday, August 1, 2014. The award ceremony will be held Thursday, October 23, 2014 at the Royal Sonesta Hotel in Cambridge. Visit www.fbaedu.com to download a nomination or application form, and to learn more about the FBA. Or contact Liz Pratt at (617) 218-2077 or lpratt@ fbaedu.com Empowering Family Businesses www.fbaedu.com Massachusetts Family Business Official magazine of the CONTENTS 6 CAUTIOUS GROWTH Family business Fallon Ambulance Co. is still in survival mode, but is also on the lookout for reasonable growth strategies. 4 5 from the board The Next Generation Affinity Group get it in writing A Written Agreement Is Vital In Case Of Emergencies 10 hedge your bets Plan For The Unexpected With A Buy-Sell Agreement 12 successful hand-off Working Together To Pass The Business To The Next Generation 14 New England Family Business Conference 10 LOOK FOR MORE COVERAGE OF THE NEW ENGLAND FAMILY BUSINESS CONFERENCE AND THE OUTSTANDING WOMEN IN FAMILY BUSINESS AWARDS IN THE NEXT ISSUE OF MASSACHUSETTS FAMILY BUSINESS! 12 Letter from the Board Affinity Group Sets the Stage for Smooth Succession I ’m Valerie Bono, a second-generation family business owner. When I joined our family business, Golden Cannoli Shells, after graduating from Providence College School of Management in 2001, I had been a Division 1 level ice hockey player. That’s what my father wanted me to do; he was my biggest fan. He couldn’t have been more proud. When he retired VALERIE BONO in 2007, there was no handbook on how to run a cannoli factory. At the time, we focused on creating the best cannoli shells on the market, hand rolled, the artisan way. Short take on a situation you walk into: Until you’re in it, you just don’t know. Now, it was up to us to continue the Golden Cannoli legacy. I can easily say that everything I know about running a cannoli business, I learned from sports. It made me a good team leader, able to channel determination and desire, with both verbal and nonverbal skills. Leading the business re- quires a combination of a strict approach and a kind and generous support of the people you need to help deliver your results. Our business now has 42 employees, has expanded into dessert platters and related items and produces more than 100,000 shells per day. We’ve moved to a new facility and expect to exceed our production and sales goals. Over the years, I’ve learned that what guides a team also guides a business. Maintain a good relationship with the older generation so you’re not fighting them for power. Trust that they know the business inside and out, from their soul. Use that to keep it grounded, hold true to the core values and then build on them. Take ownership of problems. For the generation succeeding us, what are their skills, capabilities, work ethic and drive – do they have what it takes? There are three levels of family member involvement in a family business: those who never get involved; those who get involved and decide to leave; and those who get involved and never leave. I am the latter of the three. It’s my life. There are no words to explain the complex experience that is a family business. The Next Generation Affinity Group, founded by me and my sister, Maria Malloy, and supported by FBA board member Ed Tarlow, puts all our accomplishments and experience into a group to help the next generations in family business. Its goal is to teach, guide and motivate the next generation to consciously make a decision to join the family business – not only those on the cusp of making the decision, but also very young children. This group creates an enjoyable atmosphere emphasizing family connections and networks across all industries that are family-business oriented. As they grow, they will not just see us working hard, but they will see why and for what. When the time comes for them to join a family business, they will have all the information and experiences to make a decision to get in and join in on the fun. For more information on the FBA’s affinity groups, please email Liz Pratt at email@example.com. ■ Massachusetts FAMILYBUSINESS Official magazine of the Family Business Association. Inc. Editorial | Advertising | Design A Family-Owned Business Since 1872 PRESIDENT Edward D. Tarlow, Tarlow, Breed, Hart & Rodgers, P.C. 101 Huntington Ave., Suite 500 Boston, MA 02199 fbaedu.com DIRECTORS Jeffrey S. Davis, Mage, LLC Al DeNapoli, Tarlow, Breed, Hart & Rodgers, P.C. Brian Nagle, First Republic Private Wealth Management 4 VICE PRESIDENT Catherine Watson, Tarlow, Breed, Hart & Rodgers, P.C. TREASURER Richard A. Hirschen, Gray, Gray & Gray, LLP EXECUTIVE COORDINATOR Liz Pratt 280 Summer Street, Boston, MA 02210 Phone 617-428-5100 Fax 617-428-5119 www.thewarrengroup.com ©2014 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. The Importance of a Written Agreement Among the Owners of a Family Business By Marc C. Laredo “W e don’t need an agreement – he’s my brother.” “How can I negotiate with my sister?” “My cousin and I grew up together.” and I trust him completely. When it comes to family, we don’t like the formality of a written agreement. Somehow, it makes everyone feel tainted, and too business-like. After all, if you can’t trust a family MARC C. LAREDO member, who can you trust? So what happens when a family member who owns part of a family business dies or is unable to work? What if he stops working hard? What if he marries someone the other owners do not like or trust? In a family business, a written agreement among the owners can be critical to reducing family strife, especially when a family member dies or leaves the business. The terms of the agreement will vary from family to family and business to business. But whether the company is a corporation, a limited liability company or a limited liability partnership, certain issues – employment, day-to-day management and the process for making key decisions, death, and what to do if the owners can no longer work together – all need to be addressed. Ideally, the agreement will be created whenever the business has more than one owner (whether that occurs at the company’s formation or at a later date). The terms of the agreement then should be revisited over time, as the company grows and the owners’ responsibilities, needs and relationships change. An accountant or tax attorney also should be consulted regarding the tax consequences of the agreement, as should the individual owners’ estate planning attorneys. Employment For many owners of family businesses, the rewards of ownership come through employment – salaries, bonuses and benefits. The terms and conditions of employment, including what happens when an owner is no longer doing his or her job, should be addressed in the agreement (or in separate employment agreements). The agreement also should state what happens if employment is terminated (whether voluntarily or involuntarily), including what rights, if any, the departing owner has to work for another company, and whether the departure will permit or require the company to repurchase the departing owner’s ownership interest and how that interest will be valued. Management Not every owner can (or should) exercise control over a company’s day-to-day affairs. The owners’ agreement should address how day-to-day management will operate and who will be responsible for particular decisions. Unlike with day-to-day affairs, most owners, even minority owners, will want some involvement in key company decisions such as whether to acquire another business, sell the company, or who will serve as the directors and officers. The agreement should address how these decisions are made – perhaps requiring supermajority approval. Death Death is inevitable. In many ways, it also is the easiest contingency to deal with in a written agreement. The owners need to ask themselves what happens if one of them dies. Does the ownership interest go to a spouse or children? If so, what happens to a child who does not get an ownership interest? Should the other owner(s) have an opportunity to buy out the deceased owner’s interest? Should the company be sold? If so, how will the ownership interest be valued? How should a buy-out be funded (life insurance may play a critical role)? Whatever the answer (and there is no right answer), a wellcrafted agreement will deal with this issue in a clear, direct manner. Since there may be interplay with an owner’s estate plan and the owners’ agreement, attention should be paid to making sure that the estate plan is consistent with the agreement. Disagreements Sometimes, despite everyone’s best intentions, the owners find that they simply are unable to work together. Perhaps family strife at work is spilling over into the personal arena, one owner becomes less active in the company but still wants to reap the full benefits of ownership, or the owners’ visions as to how to run or grow the business are at odds. In any of these situations, one should first try to resolve these differences, perhaps with the aid of an outside consultant. But if these efforts fail, the agreement needs to provide a clear, fair mechanism so that the owners can part. Of course, the best time to address this issue is when everyone is getting along. A thoughtful, thorough agreement designed to meet the particular needs of the owners can help ensure that an exit is done gracefully, avoid legal disputes and related attorneys’ fees, and, perhaps most importantly, keep the family relationship intact. ■ MARC C. LAREDO IS A PARTNER AT LAREDO & SMITH, LLP IN BOSTON, WHERE HE WORKS WITH CLOSELY HELD AND FAMILY BUSINESSES IN HIS BUSINESS LITIGATION AND GENERAL BUSINESS LAW PRACTICE. HE CAN BE REACHED AT 617-4431100 OR VIA EMAIL AT LAREDO@LAREDOSMITH.COM 5 Fallon Ambulance Service: Operating a Family-Run Business in Survival Mode Succession Planning Needs to Await Full Recovery Photo by Christina P. O’Neill Open for business: Peter Racicot (left), senior vice president, and Timothy Fallon, president and CEO of Fallon Ambulance. Tim still keeps his EMT license. By Steven Jones-D’Agostino F allon Ambulance Service is – figuratively and literally – on a forward roll. The sole focus of the third generation of this viable but stillin-survival-mode family-owned business is to grow and expand only when it makes good business sense. That leaves little time and energy to ponder and plan longer-term journeys, such as selling the company or handing it over to 6 the fourth generation. In 1996, Fallon Ambulance was the 911 provider for only one municipality – Milton, where the company began more than 60 years ago. In the years since, the company has expanded to become the official 911 provider for its current hometown of Quincy as well as Dedham, Brookline, Braintree and Weymouth. This April, the company scored a major contract win when it was chosen as the official provider for MetroWest Medical Center, with campuses in Framingham and Natick. The company is moving into a 7,500-square-foot location in Ashland, where it will garage six to eight vehicles. The company reached a deal last December to lease the site. Fallon Ambulance has hired 30 employees to assist with the expansion and named three additional supervisors for the region, which also includes a location in Waltham. The company expects about 6,000 annual transports from the expansion. Fallon Ambulance was founded in 1923 by James Fallon Sr. His son, James “Ray” Fallon Jr., served as president and owner from 1974 until his death in 2000. During the younger Fallon’s tenure, a number of his children and stepchildren stepped into leadership roles in the company, as part of the third generation. Timothy Fallon is Ray’s son and the grandson of the founder. He is now president and CEO. Peter Racicot, one of Ray’s stepsons, now serves as senior vice president. During the company’s 90th anniversary celebration last October, the current leadership looked back on Ray’s example. They celebrated him as a beloved leader who guided the company through a period of significant growth – and whose example both the present and next generations ought to continue emulating. Although, as Tim now observes, the company does not value growth for the sake of growth. Since Ray’s death, Tim and Peter have learned to settle professionally their occasional differences on running the business. They have a friendly sibling rivalry – with Peter, when they do agree to disagree, deferring to Timothy. A big pivot for a family-run business Fallon Ambulance is one of the largest privately owned and operated ambulance services in the Northeast. It employs more than 600 personnel, operates more than 150 vehicles and responds to more than 160,000 emergency and non-emergency calls per year. The company additionally provides medical transportation for a number of area medical facilities, including nursing homes, hospitals and HMOs throughout the Greater Boston, South Shore and MetroWest regions. The transition to the third generation now includes Tim Fallon. Along with Tim, his sister, Kathleen Mackie, and other step-brother, Normand Racicot, have key leadership roles in the organization. All of the third-generation leaders have played key roles in running the company. Under their watch, Fallon Ambulance left its longtime home in Milton and moved into a new facility in Quincy. There is also the presence of a fourth generation of the family, represented by seven great-grandchildren of the founder. The emergency-care services that Fallon Ambulance provides out in the field have come in handy on the business side, too. In 2011, three years after the infamous and devastating Wall Street crash and with the local and national economies still foundering, the company’s leadership examined closely and trimmed significantly costs. One major result: The first layoffs in its history. As painful as those cuts agingly known as “The Jobless Recovery,” Fallon Ambulance has yet to rehire any of the people laid off three years ago. Much of that is because the company has continued to maintain its newfound practice of stanching cost bleeding. “We found that we could operate at a high level without the need to add back the positions that were downsized,” Tim reports. Getting big when it makes sense for the organization Growing and expanding is what Fallon Ambulance has been doing, with the pedal to the metal. But, as Tim puts it, it’s now being done “with a nice trajectory.” “It’s smart growth [and expansion] – growth that makes sense operationally “Our challenge is, every day, to continue to meet the expectations of the health-care marketplace. The expectation is that we will do more – in the level of service and the timeliness of service – for less money.” — Peter Racicot, senior vice president were, they enabled the business to better tolerate the federal, state and private insurance-reimbursement cuts that were occurring in the wake of the Great Recession. Medicare reimbursements alone account for 65 percent of the company’s revenue. “That was a big pivot for a family-run business,” Tim Fallon says. “But it was necessary for the health of the business, to help everyone here. In a family business, the adjustments are your friends and people who’ve worked for you a long time. So it’s not the same as if the business was in Connecticut and I was living in Massachusetts, and I called the CFO and said, ‘Hey, find me $50,000 a week to cut.’ That would be relatively easy. Here, it was adjusting the lives of many, many people who had worked for so very, very long. So it becomes truly an emotional decision. But at the end of the day, it’s a business and the math has to work so that we can provide the best work environment for everybody here. It’s something we had to do.” Because most of us are still mired in what has come to be widely and dispar- and financially,” Tim says. “There was a time, in my younger days, when this organization got big for the sake of being big. Strategically, that was good – it gave us a bigger footprint [and made it] harder to knock us over. But [in terms of] financial performance, getting big for the sake of being big has nothing to do with performing [well] financially.” Now, Tim says, “We get big when it makes sense for the organization, when it doesn’t upset the balance, when the revenues exceed the expenses, when we think first and foremost that our product is [sustainably] scalable – like in Ashland and like in the MetroWest area – [and when we know] we can do it as well as in our backyard.” For Fallon Ambulance, Tim says, he really has “no real desire to double the size of the company in the next three years. It takes a lot of capital and we’re a closely-held family business. One of the [key] things we’ve learned over the past 10 years – with Peter making sales and driving me crazy like maybe I used to drive my father crazy – is that growing Continued on page 8 7 Photo by Steven Jones-D’Agostino Fallon Ambulance EMT John Kennedy at the new Ashland facility. is very, very expensive. And if you don’t handle it right, it can handcuff you. I would like a nice, stable growth rate.” Still in survival mode for the next few years Fallon Ambulance is, according to Tim and Peter, on a good, sustainable trajectory. However, the still-tough economy does not allow the third generation to think much about possible strategic actions, such as selling the business or handing it over to the next generation. For Tim, who is 51, his own mortality is starting to weigh heavier on his mind. “I don’t know where, really, to say I am with [succession planning],” he reveals, “other than to say I’m in process.” Peter points out that Fallon Ambulance continues to be in survival mode – and will be for the next few years. “Our challenge is, every day, to continue to meet the expectations of the health-care marketplace,” he explains. “The expectation is that we will do more – in the level of service and the timeliness of service – for less money. And [the possibility of failing to do], is a constant, constant threat to our ability to main8 tain our success.” Tim, who is the company’s sole stockholder, discloses that he gets “solicited daily” from companies interested in acquiring Fallon Ambulance. “If I sold the company, as far as my family goes, I’d be the sole winner, I guess you could say,” he notes. “But as a family business, there are people who have worked here for 30 years with me – since I was a baby here. “Ultimately, there has to be a boss and, ultimately, somebody has the final answer. But we’re pretty judicious about getting along on the corporate level.” — Timothy Fallon, president and CEO At our 90th celebration, there were about 30 people who have been here for over 20 years.” Tim says his standard line about selling the company is, “The day after I sell this company to anybody, everybody in our administration – except for guys like Peter and myself – would be replaced.” He adds that he’s unsure whether “the value of that money – that wire transfer – is worth the pain to the people the next day. I don’t know if I can do it. You never say ‘never.’ If I can’t compete, for whatever reason, and I have to do it, I guess [I’d] have to do it.” Until then, Tim says, “I have no desire to sell this place.” Nor does he regard employee ownership as a real, eventual possibility because most employees use Fallon Ambulance as a stepping stone on their own career paths. “So the buyin would be limited for an ESOP,” he says. A blessing and a curse Tim and Peter are asked how doing business together affects the familial relationship between them. Like a comfortable, old vaudeville team on stage at a Catskills resort, they kiddingly perform an Alphonse-and-Gaston-like routine. After you, Tim. No, after you, Peter. “It’s a blessing and a curse all at the same time,” Peter finally says. “I’d have to say that I’m closer to Timmy than I would have been if I didn’t work in the business. “Growing up together and then working together,” Peter continues, “we were like the Brady Bunch – my mom had married his dad. That, in and of itself, has its own challenges. We’ve had upwards of five kids [from that marriage plus], my stepfather – Tim’s dad – and my mom working in the business. That’s a lot of ego. Quite honestly, working in your family business is not for everybody.” Tim, who majored in business in college, agrees with Peter that the most challenging time for the family was when Ray Fallon died 14 years ago – at what Peter calls “the young age of 62.” Prior to his death, Peter adds, Ray had not put much thought into what would happen to the business and the family once he passed on. “Personally, that five or six years after he died was very challenging for us,” Peter confides. “But I look back, and I think we’re a lot stronger for it because we’re in a much better place than we were.” For example, Peter reveals, thirdgeneration members no longer “act like children,” as they did while Ray was alive and running the business. “Now, I think we resolve [our difference] professionally. From my perspective, Tim’s in charge, Tim’s the boss and he gets to make the final decision. I can chime in and I can argue with him – to a point – but at the end of the day, it’s his decision. Whether I like it or not, I have to row in the same direction [as him], and if I can’t live with that, I couldn’t work here. I think the same would go for anybody else in the family.” Not satisfied with stopping there, Peter continues – with a loving shot at his stepbrother. “It can be challenging when you have to listen to your somewhat-older sibling,” he says. “But that is the way it is. It’s good days and bad.” Timothy is a bit more diplomatic. Of Peter, he says, “He wins as many arguments as he loses. That’s kind of an important thing. I don’t need to win everything. I don’t really care much about that stuff. It’s wasted energy for me. Been there, done that [after] the death of my father. The transition was very, very difficult.” Ever since then, Tim has regarded himself as “the luckiest guy. I respect everybody who works here. I’m so blessed that people work as hard as I do – if not harder – so that I can provide for my family, and I help them to provide for their family. … So when I take it from that level, we all get along. Ultimately, there has to be a boss and, ultimately, somebody has the final answer. But we’re pretty judicious about getting along on the corporate level. “Like I say to my kids, ‘I love you, but sometimes you’re hard to like,” Tim adds. “I love this business, but sometimes it’s hard to like. And sometimes, it’s very hard. But when it all works and we really overcome something that not a lot of people would be able to overcome, it’s very, very rewarding.” ■ STEVEN JONES-D’AGOSTINO IS A STRATEGIC PARTNER OF SUSAN WAGNER PR + BEST RATE OF CLIMB. Together, we’ll build a financial plan for your business. Business success isn’t something you just hope for. You build it with a solid financial plan. Start with a Northwestern Mutual Financial Advisor. Together, we’ll design a personalized plan to help your business achieve its full potential, including risk management and business succession. Who’s helping you build your financial future? David C Mc Avoy Managing Partner Boston (617) 742-6200 nmfn-thebostongroup.com 05-3077 © 2014 Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser, and member of FINRA and SIPC. David Charles Mc Avoy, General Agent(s) of NM. Managing Partners are not in legal partnership with each other, NM or its affiliates. David Charles Mc Avoy, Registered Representative(s) and Investment Advisor Representative(s) of NMIS. 9 Plan for the Unexpected with a Buy-Sell Agreement in Place By Mark Campbell and Kimberley Train S hareholders in family businesses, closely-held businesses or partnerships should plan for the unexpected. A plan should contemplate the possibility of a shareholder or partner dying, becoming disabled, departing or going through a divorce. A buy-sell agreement is an essential element in addressing such events. A buy-sell agreement places restrictions on the transfer of a shareholder’s interest and provides for liquidation of a withdrawing shareholder’s interest. It is important that transitions are handled effectively and efficiently to avoid disputes among remaining shareholders and limit business disruption. In essence, buy-sell agreements lay the groundwork for graceful exits and transitions. KIMBERLY TRAIN MARK CAMPBELL Types of buy-sell agreements include: • Repurchase agreements – the corporation or the partnership buys the interest from the transferring party. 10 • Cross-purchase agreements – one or more individuals or entities purchases the interest from the transferring party. • Hybrid agreements – the corporation or partnership has first priority to repurchase and the other stockholders or partners have second priority. • Tag-along rights – the same terms are put into place if the selling shareholder is the controlling shareholder. The agreement that makes most sense depends on the individual business’ facts and circumstances. Therefore, it is essential to first determine the objectives of the buy-sell agreement. The shareholders should consider which triggering event or events warrant a buy-sell agreement. The triggering event(s) may guide what type of agreement best serves those objectives. For example, if a controlling shareholder or a key person were to exit the business, then continuity of the business and liquidity may be paramount to the remaining shareholders. Alternatively, the remaining shareholders or partners may be more concerned about decision-making authority and ownership structure. When formulating a buy-sell agreement, it is important to consider hypothetical scenarios and prepare a decision tree analysis. An agreement can accommodate alternative scenarios and lay the foundation for what will take place if any of the hypothetical scenarios becomes a reality. Valuation Provisions The buy-sell agreement should include provisions regarding the valuation process, which can range from the simplistic to the complicated. For example, an agreement may specify that the business interest should be valued using book value. However, book value can have many definitions. Therefore, it is important that a buy-sell agreement provides a specific definition of the valuation metric. In many cases, the valuation of the business interest requires an appraisal. The buy-sell agreement should address the required elements of the appraisal which should include, but not be limited to, the following elements: 1. Description of the interest or interests to be valued 2. Purpose of the appraisal 3. Distinction between controlling versus minority interests 4. Marketability 5. Valuation date 6. Standard of value 7. Going concern versus liquidation value The components described above should be well articulated and defined in the agreement in order to obviate the opportunity for varied interpretation and conflict. The Appraisal Process The buy-sell agreement should articulate the how, what, where and when of the appraisal process. The agreement should identify and outline the sequential steps, including: • How many appraisals will be solicited? • Do the shareholders/partners have specific business appraisers that they would like to value the business interest? • If the appraisers arrive at different values, then which value will serve as the basis for the valuation of the business interest? Will there be a mechanism, such as obtaining an agreedupon, neutral third-party appraiser, to resolve differences in appraisal results? • What is the timing of the appraisal process (i.e., 60 days following a triggering event)? Terms And Funding The shareholders should consider how they will fund an exit. The shareholders must employ careful scrutiny of the business’ financial and operational health. For example, a business may operate with little excess cash. Should a triggering event occur, the shareholders need to consider if they have access to other funds, such as a line of credit or an insurance policy, to cash out the exiting shareholder or their heirs. Alternatively, the “A well-written agreement will enable the remaining shareholders to stay focused on the business instead of being distracted by internal operational conflict.” shareholders may also want to begin earmarking funds for an unforeseen event. The question, though, is not limited to how the shareholders will fund such an event; they also need to consider the terms of when the exiting shareholder will receive the value of his/her business interest. Payouts can range from onetime events to multi-year arrangements. Coordination and Planning Shareholders do not want to think about what can go wrong, particularly when things are going right. Unfortunately, the unexpected happens. It is critical to develop and implement a buy-sell agreement in conjunction with a business’ advisors, including tax and trust and estate attorneys. It is also beneficial to revisit the document on an annual basis to ensure the agreement’s relevancy. A well-written agreement will enable the remaining shareholders to stay focused on the business instead of being distracted by internal operational conflict. ■ MARK CAMPBELL AND KIMBERLEY TRAIN ARE PARTNERS WITH BLUMSHAPIRO. BOARD MEETING? Call Ed Tarlow, Chairman of the TBHR Family Business Practice at 617-218-2000, ext. 2011, or via e-mail at: firstname.lastname@example.org We have assisted hundreds of family business owners over the years. Our experience and knowledge can help guide your family business toward a successful and profitable future. Family Business Practice 617.218.2000 www.tbhr-law.com 11 Successfully Transitioning out of the Older Generation By Mark S. Robinson, CPA K eeping a family-owned business alive during a transition of ownership to a successive generation is a difficult undertaking. The failure rates of transfers from first to second generation are around 70 percent, and even higher for transfers to subsequent generations. In spite of the high failure rates, MARK S. ROBINSON successful transitions from one ownership generation to the next generation can and do occur. The common ingredients for success are not really different from what is important to running any successful business – commitment, planning, communication and the willingness to gather your experts when you need them. Companies that embrace those ingredients in their 12 transition plans typically beat the odds and become a next-generation company. Company Maturity The best company candidates for transition are ones where the current or past ownership has capitalized the business sufficiently, i.e., that the company is very strong financially. Published industry averages and benchmarking are helpful tools for determining how much capital retained in the business is enough. These companies are also mature from a volume perspective; they have grown to a point where revenue and profitability are both stable. Successful Owners Transfer success is much more difficult with the full weight of a past generation on the back of the next generation for years to come; the “dead elephant syn- drome.” The well-capitalized company gives current ownership the opportunity to build personal wealth during the ownership tenure. In successful transfers, the current ownership has taken advantage of the opportunity. They have built wealth to the point that the transfer of the business itself is a relatively minor part of their overall wealth strategy. Most transfers won’t work if the current ownership is heavily or totally dependent on the sale to the next generation to be the key to their wealth – or worse, the key to maintaining a certain lifestyle. The Right Successors The future ownership generation needs to know what they are getting into. A progression of experience within the company is usually helpful in developing that understanding. Giving the “The transition from one generation to the next can create a sense of loss, or of losing control.” next generation the experience of working within the company can help determine whether this is the right career path for them. The process is easier if this is identified before ownership starts to transfer. In situations where the next generation is comprised of a group of individuals, it is important that they can leave egos at the door, as ultimately there will be a need to have one person designated as the leader of the company. Open communication and acceptance of individual roles will be important to continued success. As is often the case, the fear of conflict arises when transitioning business ownership from one generation to the next, particularly if non-family members have significantly contributed to the business’ success. A succession plan establishes an organizational hierarchy, and some owners may view this as setting up rivalry between siblings, or between key team players who are not members of the family. Sometimes, in the name of keeping the peace, business owners entrust the highest level of authority to an individual, who although competent, may not the best choice to take over the reins of leadership. An honest assessment is imperative to decide to whom the torch should be passed. Letting Go The transition from one generation to the next can create a sense of loss, or of losing control. Most owners acknowl- edge and understand the need to vacate the “corner office” at some point, but that doesn’t make it any easier to relinquish power. Fear over the business’ potential to thrive and succeed in the absence of their governance may lead some owners to place succession planning on the back burner. Ironically, failure to plan for departure can turn fear into reality; by not identifying and mentoring those who will someday operate the business, the entire operation may be jeopardized. The mature owner ultimately has the opportunity – if taken – to allow his vision for the future to be recognized and embraced by the next generation of management. Appropriate Planning Imagine a meeting between an owner and a potential next-generation owner in which the owner announces for the first time, “I am permanently headed to Florida next month; this is what you are buying me out for, and you can send me monthly payments for the next 10 years!” Envision the monthly payments being an amount that chokes the life out of the company. Think it doesn’t happen? This is why there are amazingly high failure rates of transitions. Successful transitions don’t just happen; they are well planned out and they usually involve a circle of experts. Sometimes the planning can start years in advance. The circle should include accountants, attorneys, estate planners, financial planners and business valuation specialists. Business Valuations Business valuation can be necessary in several phases of the process – usually at the very beginning to quantify estimated fair market value, to facilitate planning and sometimes to support transfers. Most family businesses are established with one class of common stock. The number of shares and the stated value (par) of each share can vary widely, but each share issued almost always has equal voting rights. In this situation, a recapitalization should be considered where a very small percentage of overall stock retains voting rights and the bulk of common stock becomes non-voting. This can allow for transfer ownership to begin in a very non-threatening way to current ownership, by transfer of nonvoting stock only. The current generation can retain control while transferring the majority of the stock ownership to the next generation. A business valuation is necessary to support these transfers. There are many ways to approach and carry out successful transitions, despite the discouraging rates of failure. Typically, successful transitions include attributes such as company maturity, successful owners, the right successors, appropriate planning and important transition tactics. ■ MARK ROBINSON IS A FOUNDING MEMBER OF KAF FINANCIAL GROUP, A BRAINTREE-BASED PROVIDER OF ACCOUNTING, AUDITING AND BUSINESS ADVISORY SOLUTIONS. 13 Presented by: In Partnership with: Associated Industries of Massachusetts In Conjunction with: 14 Platinum Sponsors: THE SECOND ANNUAL NEW ENGLAND FAMILY BUSINESS CONFERENCE In its first year, the New England Family Business Conference proved to be a successful, productive event for family businesses in New England. This year, we expect the second annual show to be even more so. Presented by our media sponsor, The Warren Group, publisher of Massachusetts Family Business magazine, in partnership with the Family Business Association of Massachusetts, the Associated Industries of Massachusetts and Suffolk University’s Sawyer Business School, the New England Family Business Conference promises to be a valuable experience for family business employees, owners and board members. And for the first time this year, The Warren Group and the FBA are honoring Outstanding Women of Family Business, women who have created or propelled their family businesses to impressive success. For the complete list, see page 21. Our Keynote Speaker, Leo Vercollone, president of VERC Enterprises, will share his experience as the head of a 35-year-old, family-owned convenience store/gasoline and carwash group. The company has grown to become one of the largest independent, family-owned convenience store businesses in the region, and is expanding at the rate of two locations per year. The conference features breakout session addressing a variety of topics important to family businesses, including presentations on growth strategies for companies of all sizes; managing conflict in your family, and your family business; integrating your family’s dynamic into long-term planning for the business; and tips for marketing your company in a large and diverse landscape. The conference is also a great opportunity to mingle with other family business owners like yourself. There’s a lot to enjoy and a lot to learn, and we hope you take away valuable information to help your family business grow and thrive. Welcome to the 2014 New England Family Business Conference! On behalf of the Family Business Association Executive Board: Jeffrey Davis, Ed Tarlow, Al DeNapoli, and Brian Nagle Schedule at a Glance: June 18, 2014 Tribute Golf Tournament and Dinner Honoring the Blank Family 5:30 p.m. Welcome Reception, Dinner and Networking June 19, 2014 New England Family Business Conference 8:00 - 8:45 a.m. Registration, Networking and Continental Breakfast 8:45 - 10:00 a.m. Outstanding Women in Family Business Awards 10:00 - 10:30 a.m. Networking Break 10:30 - 11:30 a.m. Breakout Sessions 11:45 - 12:45 p.m. Breakout Sessions 1:00 - 2:00 p.m. Lunch and Keynote Speaker JUNE 18TH & 19TH, 2014 THE INTERNATIONAL GOLF CLUB & RESORT Gold Sponsor: Silver Sponsors: Supporting Sponsors: JNF Supporting Sponsor: M ember FDIC Global Wealth Management 15 AGENDA 8:00 AM - 8:45 AM Registration, Networking and Continental Breakfast 8:45 AM - 10:00 AM • Motivating non-family leaders in the business • Having an outlet – volunteer leadership outside of the business and the family Moderated by: Margery L. Piercey, CPA, Member of the Firm, Wolf and Company, P.C. Panelists: Phyllis Godwin, Chairman & CEO, Outstanding Women of Family Business Awards Breakfast The Grand Room Join us in celebrating the inaugural class of Outstanding Women of Family Business! This awards program is open to all conference ticket holders. 10:30 AM - 11:30 AM BREAKOUT SESSIONS Granite City Electric Supply, Co. Michele Kolligian, Executive Vice President, Distributor Corporation of New England Jennie Lee Colosi, President, ET&L Corp Managing Conflict in a Family Business Plymouth Room Conflict management is a crucial key to the longevity and success of family-run companies which, in general, tend to be more prone to conflict. Three primary keys to creating a positive Growth Strategies and Keys to Success Concord Room work environment are clarity, opportunity These remarkable family business leaders have the challenge of meeting these expectations honored their fathers’ legacies while promoting among family and nonfamily employees of the progress – adapting to the opportunities and organization. In this session, we will explore the challenges of changes in the business environment following strategies from the perspective of the and familial relations. During their tenure of family-owned business: and fairness. Family-owned businesses face leadership their companies have collectively grown • Creating role clarity by over 600%. Jennie Lee, Michele, and Phyllis bring very different perspectives to the discussion. • Increasing transparency in promotions, opportunities and compensation They lead their businesses as part of a family • Immediately addressing workplace conflicts leadership team – wife and husband, siblings – and as sole successor. However they also share striking similarities, for example, each in maledominated industries. Attendees will be sure to Experts from Suffolk and AIM will guide you through the conflict management process using their experience of working for a family business. benefit from the perspectives of these outstanding Presented by: Russ Sullivan, Vice President of women in family businesses as they open up to Healthcare Solutions, Associated Industries of answer your questions about their keys to success Massachusetts and the challenges they’ve faced along the way. Kevin G. Richard, Associate Director for Gain their perspectives on topics such as: • Growth strategies – acquisition, geographic growth, redefining the business • Knowing what you need to know to lead the family business, whatever the industry 16 Executive Education, Adjunct Professor in Career Development, Sawyer Business School Frederic Marx, Partner, Hemenway & Barnes, LLP Will Febbo, Co-Founder and Board Chair, MedPanel, Inc. 11:45 AM - 12:45 PM BREAKOUT SESSIONS Family Sustainability: Integrating Family Communication and Virtues with Planning for a Lasting Legacy Concord Room consisting of industry experts and family business professionals who will teach you how to market and grow your company. An effective marketing campaign is crucial to the success of your business. If you answer yes to any of the following questions, this is a must-attend event for you: • Do you want higher sales? Tom Rogerson’s discussion will cover the concepts • A great reputation among consumers? of family capital (human, intellectual, social) • Do you want to be the go-to company in your industry? and how successful families use their financial capital to enhance their non-financial assets. A properly implemented marketing campaign Wealth brings vast opportunities to families, but can give you all of the above. This session will also vast challenges. Families wish to motivate allow you to hear directly from experts that have children with wealth and to foster independence seen their marketing campaigns successfully vs. dependence, but often families are faced implemented, and grown their businesses! with children who feel privileged. The goal is to transfer values and purpose not just assets. In Tom Rogerson’s presentation will show how a family can succeed through the development of communication around the family’s values, interests, and circumstances. The outcome is a transition of the diversity of individuals and preferences, to unity of vision, to continuity of the Moderated by: Troy Harker, Senior Director of Local Sales New England North/East, Comcast Spotlight Panelists: Bob Deininger, Media Director, NorBella, Lou Letta, Owner, Digital Video & Consulting Inc.; Owner, AboutUsVideos Partner, Retromedia family’s total wealth. With an integrated family governance plan, the family is prepared to operate more efficiently and harmoniously over multiple generations. Tom Rogerson will describe how to help prepare the family for the money. Highlights of presentation: 1:00 PM - 2:00 PM Lunch and Keynote Speaker The Grand Room • Family Wealth Research and Statistics Keynote Speaker: Leo Vercollone, President, VERC Enterprises • Preserving Wealth in Families Leo Vercollone, President of VERC Enterprises, • Five Steps to Healthy Family Governance will discuss how his family-owned business • Family Communication Styles evolved from a single car wash, almost 40 • Family Values – Mission/Vision years ago, into a $150 million enterprise. Leo • Family Philanthropy will talk about preparing the next generation for • Family Sustainability Resources and Solutions leadership, bridging the male and female gap, Presented by: Tom Rogerson, Senior Managing Director, Family Wealth Strategist, Wilmington Trust the importance of giving back to the community, dealing with internal conflict, and sometimes looking outside the company for management Marketing & Communications: Propel Your Business Forward Plymouth Room and guidance. He believes that celebrating failure, Comcast will be moderating a session of panelists, fact that family always comes first. along with accomplishment, is a crucial part of the companies’ growth, but real success lies in the 17 SPEAKER BIOS Thomas C. Rogerson, Senior Managing Director and Family Wealth Strategist, Wilmington Trust As a recognized leader and pioneer in family governance, Tom Rogerson introduces clients throughout the U.S. to his “5 Steps to Healthy Family Governance,” which assists families with communication, philanthropic vision, legacy planning, succession, and education. Tom incorporates these critical issues into a client’s comprehensive wealth management plan, not only helping to prepare the money for the family, but to also prepare the family for the money. Tom joined Wilmington Trust in 2011 with more than three decades of experience in the wealth Thomas C. Rogerson management industry. For over a decade, Tom has provided guidance and education to help prepare families as wealth is transitioned from generation to generation. Russ Sullivan, Vice President of Healthcare Solutions, Associated Industries of Massachusetts Russ Sullivan is responsible for developing effective health care, benefits, compensation and business solutions for AIM’s member companies and non-member companies. Prior to joining AIM, Russ worked for over 25 years in human resources, including C level positions for health care and technology companies, including startups, public and private entities. Since joining AIM, in January of 2011, Russ has leveraged his Russ Sullivan human resources knowledge to identify and develop creative solutions to the human resources needs of business leaders. Margery L. Piercey, CPA, Member of the Firm, Wolf & Company, P.C. Margery Piercey leads the Family Business Services Team at Wolf & Company, P.C., and she also serves the firm’s investment advisor and broker-dealer clients. She is responsible for the successful delivery of audit, review, and advisory services to her clients. Margery has thirty years of experience, including eight years with PricewaterhouseCoopers LLP and seven years working in the startup environment and in corporate financial reporting and treasury management. Margery has extensive technical knowledge and her clients benefit from her added Margery L. Pierce value, consultative service delivery, practical observations and recommendations. Phyllis P. Godwin, CEO, Granite City Electric Supply Company Granite City Electric Supply Company was founded in 1923 by Phyllis Papani Godwin’s father, Nicholas Papani. In 1969, when Phyllis became the owner, the company had one location and 20 employees. Over the past 45 years, the company has grown to 28 locations and 345 employees. GCE is now the largest independent electrical distributor in New England. Granite City Electric is a certified Woman Phyllis P. Godwin Business Enterprise. Phyllis has been a pioneer for women in business and a mentor to many. She was a “first woman” on many boards and organizations and she has received numerous awards over the years recognizing her significant contributions. Jennie Lee Colosi, President & Treasurer, E. T. & L. Corp. In 1988, Jennie Lee Colosi took over E.T.& L. Construction Corp., a heavy and highway general contracting company, from her father. In 1984, she became the first woman and the youngest director of the Construction Industries of Massachusetts and is currently serving as a director. She is a charter member of the Worcester Chapter of the National Association of Women in Construction and has served as its president, Jennie Lee Colosi treasurer, secretary, and director. Since 2000, E.T.& L. Corp. has been named among the top 100 woman-led businesses in Massachusetts by The Commonwealth Institute. Frederic Marx, Partner, Hemenway & Barnes, LLP Frederic Marx has been involved with family enterprises for decades, following the cross-generational successes and challenges of companies from start-ups to publicly held multinationals. He is Chair of the Business Law Group at Hemenway & Barnes, LLP, and a regular contributor to legal, entrepreneurial, and nonprofit publications. Frederic Marx Lou Leta, Owner, Digital Video & Consulting Inc.; Owner, AboutUsVideos Partner, Retromedia Lou Leta graduated from BU Film School in 1986 and is a veteran of the broadcast and video production business and even had the chance to work with TV legend Milton Berle in Hollywood. As an multi-nominated and Emmy and Telly Award winner, Lou’s expertise is bringing the best creative and technical talent together to produce cost-effective high-end HD commercial, corporate, television and web productions for a wide range of clients. Lou Leta 18 Leo Vercollone, President, VERC Enterprises Leo Vercollone joined the family business, VERC Enterprises, in 1980 when he partnered with his father Eugene and his brother Paul. Leo had previous experience with family business, having been involved with the car wash that his father started in Marshfield in 1974. One of Leo’s greatest sources of pride is that 20% of the workforce at VERC Enterprises consists of developmentally challenged and disabled individuals. VERC, which is one of the largest family-owned businesses in Massachusetts, has become a leading employer for the Massachusetts Re-Entry Leo Vercollone program, and they have recently taken on a new challenge. The goal is for 5% of their workforce to be comprised of both male and female reentry candidates (currently at 3.5%). Kevin Richard, Associate Director, Sawyer Business School and Adjunct Professor in Career Development For the past seven years, Kevin Richard has been a career consultant working with second-generation family members on their career paths. He advises on topics such as entrepreneurship within the family business, navigating the daughter-father/son-father dynamic within family businesses, reentering the company after business school, temporary leaves or part-time business school leaves, and the introduction of new ideas and modernizations to businesses. Prior to Suffolk University and career consulting, Kevin spent 14 years in the hi-tech sector at Kevin Richard a family-owned medical market research firm, and before that he spent eight years as the general manager of Kennedy Studios, his familyowned art and framing business. Michele Kolligian, Senior Vice President & Treasurer Distributor Corporation of New England Distributor Corporation of New England (DCNE) was established by Michele Kolligian’s late father and uncle, and is now owned and operated by Michele, her two sisters and brother. Today, DCNE is one of the largest independent distributors of commercial and residential heating and air conditioning equipment, parts and supplies in New England. In addition to overseeing financial and HR administration, Michele serves as the liaison for customer relations and has planned and marketed the company’s annual sales incentive trip for 25 years. Michele works closely Michele Kolligian with her siblings to lead all aspects of the family business. Michele has served on the Advisory Council of the Family Business Association, Inc. since 2010. Will Febbo, Co-Founder & Board Chair, MedPanel, Inc. Will Febbo has been a director of the Merriman Holdings, Inc. board since April 2007 and assumed the role of chief operating officer in January 2012. He currently oversees the launch of the Digital Capital Network within Merriman, an online marketplace that enables a more efficient venue for transactions in the micro and small cap marketplace. Prior to Merriman, Will founded and ran MedPanel, LLC, a disruptive technology platform within the medical information space. Will advises several startup companies in Boston and San Francisco and has a passion for Will Febbo reviving existing businesses with disruptive technology. Will has been treasurer of the United Nations of Greater Boston since November 2004. Troy Harker, Senior Director of Local Sales New England North/East, Comcast Spotlight Troy Harker joined Comcast Spotlight in Indiana in January of 2008 as an account executive before becoming local sales manager in October of 2009, and subsequently area sales manager of four Indiana DMA’s in September of 2011. He began his career in advertising sales in 2007 as an account executive with Insight Media. Over the last seven years, Troy has had a strong focus on digital advertising. His true passion is helping local clients grow their business. He has experience implementing strategic advertising programs that allows him to bring a unique perspective to multimedia advertising solutions. His goal as a leader for Comcast Spotlight is to ensure all advertising programs reach the right audience and deliver the best return on investment for their clients. Troy holds a Bachelor of Arts and Sciences degree in Telecommunications, Troy Harker Industry Management and Criminal Justice from Indiana University. Troy, his wife Anne, and their 1-year-old son Zachary made the move to Boston in 2013. Bob Deininger, Media Director, NorBella Bob’s twenty years of marketing and media experience includes positions at D’Arcy Masius Benton & Bowles in New York, Arnold Worldwide, Hill Holliday and as a principal at Fulgent Media Group, where he was part of the team that profitably grew the company for a sale to Alloy Media + Marketing in 2008. Bob has worked with notable clients that include American Express, Gillette, Procter and Gamble, Genzyme and Harvard Business School. Current NorBella clients include Bertucci’s, Lahey Health, Boston Symphony Orchestra and Boston Private Bank. Bob Deininger 19 Outstanding Women 2014 D E D I C AT E D T O N E W E N G L A N D FA M I LY B U S I N E S S E S CONGRATULATIONS TO THE 2014 OUTSTANDING WOMEN OF FAMILY BUSINESS! This year, the Family Business Association and The Warren Group are celebrating the inaugural class of the Outstanding Women of Family Business. From a field of many and varied nominees, the independent judges winnowed down the exemplary women who consistently go above and beyond expectations to propel the success of their family businesses. These entrepreneurial women play a substantial role in their companies, driving the success of their businesses and their families. Not only do our award winners give tirelessly to their companies; they also find the time and desire to help the community around them through charity and philanthropy. Of these 16 exemplary women, three stood out as deserving of special recognition. The Spotlight winners are in a class all their own; CEOs, owners and directors, they are extraordinarily accomplished, motivated and successful. 20 20 THE 2014 WINNERS VALERIE BONO CECELIA FRASER* Golden Cannoli Fraser Engineering Co. Owner President and CEO CAROL BULMAN* MICHELE KOLLIGIAN Jack Conway & Co. Distributor Corp. of New England CEO and President Vice President DIANA CATALDO HEIDI LEHNER Cataldo Ambulance Leigh Fibers Inc. Owner Chairwoman and Director KATHRYN CECERE FAITH PULIS Harmony Horse Stables The Thoreau Club Owner President and CEO SHARON DIMINICO AVIVA SAPERS* Learning Express Sapers & Wallack CEO President ROBIN EMERSON KATHRYN SODERBERG Ferns Country Store Soderberg Insurance Services Co-proprietor President JENNIFER VERRILL FADDOUL RHONDA SPRAUGE Verrill Farm LLC Harvard Realty Partner President and Broker/Owner JOANNE FLYNN CHERYL EIDINGER TAYLOR Windham Country Club Chief Operating Officer Director of Golf ERA Key Realty Services *Denotes Spotlight winners 21 21 FAMILY BUSINESS SERVICE GUIDE DIRECTORY MA Family Magazine ad 2.5 x 2.5 color_Layout 1 2/21/20 BFM MFAB ad v1_Layout 1 4/8/14 5:23 PM Page 1 LAW OFFICE OF ATTORNEY GORDON E. FEENER Over 22 years of Experience Assisting family business with: 617.428.5118 www.thewarrengroup.com 22 Edward D. Tarlow, Esq. Chairman, Family Business Practice email@example.com 617.218.2000, x2011 TRUST AND PLANNING INVESTMENT MANAGEMENT PRIVATE BANKING FAMILY GOVERNANCE Mark Andersen | 617.457.2056 B i Fa mily Y rs ea We are attorneys who know how to address the challenges of generational differences and family member relationships. 30 617.428.5100 g f Trusted Real Estate & Financial Information The Warren Group 280 Summer Street Boston, MA 02210 n ne s ses si Together, we’ll build a financial plan for your business. Serving Family Businesses for over 30 years u David C Mc Avoy Managing Partner Boston (617) 742-6200 nmfn-thebostongroup.com Family Business is Our Business. 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