How to Hand Down the Family Business – Part 1

Between C.H. James III, his father, his grandfather, and his great grandfather, the James men have learned that making changes to benefit C.H. James & Co. has always been central to the company’s success, whether they were focused on poultry and egg distribution, serving multinational brands like Yum! Brands and Darden Restaurants, or owning Burger King franchises. But another key to their success was making leadership changes in the appropriate way and at the appropriate time.

For example, when Chuck James III bought his father’s eponymously named international wholesale food distribution and food processing company in 1988, sales had dropped from $4 million to $2.6 million in just three years. Although his father had run the company successfully for many years, the economic times had become difficult right when he had planned to retire. When the fourth generation James took over the Charleston, West Virginia-based company, which was founded in 1883, he created an investment holding company through acquisitions, partnerships, and divestitures that allowed the family business to regain its market strength and grow sales to $20 million by 1992. It was a strategy his father wouldn’t have done, but one that saved the company. Now, the company’s sales are approaching $60 million.

When passing a business down from an older to a younger generation, disagreements are sure to arise. Yet there are preventative measures families can take to make sure the transition of power is made smoothly and peacefully without compromising the well-being of the company. Here are James’ tips on making a successful transition

from older to younger generations in a family-run business.

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For the predecessor:
Be wary of the “allowance to salary program.” Your kid shouldn’t go directly from getting an allowance to getting a salary from you after graduating from college. “There needs to be an interim step to encourage the next generation to work

outside of the business for a while before joining the family business,” says Chuck James III, who worked for the Continental Illinois National Bank and Trust Co., now a part of Bank of America, before joining his father’s company. “You can’t handle your boss like you handle your dad. But when your dad is your boss, those lines can become blurred.”

For the successor:
Go out into the world. Get experience outside of the family business, get promoted, succeed, and then return. Learn the standards for professionalism and value-added skills that you can bring back into your parents’ company. “A lot of times, kids become adults and [their parents put them through college and give them a job]. They wonder if they could have done any of this on their own or if they are eternally indebted to their father or mother,” says James. Also, employees might think the only reason they are the boss is because of who their father is. By leaving, you know that you were on the fast track outside of the family business–you had a career, but you came back to help. It helps for the other employees to know that too.

For the predecessor:
Adapt to changes.  Normally, the younger generation wants to come in and try new things, says James. The older generation remembers what solutions worked well for them. “I used to say to my father, ‘Daddy, did you run the business in the 60s and 70s the way your father ran it in the 40s and 50s?’” James remembers. “He would say, ‘Well, no son. I had to make changes.’ And I would say, ‘So what makes you think I can run the business in the 80s and 90s the way you ran it in the 60s and 70s?’”

For the successor:
Honor your history but keep your eye open to the ever-changing economic landscape. Business cycles are faster and faster. Be able to shift strategies if need be. What may have been a sure thing a generation ago, will not be now.

For the predecessor:
Have a well-defined succession plan in place. Know when you will retire. Some founders will hold on to the very end, sometimes until it is too late. It can be challenging if the next generation doesn’t know when or if they will be able to take control or stretch and do their own thing.

For the successor:
Discuss and define your transition into power. Make sure there is a very defined timeline as to when you will succeed your predecessor. Outline a plan to ensure that you are exposed to all of the relevant operations of the business. Also, there are certain milestones that you need to accomplish. For example, you might agree that you need to be in sales for three years, in finance for three years, production for three years, and then you will take control as CEO.

Check back next week for more tips from Chuck James III on preparing your company’s next CEO.