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Massachusetts

SUMMER 2015

FAMILYBUSINESS Official magazine of the

THOUGHTFUL STEWARDS

Cranberry Grower A.D. Makepeace Co. Diversifies Carefully

Inside: Nominations Open For The Family Business Association Awards


FAMILY BUSINESS SERVICE GUIDE DIRECTORY

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Massachusetts Family Business Official magazine of the

CONTENTS

12

THE LAND AND THE LEGACY Spanning 3 centuries, cranberry cultivator A.D. Makepeace Co. diversifies without losing its roots.

4

from the board

Nominations Now Open For Family Business Awards

5

expert insight

Top Tips For Family Business Management

6

minority share, major issues

8

12

Terminating Minority Shareholders

planning ahead

Family Business Holds Dress Rehearsals To Prepare For Calamities

10 act two: a family business Father-Daughter Partnership Launches

A New Product And A New Business

17 book review Private Investigator Shares The Story Of His

17

Family Business

18 protecting your assets Homeowner Insurance May Not Cover

Business Activity

20 playing fair How Much Should Family Members Be Paid? 22 sick leave law

AG Issues Temporary Safe Harbor

10 3


Letter from the President

Tell Us About a Family Business You Admire

B

eing a member of a family-owned business presents many challenges, as well as many rewards. And while nobody goes into the family business to become famous, we think it is important to recognize those family businesses that exemplify the qualities of innovation, dedication and perseverance that lead to success. Since 2007, the Family Business Association Awards has been the best way to give Massachusetts-based family businesses the appreciation and respect they deserve. Some of the state’s most recognizable family businesses have been honored, alongside many more families who may not make headlines, but make great contributions to the Massachusetts economy. We need your help. We are seeking nominations for this year’s awards from people who are connected with or involved in the family business community in Massachusetts. This includes readers of Massachusetts Family Business magazine. Do you know a family business that exhibits excellence in management, community involvement and philanthropy; has overcome adversity; or made a significant difference through their business practices? It could be a company with which you do business, a customer, one of your vendors or suppliers, or a company you ad-

mire for its success and the way it conducts business. You can even nominate your own business! While receiving a nomination in itself is acknowledgement of achievement, those selected as finalists and winners also receive extensive exposure in the media and the business community. Nominations can be made online at www.fbaedu.com, or you can download a simple nomination form. Anyone can nominate a family business, and family businesses are welcome to complete an application

online. Once a nomination is submitted, the FBA will notify the family businesses that they have been nominated, and by whom. Applications are due by Friday, Aug. 14, at 5 p.m. This year’s Family Business Awards ceremony – always a sell-out event with nearly 400 attending – will be held on Thursday, Oct. 22, at the Royal Sonesta Hotel in Cambridge.  ■ ED TARLOW PRESIDENT FAMILY BUSINESS ASSOCIATION

Massachusetts

FAMILYBUSINESS

Official magazine of the Family Business Association. Inc.

Editorial | Advertising | Design A Family-Owned Business Since 1872

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

PRESIDENT Edward D. Tarlow, Tarlow, Breed, Hart & Rodgers, P.C.

VICE PRESIDENT Catherine Watson, Tarlow, Breed, Hart & Rodgers, P.C.

TREASURER Jeffery P. Foley, Gray, Gray & Gray, LLP

280 Summer Street, Boston, MA 02210 Phone 617-428-5100 Fax 617-428-5119  www.thewarrengroup.com ©2015 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.


Five Secrets of Managing a Family Business By Edward D. Tarlow

M

anaging a business can be a challenging task. Doing it successfully while also juggling the needs of family members – both in and out of the business – takes a rare blend of vision, patience and (when necessary) stubbornness. Yet family-owned and operated businesses continue to be the heart and soul of the U.S. economy. Family firms comprise 80 to 90 percent of all busiED TARLOW ness enterprises in the U.S. and generate 60 percent of the country’s employment. Yet only one-third of family businesses succeed in reaching a second generation, and fewer still survive to see a grandchild take control. What is the secret of those family businesses that are able to bridge the gap from one generation to the next? Here are five characteristics that I have found are common to all successful family businesses: They set ground rules. A business is a business, whether it is owned by shareholders or a close-knit family. Like any successful business, a family-owned company must have a structure with clear lines of responsibility and authority. This includes basics like working hours, compensation, benefits and who gets the biggest office, as well as more long-term issues such as defining career paths and succession plans. They communicate. I have heard stories about family members who draw the line about “talking shop” outside of the office. But I have found that families who truly enjoy working with each other have no problem continuing their business relationship at home or at family gatherings. Having the confidence to speak up about issues or to voice an opinion and knowing that you will be listened to, goes a long way toward avoiding misunderstandings that can fester into resentment.

We recommend that family business clients establish family roundtables that meet on a regularly scheduled basis for an open airing of concerns both large and small. They embrace differences. Not everybody is cut out to be the CEO. And not every family member is eager to play an active role in the business. Savvy family businesses assign roles within the company that suit the individual talents, desires and experience of a son, daughter, cousin, brother, sister, aunt or uncle. They also account for those family members who do not wish to work in the business, but expect to share in the rewards of their “legacy.” They have a succession plan. This is often the most difficult issue to tackle. But it is the most crucial for a family business that wants to survive for the next generation. Those in leadership roles must be willing and eager to train those who will follow them and be ready to step aside at a designated time. Hanging on too long in an attempt to retain control is demoralizing for younger family members. Having a plan in place that is transparent to all family members is the best way to avoid a battle for control of the company.

They are not afraid to go outside the family for help. Few families have all the talent, skills and experience they need to succeed all within the family. Leadership must be willing to accept help from trusted sources when necessary, including legal advice, accounting and tax help, management consulting, and operational support. In some cases the most successful family-owned businesses are those that, having maximized the abilities of family members, hand over day-to-day control to a non-family member. The rewards of working with family members can be many. Family members who feel they have a personal stake generally exhibit a stronger commitment to helping a business succeed. Personal relationships between parents and children, siblings, cousins and in-laws can be a source of joy, encouragement and fulfillment. But make sure everyone is on the same page so that minor differences do not escalate into full-scale conflicts.  ■ EDWARD

D.

TARLOW

IS

A

FOUNDER

AND

SHAREHOLDER AT TARLOW BREED HART & RODGERS, P.C., A BOSTON LAW FIRM THAT SPECIALIZES IN FAMILY BUSINESSES, AND A FOUNDER AND PRESIDENT OF THE FAMILY BUSINESS ASSOCIATION OF MASSACHUSETTS. 5


Changing the Roles

Terminating Employment of a Minority Shareholder in a Massachusetts Closely-Held Corporation

By Keith Glidden and Sara Hirshon

B

eing an employee and being a shareholder in a company are two very distinct roles an individual may have in a business. In a family-owned business, however, the two may be inseparably linked; that is, the only value to a shareholder may be the opportunity to participate in, be employed by, and receive a salary KEITH GLIDDEN from the business. If a minority shareholder is also the manager of the company and it has become apparent to the company (the majority shareholders) that her skills in SARA HIRSHON that position are not meeting the needs of the business, can the company just terminate her like an employee who is not an owner of the company? The answer depends on the actions taken by the majority shareholders and whether a fiduciary duty has been 6

implicated by those actions. Many family-owned businesses fit the legal definition of a “closely-held corporation,” which is an entity with the following characteristics: (1) a small number of shareholders; (2) no ready market for the ownership shares; and (3) a substantial majority of shareholders participating in the management, direction and operations of the company. Because of the structure of a closely-held corporation, the majority shareholder’s actions may oppress or disadvantage a minority shareholder, which is termed a “freeze out.” One way that a majority shareholder commonly “freezes out” a minority shareholder by depriving the minority shareholder from holding an office in the company or from being employed by the company, thereby frustrating the minority shareholder’s reasonable expectation of deriving a benefit from the business. By the very nature of a closely-held corporation, the relationship among its shareholders must be one of trust, confidence and absolute loyalty in order for the enterprise to be successful. Therefore,

Massachusetts law imposes on shareholders in a closely-held corporation the duty to act with the utmost good faith and loyalty toward both fellow shareholders and the company. Massachusetts law also encourages the owners of a closely-held corporation to negotiate for rights, protections and procedures that define the scope of their relationships and the exercise of their duty to one another in foreseeable situations. These rights are negotiated in both agreements between the shareholders and the employment contracts between the company and a shareholder also employed in the business. Where the shareholders have defined their business relationship in employment contracts and/or a shareholder agreement, the scope of their rights and duties of employment, the grounds and mechanisms for terminating employment and the right or obligation to buyback ownership shares, good faith action in compliance with those agreements will not implicate the exercise of the fiduciary duty accompanying ownership. The mere presence of an employment contract, however, will not always supplant a fiduciary duty in making employment decisions. To supplant the otherwise applicable fiduciary duties of a closely-held corporation, the terms of an employment contract must clearly and expressly indicate a departure from those obligations and “entirely govern” the action taken by the majority shareholders. Even when the minority shareholder/ employee has been terminated pursuant to the terms of an employment contract, the majority shareholders still owe that person reasonable communication, including efforts to resolve complaints by less drastic efforts than termination. Because the heightened fiduciary duty associated with a closely-held corporation is always in the backdrop, the agreements should be closely scrutinized and followed by the majority shareholders. If there is no employment contract controlling the minority shareholder’s employment with the company, under


Massachusetts law, general fiduciary principles apply to the company’s action in altering that employment relation-

holders is that the guidance is derived by the Massachusetts courts rather than predetermined contract terms.

By the very nature of a closely-held corporation, the relationship among its shareholders must be one of trust, confidence and absolute loyalty. ship. The law recognizes that the majority shareholder’s duty to minority shareholders must be balanced with allowing them to take legitimate action to effectively manage the company. Majority shareholders have certain rights to what has been termed “selfish ownership” in the company, which should be balanced against the concept of their fiduciary obligation to minority shareholders. Therefore, the law provides majority shareholders room to maneuver within their duty to fellow shareholders and a large measure of discretion in making business decisions, among other things, the hiring and firing of employees. The standard applied to determining whether the majority shareholders took action regarding the minority shareholder’s employment is in compliance with their fiduciary duty starts with the requirement that the controlling group demonstrate a “legitimate business purpose for its action.” If such showing is made, the minority shareholder is then allowed to “demonstrate that the same legitimate objective could have been achieved through an alternative course less harmful to the minority shareholder’s interest.” The majority shareholders must be careful not to disregard formal decisionmaking processes in taking action involving the minority shareholder’s employment, especially where there may be a propensity to do so because the minority shareholder has no power to affect the decision. To exclude the minority shareholder from information regarding or participation in the company action may, in and of itself, be a breach of the fiduciary duty despite the final decision having a legitimate business purpose. The difficulty with taking action regarding the employment of a minority shareholder that is governed purely in the context of the fiduciary relationship between share-

In a closely-held corporation with shareholders who are employees, it is important to think about the evolution of the business in conjunction with the

relationship between current and future shareholders. It is never too late to draft employment contracts and amend shareholder agreements to provide the needed flexibility for the majority shareholders to effectively manage the family business whilst maintaining fairness and benefit for minority shareholders.  ■ KEITH GLIDDEN AND SARA HIRSHON ARE ATTORNEYS IN THE BOSTON OFFICE OF VERRILL DANA LLP. KEITH AND SARA ASSIST CLIENTS IN A WIDE VARIETY OF LITIGATION MATTERS IN STATE AND FEDERAL COURTS.

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The Dress Rehearsal

Succession Planning Should Start Before the Funeral

By Paul and David Karofsky

E

arly planning bodes well for succession of family businesses. It’s more than gifting or selling equity to the next generation. It’s about helping them understand family and business history and the values and business basics that made its success possible. And, perhaps, the most important factors, which we can anecdotally confirm from our work with client after client after client, are effective communication and family alignment. We also find that family members who share activities together beyond the business tend to be more comfortable with one another in a business setting when it’s time to have the difficult conversations. For some, it’s going to a ball game, a round of golf, fishing, or board games. For others, it may be working together in a nonprofit or other community setting. We find that positive non business experiences help set the stage for openness, respect and ease of communication. Indeed, families that play together, 8

stay together. Every few years, our family has, or at least tries to have, what we call a “dress rehearsal.” It’s an event where, together with parents and adult children, we meet with our independent financial advisors, and sometimes with our attorney. The announcement is made that Mom and Dad are in Africa and were just eaten by a lion. Now what? Ample time is allowed for pseudo grieving, which takes the form of nervous laughter, and then the serious discussion ensues. The first item to address is Mom and Dad’s funeral wishes. Cremation (if the lion spits them up) or burial? Parents’ desire is burial, so the next question is where? Mom and Dad talk about their preference for a funeral director, the family lot, location of gravesites and type of casket. Dad’s preference is plain and simple, like the ones we used to see on the 1950’s TV series “Gunsmoke.” Mom is okay with that as well, but wonders if, perhaps, someone might paint a

few flowers on it. Hmm … a great project for their artistically talented granddaughters. As for the service, it’s for the children and grandchildren and not for the parents, so the parents want their children’s wishes to prevail. The younger granddaughter, however, knowing her grandfather’s predilection to M&Ms, promised she would sprinkle some into his grave. On to the paper work and paperless work. We review the location of important documents: wills, trusts, birth certificates, marriage certificate, passports, cemetery plot deed, vehicle titles, mortgages and more, along with the combination to Mom and Dad’s safe and location of the safe deposit box and keys (assuring our children they have the right of entry). We then review the roster of key people: attorney, accountant, financial advisors and insurance agents. Login information and passwords for bill paying and account control are reviewed. Likewise for other tangible and even digital assets like social media and websites. We talk about which monthly charges go on credit cards automatically and which are direct debits to the parents’ checking accounts, where the children are already co-signatories. Then on to the beneficiary designations for Mom and Dad’s retirement accounts. We need to be sure they match the wills and trusts, as those designations actually supersede other documents, and we need to be certain they accurately reflect their wishes. We review the wills and trusts, which are updated regularly responding to changes in the law and according to our attorney’s recommendations. Daughter and son (47 and 45) know that they will be co-executors and co-trustees and thus have the total independence and control they have earned. We open Mom and Dad’s balance sheet (something Dad rigorously updates on a monthly basis) and discuss the portfolio strategy and the flow of assets through the trusts and the options that the children will have. Mom and Dad’s goal is to not simply keep the family informed of the asset values, but of the strategy that has made their growth possible. Though the disposition of invested assets will ultimately be the parents’ decision, some understanding of history never hurts.


As we discuss our family’s donor-advised charitable fund, daughter and son are assured that they are successors to Mom and Dad in making grant recomendations. While the parents share their past preferences, they recognize that their children’s philanthropic goals may not match theirs. Yet they want to encourage their children and grandchildren to make choices in a focused manner, where the parents believe past giving has made a difference, recognizing that, ultimately, the choice will be that of foture generations.. Mom and Dad tell their children that they’d also like them continue a program where the grandchildren are invited to make individual grant recommendations (in their own names) and a collective one as well. All feel this as a good way to further stimulate their focus on strategic philanthropy and coalesce already close cousins. Next comes discussion of material possessions: homes, cars, furnishings, artwork, jewelry, etc. When it comes to homes, we’ve seen too many disasters of children owning their parents’ homes together, the arguments over value, maintenance and usage, so the children are urged to sell them and The attorneys of Tarlow Breed Hart & Rodgers have

split the cash. As for other material possessions that have neither been previously gifted nor “promised” based on prior requests, it’s suggested that the children flip a coin to see who goes first and then, alternately, make choices based on sentimental rather than material value. Dad and his brother did it that way and it seemed to work out well, though Dad’s not sure his brother ever forgave him for winning the first selection. But what if the lion only opts to dine on one parent, and leaves the other “incapacitated?” Since the estate documents call for the surviving spouse (and trusts) to inherit everything, it’s time to talk about long-term care. Fortunately, quality long-term care insurance was purchased many years ago, so that would help with the financial part. But where would Mom and Dad wish to be? At home or in a long-term care facility? Though absolute commitments haven’t been made at this time, Mom and Dad are trending toward living in a community. The reasoning is rather simple: Mom and Dad do not wish to be burdens on their children, and it’s their belief that living in a life care community, with the assurance of support

services they might need, would give their children more peace of mind than having to worry about them being at our home (and, under no circumstances, their home), where the emotional stress plus scheduling and provision of services is guaranteed to be a challenge. The frosting on the cake is essential: health care proxies. This is the legal document that gives the children the power to make health care decisions on their parents’ behalf. We discuss the circumstances under which Mom and Dad do and do not want life-sustaining efforts. Then come the durable powers of attorney and living wills. Again, the goal is clarity, not guessing when the end is near. The time for planning, simply stated, is not on the way home from the funeral. Give your children a gift. Give them some peace of mind. Do your planning. Consider your own dress rehearsal. Let them know that you’ve done your homework to make life easier and more comfortable for them. ■ PAUL AND DAVID KAROFSKY ARE PRINCIPALS OF TRANSITION CONSULTING GROUP, LTD, WHICH ADVISES FAMILYAND CLOSELY-HELD BUSINESSES.

If this is your organizational chart…

helped hundreds of family businesses to thrive and prosper.

Grandpa

Our experience and knowledge help

Mom

Dad

companies with

Aunt Betty

deep family roots

Uncle Charlie

to continue to grow from one generation to the next. For help in managing a successful future for your family’s business contact Ed

Brother Ted

Aunt Sue

Cousin Alice

Sister Sarah

We should be your law firm.

Tarlow, Chairman of our Family Business Practice Group, at (617) 218-2011, or via email at: etarlow@tbhr-law.

Family Business Practice 617.218.2000 www.tbhr-law.com 9


Business Profile

Running to the Music

Father Partners with Daughter to Forge New Career and Closer Relationship in their pocket via Bluetooth, or through wires that run through the strap opening in the back of the hat. The company has a patent pending for the speaker apparatus. “Initially, people will buy the hat and speakers together,” Proos said. Ultimately, the company plans to develop a line of interchangeable hats that will each accommodate the original set of speakers.

Andrew Proos and his youngest daughter Emily Proos. By Linda Goodspeed

C

an a lifelong passion for running lead to a whole new career – and a new relationship with your daugh-

ter? Anesthesiologist Andrew Proos, 57, of Northborough, thinks so. In June 2014, Proos and his youngest daughter Emily, a senior at Babson College, founded Bluewire Audio LLC, the latest entry in a crowded portable speaker market. Unlike other personal speaker systems that fit inside or over the ear, Bluewire’s speaker system is mounted on the band of a hat or visor, allowing users to listen to audio while engaged in physical activity and still hear ambient noise, eliminating a major safety concern for runners and walkers. For just those safety concerns, Proos, a lifelong runner, never ran with music. But while training for his first marathon in 2009, Proos said he felt he needed the extra motivation of music to help him get through lengthy daily training runs. 10

“Once I got up to around 12, 14, 15 miles, I felt I needed music,” Proos said. But earbuds kept falling out, headphones were too big and uncomfortable, and worst of all, he could not hear traffic or dogs or other noise. A self-confessed “wannabe inventor,” Proos started tinkering with glue and snaps that would fasten the earbuds to his hat, and voila, the speaker hat sound system was born! “Because the sound comes out above your ears, you can still hear ambient noise,” Proos said. “My wife and I can even carry on a conversation while running and listening to different music.” Proos spent the next four years perfecting his invention, finding the right combination of small, topflight speakers and the best way to fasten them to a hat. The speaker device itself is designed to be interchangeable among different hats or visors that are modified with openings above each ear and snap fasteners to hold the speakers securely in place. Users can either connect the speakers to an iPod or phone

Starting ‘Act Two’ Proos acknowledges his career turnaround is a bit unusual. “I have enjoyed my career in medicine immensely, but it’s time for a change, and with my youngest daughter graduating from college this spring, combined with this idea that has been constantly in my head for the last five years, this seems like a moment I can’t let pass.” He admits, however, his own and daughter Emily’s lack of business experience is the biggest hurdle facing them. Proos, president of the company, has spent his entire professional life as an anesthesiologist. Emily, CEO, is a business and entrepreneurism major at Babson, but has no professional experience. “We keep waiting for a grown-up to walk in and help us chart our next steps,” Proos said. Proos researches the wearable audio field by “trolling around the Internet,” reading blogs and visiting runners expos. “Most approaches address the inconvenience of earbuds by making them fit tighter in the ears or hooking them over the ears. You also see runners with full headphones. But none of these approaches address the safety issue. In fact, they are just more effective in blocking out ambient noise. I keep looking for someone who has scooped my idea, but it’s not out there.” Earlier this year, Proos and his daughter brought their handmade speaker hat (“We still haven’t come up with a catchy name for it yet,” Proos said) to Ideology Product


“It’s not limited to just Dad and me. We’re tapping into the whole family; it’s brought us all closer together.” — Emily Proos, co-founder, Bluewire Audio

A rendering of the Bluewire speaker system.

Development of Attleboro, to build 100 to 200 prototype units. “We’re taking Andy’s idea, developing it in 3D-CAD and doing feasibility studies with different speakers, how they look and function,” said Roger Fontaine, director of engineering at Ideology. “We constantly meet with him to review ideas and materials and design. They are a full partner in what we are doing. It’s their product. We want to make sure they get what they want. At the end, he will walk away with a fully functioning prototype that can be demonstrated.” Bluewire will distribute the prototypes to local running clubs to beta test and, depending on feedback, will either modify the design or ramp up to full-scale manufacturing. To date, Proos has invested about $20,000 of his own money in getting the company this far. The largest expense has been the patent application. Once the prototypes are ready for beta testing this spring, Proos said the company will launch a Kickstarter campaign and also plans to file an application to the MassChallenge Accelerator program. Bluewire has not yet set a price on the final product. Proos said he is hoping it will be in the $55 to $60 range, with replacement hats selling for around $35. Emily said the company plans to give back 5 percent of profits to charities. “Sup-

porting good work is very important to us,” she said. Emily said the timing of the company has been perfect for both of them. “My dad came up with the idea and [has] taken the lead on the prototype development. This is his baby. I want him to be extremely happy with the product. My role will be to take over the company after I graduate this spring and build it into a company, sell hats, do good and give back to the communities we are selling in.” Emily said that working with her father on the company has brought the whole family closer together. “It’s not limited to just Dad and me. We’re tapping into the whole family. We’re constantly asking Mom, my sister, my brother for their advice. My mom and sister are dedicated runners, so their advice is very important. Two of my cousins are helping us, as well. One designed our logo, and the other is designing the Kickstarter campaign. It’s brought us all closer together.” Father and daughter also did a ‘Shark Tank” presentation to The Entrepreneurs Organization in Boston, a group of business owners who started their own companies. “We’re not investors. We give feedback,

both positive and negative, to potential entrepreneurs, share contacts and experiences,” said Jack Doherty, president of College Hype Screenprinting and Embroidery in Dorchester and a member of the entrepreneurs group. Doherty said the group thought Bluewire Audio was “a cool little concept.” “A father-daughter startup is not something you see every day. They have a lot of passion. They have an idea and are trying to run with it. We were pretty impressed.” While Bluewire’s main market will be the running world, the company has identified several other marketing and distribution channels for its speaker hat, including charity walks and other charitable causes, schools, walking tours, online retail, distribution through larger merchants and licensing deals. “I want to build a great company to bring a great product to as many people as we can,” Proos said. “It has, at times, seemed like an overwhelming challenge that we are foolish to undertake, but each small step we accomplish brings a tremendous sense of excitement. My goal for my professional ‘act two’ is to find something that will make me want to jump out of bed each day. Bluewire already does this most days.”  ■ 11


Thoughtful Stewards Cranberry Grower A.D. Makepeace Co. Diversifies Carefully

12


By Christina P. O’Neill

W

hen Michael Hogan signed on as the first non-family president in the seventhgeneration A. D. Makepeace Co. (ADM) in 2003, it marked a sea change in the outward leadership of the company, as well as a portent of its future direction. But the Makepeace family continues its stewardship of both the company and the well-being of its host communities – as well as continued contributions to the $200 million cranberry industry in Massachusetts and civic endeavors in its home region. Christopher Makepeace, the company’s seventh family president, said he hadn’t been ready to retire at the turn of the 21st century, but he saw the need for a new experience set to ensure the company’s future. No longer could ADM be an agrarian monoculture. Despite its role as the world’s largest cranberry grower, it needed a cushion to offset the sometimes severe fluctuations in cranberry prices and production costs that could only go up. As development on Cape Cod has boomed, smaller growers have come under pressure to sell their acreage for multiples of the land’s value as farmland. ADM is the largest private landholder in the state, with 13,000 acres, 1,860 of them utilized as cranberry bogs (and that’s after the sale of 1,311 acres since 2008 to the state to be held as conservation land). So, what to do with its most significant asset – without surrendering its history? New Guy In Town Makepeace laughs when the often-repeated comment on development comes up: New developments carry names based on things that are no longer there – for example, new roads named after wildlife that’s been crowded out of the picture by large-lot housing tracts. He recalls a meeting with landscape planner and site designer Randall Arendt, author of “Rural By Design,” who voiced this theme – “That’s the first thing he said to me!” Makepeace says. He notes that the company’s drive to meld conservation with creative development design meshed with Arendt’s phiContinued on page 14 13


After the bogs are flooded in the fall, workers use picking machines – often built in-house because they are too specialized for mainstream tractor manufacturers – to gently knock the berries off the vines. Because cranberries have a pocket of air inside, they float to the surface, and can be corralled (see photo, page 13). Continued from page 13

losophy. But after spending four decades as a cranberry grower (his first job at the company began in 1970 in one of its machine shops), he says he didn’t want to have to learn the full intricacies of a new industry. It was time to bring in someone already versed in large-scale development, someone who could work directly with the company’s host communities. Enter Michael Hogan. The first day he arrived at ADM, Makepeace recalls, Hogan went downtown to get a haircut, to mix with people in the community and to hear what they had to say. Hogan

Company founder Abel D. Makepeace

After corralling the cranberries, workers guide them into a vacuum tube which sucks them into a pump truck, where they are separated from leaves and vines.

had done much the same thing during his eight-year tenure at the Massachusetts Development Finance agency, better known as MassDevelopment, where he oversaw the multi-purpose development of the former military base Fort Devens. It has a footprint in the three towns of Harvard, Ayer and Shirley in North Worcester County. Hogan’s MassDevelopment sojourn and previously, his four-year stint as the mayor of the rapidly-developing city of Marlborough (which grew fast enough to gain an additional exit off I-495 to its burgeoning tech campuses in 2000),

were both precursors to his role at ADM.

Christopher Makepeace, the company’s seventhgeneration CEO

ADM’s eighth and current CEO, Michael Hogan

Using What You Have Communities need to be heard. Years before, ADM had engaged in an analysis to determine the best use of its vast landholdings. In 1997 it held a charrette, which led to a master plan and a three-town task force comprised of the towns of Plymouth, Carver and Wareham at the request of state Secretary of Environmental Affairs Robert Durand. That plan ended up being scrapped. The towns’ goals for themselves didn’t always

Cranberries are a commodity; people are not. 14


match the company’s goals, Makepeace says. Fast forward to 2004. Hogan worked with the three towns individually for months. Both Makepeace and Hogan say – in essentially the same words – that the company chose to optimize its assets, rather than maximize them, and to create new revenue streams from infrastructure it already had in place. Those assets include Read Custom Soils, a sand and gravel operation, and a water-andwastewater utility company, run as separate LLC entities within ADM – a historic legacy from company founder Abel D. Makepeace, who secured water rights to his farmland. He and his son also took board seats on railroad companies and hospitals. For years, the company received dump tipping fees for a segment of its land; that income stream will be replaced with the growth of sand and water revenues. In the 20th century, more summer homes became year-round homes, making control of water a critical stakehold. Today, Makepeace’s long experience with soil and water issues are essential to the success of the company’s development endeavors. Pressure on Growers to Sell As if natural resource pressures weren’t enough, fluctuation in cranberry prices, brought on by competition from Wisconsin and foreign importers in Chile, among others, has put increasing pressure on Massachusetts cranberry growers. Crop prices crashed in 2000, leading to forecasts that up to 25 percent of land used for cranberry growth could be converted to development in the ensuing years. Crop prices had plunged in 1999 from $70 per 100-pound barrel to $55, and then to $10 to $15 per barrel in 2000, while the $30 per barrel production costs didn’t budge. New strains of cranberries with higher yields also put downward pressure on prices, because the higher the yield, the lower the rate of return – rather like bonds. Then, in 2013, increased cranberry production in Canada tipped prices toward breakeven or less for farmers who weren’t members of the Ocean Spray cooperative, which shares its profits with the growers that own it (ADM

Phase One Plan

The proposed layout of RedBrook, the development within ADM lands.

is one of the co-op’s three founders). Ocean Spray had requested its growers to increase production acreage by 5,000

lage” in Plymouth, concentrated on 400 of 2,000 acres, with the remainder of those restricted to permanently protect-

As development on the Cape has boomed, smaller growers have come under pressure to sell their acreage for multiples of the land’s value as farmland. overall between 2018 and 2028. But upgrading costs to achieve that end would reportedly take many growers a decade or more to pay back. It Takes a Village, Not a Subdivision In 2007, the company proposed a $200 million mixed-use “rural vil-

ed open space. The development will include 90,000 square feet of commercial and retail space, including the Plymouth branch of the Old Colony YMCA, which serves Plymouth and Bristol counties. The Y, with 24,750 square feet, will have a childcare center with 75 slots and a health and wellness facility, and is Continued on page 16 15


Continued from page 15

set for opening this year. It will eventually feature two pools, a gym and a running track. The rest of the development would have 1,200 homes, both singlefamily and multifamily (prices start at around $300,000), as well as apartments, connected to acres of open space and miles of walking trails. “We wanted to build in Plymouth for long time,” says Vincent Marturano, president and CEO of the Old Colony YMCA. The new Y branch won’t just serve RedBrook, but will serve a larger community within a 25-minute drive of the site. “I think they’ve just done a yeoman’s job in planning the development of that community,” he adds. In 2007, Hogan noted that the company could have built hundreds of McMansions with multiple bedrooms and three-car garages over a much larger footprint, but the company had eschewed that route because of its commitment to conservation. Today, he says, large-lot subdivisions “would be an assault on the values of the family.” To sustain the company requires growth and creating income from multiple different platforms, which may not be an option for smaller growers, he says. Situated a modest distance from ADM’s Tihonet Village complex is a 67,000 square foot medical office building on Rosebrook Road in Wareham built in June 2011 on ADM-owned land. The completely leased-up facility offers cardiac care, neurologists and neurosurgeons and ophthalmologists, as well as outpatient radiology and lab services. A Larger Legacy Another thing in ADM’s favor is that relatively few later-generation family members are dependent on the business, Hogan says. They’ve become lawyers, doctors and teachers, among other endeavors. However, many Makepeace family members serve not only on the company board but on its various subcommittees. “What’s good for the family is good for all shareholders,” Hogan notes. “We’re ultimately a land company. Agriculture is the core business, but there are lots of other businesses to add.” The major16

The company’s early years; Abel D. Makepeace, second from right, front row.

The company’s Cranberry Harvest Celebration, held annually during Columbus Day Weekend since 2004. It attracts about 30,000 visitors and was designed to promote understanding and awareness of the cranberry industry – and to provide some old-fashioned family fun.

ity of ADM’s board are family members, but one-third of the directors are independent. Hogan characterizes the board as strategic, rather than operational, focused on growth and sustainability. “My role with them is to listen regarding sustainability and legacy, and how to use assets to sustain the company.” “I’m proud of my family and its values over the years,” says Makepeace. While cranberries are a commodity, people are

not. “The most important asset was people,” he says of his working career. As a postscript, ADM is in the process of adding cranberry bogs, not reducing them, as a component of the company’s transformation.  ■ CHRISTINA

P. O’NEILL IS EDITOR OF CUSTOM

PUBLICATIONS FOR THE WARREN GROUP, PUBLISHER OF MASSACHUSETTS FAMILY BUSINESS MAGAZINE. SHE MAY BE REACHED AT CONEILL@THEWARRENGROUP.COM.


Book Review

‘The Family Business’ A Lively Look at an Uncommon Family By Rachel Benoit

J

ohn DiNatale’s “The Family Business” offers a glimpse into the intriguing world of a private investigator, and the effects that the profession can have on family life. The author shares cases that the DiNatale team has worked on over the past 40 years, involving colorful characters that came from all aspects of American life – runaway kids, business tycoons, cheating spouses and gang members. The ribbon of the personal winds the text, inextricably connecting business dealings and human relationships. In a family business, DiNatale explains, the “shocks and symphonies” at home become intertwined with the daily workings of the office. The DiNatale operation started from humble origins in a windowless back room on Beacon Hill, a place where the agency could have “one arm in the troubles of wealthy families, and the other in the streets.” The founder of the investigation agency, Philip “Phil” DiNatale, was a former Boston police detective who had been tasked with catching the infamous Boston Strangler. Although Phil brought his years of knowledge and experience to the agency, the business was run by the whole family and was a combined effort. John DiNatale and his siblings became involved with their dad’s business at a young age. John remembers his first surveillance case at 16 years old in detail, “the same way other people might recall their first date.” While most fathers took their sons to baseball games, Phil DiNatale took his boys – John and his younger brother, Richard – to the gun range. The DiNatale girls, Jean and Evelyn, were tasked with typing up reports and performing office work. Phil’s wife – affectionately called “Big Evie” because of her huge spirit and boundless generosity – also played a huge role: she did the books, cooked the meals, and was “the binding that held the book together – home and office both.” The success of the business was tied to the belief that “la famiglia e tutto” – “family is everything.” John DiNatale didn’t initially intend to make a career in private investigating; he imagined his career title would have the initials of PhD, FBI or CIA. However, John was inevitably drawn into the family business and the stimulating world of a private eye, where a typical day at the office is far from mundane. The job unveiled an underlying layer of human life, or a “painting filled with a variety of characters and colors, something you can look at for years without fully seeing.” Over the years, John grew under the expert tutelage of his boss and father, who was “the main player” of the whole DiNatale operation. When Phil DiNatale passed away in 1987, John reflected that he and Richard “had what a lot of sons never have: the chance to work with our father and have a first-hand appreciation of his skills.” Under Phil’s mentorship, John and Richard grew into their positions at the family business and gained their own skill sets – Richard became a master at surveillance, and John discovered his

John DiNatale signs a copy of his book, “The Family Business.”

niche was dealing with clients and undercover agents. With his father gone, John reflected that “the long apprenticeship was over.” The apprenticeship might have been over, but the business remained. John and Richard DiNatale became partners in the private investigation agency that their father built; they even helped move the business into the 21st century by embracing new technology and tools, and by accepting what John called “the Age of the Lawsuit.” The agency moved locations and hired new staff members, and the investigators took on a new methodology – DiNatale found himself spending more time behind a computer and less time out on the streets. Although the agency is no longer the same humble operation that Phil DiNatale started in that windowless back room on Beacon Hill, the heart and soul of the business never changed. “For better or for worse,” the DiNatale brothers wanted to continue the work that their father handed down to them, and ultimately preserve the DiNatale legacy through the family business. ■ RACHEL BENOIT IS AN INTERN WITH THE WARREN GROUP, PUBLISHER OF MASSACHUSETTS FAMILY BUSINESS MAGAZINE. 17


Are You Really Covered? Homeowner Policies and Family-Owned Home-Based Business

By Deb Bouchard

F

rom a technological standpoint, running a business from home has never been easier. Smartphones, emails, fax machines, the Internet and video chat have all led to a major surge in what has been termed “homepreneurs.” In fact, it’s believed more than half of all U.S. businesses are based out of an owner’s home. Many of these people have become entrepreneurs by necessity, having been laid off during the recession and ensuing period of slow employment recovery. “These are people who did not aspire to own a business, but circumstances 18

dictated that they look at freelance opportunities and other business ventures,” said Ken Yancey, CEO of nonprofit entrepreneur mentoring group Score. When Cynthia Jermin received a pink slip and lost her dream job at an investment bank, she left with a smile and a plan. “I had a smile on my face, because I was ready. I saw it as an opportunity to embark on this entrepreneurial journey,” said Jermin. Instead of looking for a new position, Jermin, who had been assistant vice president at Credit Suisse, decided to start a business. With the financial support of her husband to avoid going

into debt, she turned her guest bedroom into an office and launched Fundamental Life Products from her house in Queens. “It was better to start small and grow, than to rent a space, rent a factory, hire people, and then, six months in, you’ve run out of capital, and you have to let everybody go,” said Jermin. When most people launch into a family-owned home-based business, they immediately turn their attention to the material means to launch their enterprise. They stock up on paper, ink, pens, dry-erase boards, push-pins and all the technological bells and whistles (com-


puter, printer, modem, etc.) so they can get up and running as soon as possible. But often they don’t consider insurance coverage. So before they know it, they have invested a lot of money and time into this venture, but never think about how they will protect it. The popular misconception is that since the business is in your home, then it must be covered by your home insurance policy. But before you make this assumption, ask yourself a simple question, “What kind of insurance should I buy to protect business: Home insurance or business insurance?” When the question is phrased like this, the answer is nearly always business insurance.

exclusion is a major financial gap in your protection. Another limitation is business property or inventory. If your home-based business has any kind of inventory, it could be inadequately protected. If your home business involves repairing computers for clients, and at any given time there could be a dozen laptops sitting on a shelf in your office, you will not be protected if there is a fire or a flood and that inventory is damaged or destroyed. Although there is some limited coverage on the home policy, the coverage is just that – limited – and with exclusions based on where your inventory may be stored.

• Do clients come to my home? • Do employees come to my home? • Do I have inventory? • Do I depend on home-based business income to support my family? • Do I have business property or equipment? If you answered yes to any of these questions, you should request an insurance review of your home and homebased business exposures. Starting a home-based business has many potential rewards. After all, Apple, Hershey’s, Mary Kay Cosmetics and even the Ford Motor Company all started out of somebody’s home. But when-

Although there is some limited coverage for certain types of small business activities on a home policy, most policies have several exclusions for anything business-related. Although there is some limited coverage for certain types of small business activities on a home policy, most policies have several exclusions for anything business-related. Since the home policy is designed to protect a home, with its normal risks and exposures, the home policy needs to limit or exclude areas not normally associated with a home. So don’t assume your home insurance will protect your small business activities. According to an article in Entrepreneur magazine, one reason owners forgo insurance is confusion over what may be already covered by a homeowner’s or a renter’s policy. But most home-business owners have little or no coverage from their homeowner’s policy. People don’t realize that if the UPS guy comes to their home office with a business package in his hand and slips and hurts himself, there is no coverage for that injury in their homeowner’s policy. Herein lies a major problem. The most costly exclusion on a home policy may be in the area of liability. Most home policies provide comprehensive liability protection of $300,000 for normal home activities, but the policy will specifically exclude most business activities. With today’s legal system, liability

A business policy that is based on your type of exposure will cover your business liability. You can also choose the amount of liability protection to meet your needs. A business policy is designed to protect your business property and inventory with increased limits that you choose, and better coverage for where you choose to store them. What can solve the problem for many family-owned home-based businesses is an in-home policy, which covers a broader spectrum of contingencies, including loss of critical documents or theft of funds being taken to the bank for deposit. An in-home policy is a plan against injury or theft covering as many as three employees. Rates typically run from $250 to $500 and the plans can cover as much as $10,000 in losses. “Most serious home-based business owners may want to consider picking up at least an in-home policy,” said Rebekah Marshall, multiproduct insurance manager at the National Federation of Independent Business. “This covers business equipment and liability [for injury],” she said. “That’s important if people are coming in and out.” So if you have a home-based business, ask yourself these important questions:

ever there are rewards, there are usually just as many risks. Starting up a home business is stressful enough without worrying if you have enough insurance to protect your investment, or believing erroneously that your homeowner’s insurance is a necessary umbrella to protect you should a hard rain fall. Even with optional business coverage, most homeowner policies fall woefully short of covering the needs of most home-based businesses. Homeowner’s policies don’t cover many of the common risks, which in the event of an uninsurred loss can not only put your business in peril but also may put your personal assets in peril. If you’re doing business at home, you’re smart to have insurance. Because at the end of the day, the amount of sales you generate doesn’t matter. The amount of loss you could face should something go wrong could wipe out all your sales and then some. ■ DEB BOUCHARD, CISR, IS A PERSONAL RISK ADVISOR WITH OTTAWA KENT INSURANCE IN JENISON, MI. SHE HAS CLOSE TO 30 YEARS EXPERIENCE IN DEALING WITH ALL ASPECTS OF PERSONAL LINES INSURANCE, INCLUDING HOME-BASED BUSINESSES. SHE MAY BE REACHED AT DBOUCHARD@OTTAWAKENT.COM. 19


How Much Should You Pay Family Members?

Balancing Family Ties with What’s Best for the Business

By Joe Ciccarello

T JOE 20

he dynamics of a family-owned business can be very different from those in a non-family corporation. Personal history, differences in personality and emotions, that can be dismissed in a corporate setting, can take center stage when the company is familyCICCARELLO

owned. There is no more sensitive topic in a family business than that of compensation. Who gets paid, how much they earn and who controls the level of compensation are issues that, if left unresolved, can tear a business apart. Let’s be clear right up front: family members should receive compensation that is commensurate with their role within the company and their perfor-

mance. The problem lies in objectively measuring that performance, then having the courage to tie it to compensation. Many people assume that the spouses, children, cousins and in-laws working in a family-owned business are paid more than their non-family co-workers, simply because they are part of the family. Unfortunately, this is true in many cases. We’ve seen many instances where the


child of the company owner earns an inflated salary that is far out of proportion to his or her contribution to the bottom line of the business. The opposite can also be the case: family members may be compensated at a lower level than others in their position at similar, non-family companies. The reasons for this are as varied as the differences between family-owned companies. Some family members “apprentice” at a young age in an entry-level position, making the rise to an equitable level a slow process. Or the family may choose to keep salaries artificially low to avoid the perception of nepotism. Neither situation is good for business. But resolving such conflicts and inequalities is tricky. The challenge is that the lines between employee and ownership are often blurred in a family business. In a corporate setting, these issues are resolved by keeping the focus on what is best for the business. This is not an easy route to take in a family business, where personalities and emotions can make impartial decisions difficult. Can a parent give an honest assessment of the work performance of his or her own child? How does a business owner go into the office on Monday and tell her brother-in-law, who was at the house for dinner on Sunday, that his job performance does not warrant a salary increase this year? Making sure compensation is fair for both family members and non-family employees requires a laser focus on the needs of the business. The owner of a family business must be strong enough to make difficult decisions that are in the best interest of the company, even if it means choosing which member of the family is best suited for appropriate positions, which may command different salaries. The decision is not always easy or clear cut. Here’s a typical example: Son Ted has never worked in the family business. Instead, he went to college and earned a

degree in business management, then served in leadership positions for several organizations, with a focus on strategic planning. Recently Ted has expressed his desire to finally join the family business, bringing the skills and experience he has developed “outside” to the family table. Daughter Amy, on the other hand, has worked in the business since she was a child. Over the years she has learned how to do almost every job in the company, from driving a delivery truck, to scheduling work shifts, to purchasing raw materials. Her loyalty to the business is unquestioned. Which child should run the business? Who should get paid more? Is it possible to escape the inevitable family tension that will result if Ted is brought

company and its practices. They can bring experience and ideas from other businesses and industries that may be applied to a family business setting, including a sense of appropriate levels of compensation. • Clearly define positions and roles within the company with job descriptions that outline the responsibilities of the position and the qualifications necessary to fulfill the position. The level of responsibility and required skill set can then dictate the salaries of the various positions. • With clearly defined positions, roles and skill sets, you can determine which child is best suited for each role and the corresponding salary they should receive. This can also help to determine whether or not

How does a business owner go into the office on Monday and tell her brother-in-law, who was at the house for dinner on Sunday, that his job performance does not warrant a salary increase this year? into the family company? What if cousin Buford needs a job and wants to join the family business but does not possess the skills or experience required? What is the best decision for the business? The solution to overcoming these vexing problems is to establish company policies to provide guidance. • Have a business plan and vision and make everyone aware of them. This drives the decision making of the company so decisions are based on logic and reason and not emotions. There must be a clear line between family and business when it comes to making decisions. It is essential that the decisions be made in the best interest of the business, not necessarily of the family. • An outside board of advisors or an independent compensation consultant can play an important role by providing an objective view of the

there is room in the company for all siblings (and cousins, etc.). Not all will have a skill set needed to make the company successful. Avoid creating “make work” jobs that can drain the company budget and sow dissent among those who are making a difference for the business. In the end, clear expectations, open communication and a resolve to put the needs of the business ahead of family politics is the best way forward. Family members who make a meaningful contribution to the growth and success of the company are the key to continuity from generation to generation. They deserve fair compensation for their performance.  ■ JOE CICCARELLO, CPA, MST, IS THE MANAGING PARTNER OF GRAY, GRAY & GRAY LLP, CERTIFIED PUBLIC ACCOUNTANTS. 21


Massachusetts Earned Sick Leave Law Update Attorney General Issues Limited Safe Harbor For Employers With Existing PTO Policies By Tracy Thomas Boland

O

n May 18, 2015, the Massachusetts Attorney General’s Office released a statement providing that some employers with existing paid time off policies will have a safe harbor for complying with the Massachusetts Earned Sick Leave law through Dec. 31, 2015. The Sick Leave Law was approved by Massachusetts voters on Nov. 4, 2014.The law provides for earned sick time for employees at businesses of all sizes and goes into T R ACY T H O M A S B OL AND effect on July 1, 2015. Employees can use this leave for a variety of reasons, such as to care for themselves or a family member when ill, for routine medical appointments or to tend to the effects of domestic violence injuries. As any employer knows, there already exist a plethora of laws providing for leave for illness and injury (Family and Medical Leave Act, Small Necessities Leave Act, Americans with Disabilities Act and the Domestic Leave Law, to name a few). The new Sick Leave Law presents particular challenges to employers in Massachusetts. Impacts Of The Safe Harbor Notice Employers that had a policy in place as of May 1, 2015, by which the employer offers all employees at least 30 hours of PTO in calendar year 2015, are now considered to be in compliance with the MA Sick Leave law through Dec. 31, 2015. Employers that had a policy in place as of May 1, 2015, by which the employer offers some – but not all – employees at least 30 hours of PTO in calendar year 2015 are considered to be in compliance through Dec. 31, 2015, only as to those employees who currently receive the 30 22

hours of PTO. Employers that grant a PTO allowance of 30 hours to those employees who do not currently receive the 30 hours, you will be considered to be in compliance as to all employees. Employers that do not extend the conditions of their pre-existing policy, or at least 30 hours of PTO, to the other employees, will be required to create a new policy for them that fully complies with the Sick Leave Law by July 1, 2015. The safe harbor does not help at all any employers that had no policy in place as of May 1, 2015, by which the employer offered at least 30 hours of PTO to any employees. They will be required to create a new policy that fully complies with the Sick Leave Law by July 1, 2015. Employers able to make use of the safe harbor will be in full compliance as long as they (1) provide this leave as job-protected leave and (2) comply with the law’s nonretaliation and non-interference provisions. Otherwise, they are free to administer this PTO per the terms of the policy in effect as of May 1, 2015. Nevertheless, on or before Jan. 1, 2016, all employers – including those operating under this safe harbor – will be required to comply fully with the terms of the Sick

Leave Law. The attorney general intends to issue final regulations by June 19, 2015. Massachusetts joins Connecticut and California – as well as a growing number of municipalities across the country – in requiring employers to provide earned sick time for employees. Undoubtedly, the policy behind this guaranteed sick time is sensible. No one wants to worry about losing their job because a child has the flu or an elderly father is in the hospital. However, this law brings yet more costs to employers of all sizes, including impeding an employer’s ability to control attendance. The smallest employers (fewer than 11 employees) must go without the help or pay for coverage when these employees are absent. Employers with just 11 or more employees will be required to add this amount of paid time off to an already costly salary and benefits package. In some businesses, the impact of this law may be the reduction of other benefit plans to account for the added cost this law imposes. ■ TRACY THOMAS BOLAND IS A PARTNER AT BOSTON LABOR AND EMPLOYMENT LAW FIRM MORGAN, BROWN & JOY, LLP. SHE CAN BE REACHED AT 617-788-5052 OR AT TBOLAND@MORGANBROWN.COM.


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Profile for The Warren Group

Massachusetts Family Business Summer 2015  

In this issue, nominations for the Family Business Awards are open; AD Makepeace keeps the cranberry business afloat; and an update on the P...

Massachusetts Family Business Summer 2015  

In this issue, nominations for the Family Business Awards are open; AD Makepeace keeps the cranberry business afloat; and an update on the P...