Son, Daughter, Cousin ... Next Boss?

Choosing the next family member to head a family business can leave a house divided and an enterprise in ruins. Here's how some families with Notre Dame ties are trying to do it right.

It was the toughest decision Joanne and Art Velasquez (’60) would ever make. In 40 years of running their own company—starting a tortilla-based Mexican-food business with nine close friends and a total investment of $80,000; buying out their partners as the enterprise started to grow; selling out to Pillsbury and then buying the company back; overseeing its expansion into a 120,000-square-foot, state-of-the-art manufacturing facility—none of it was as tough as stepping aside and naming a new president to take over for Art.

There were many options: Three of Art and Joanne’s six children—Renee, Art II (’87), and Nannette—were actively involved at Azteca Foods Inc., the family focused business best known for its flour and corn tortillas. Both Renee’s and Nannette’s husbands worked at the company, as did Joanne’s brother, Jim, and his wife. Their youngest daughter’s husband runs an Azteca affiliate. Also standing in line were grandchildren, another generation which soon could be queuing up for a place atop the company.

The first decision was simple: After four decades, Art would step down from his post as president/CEO. Art and Joanne would continue to serve as chairman and vice chair of the board.

But someone needed to take on the president’s job.

And two of their children wanted it.

Renee Togher was vice president/marketing and sales for Azteca Foods’ retail division. And Art II held a comparable position in the company’s food-service business and also was heading up Baja Foods, a spin-off company which sells frozen foods such as tamales and burritos to retail, school and military clients.

“It was very difficult,” Joanne says. “As parents, you look at your children one way. But now we had to make a different kind of choice. We had to make a business decision …”
 

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Preparing for the transition of a family business is clearly a daunting enterprise. It’s easy to see why only one-third of U.S. family-owned businesses survive through the second generation hand-off; and only 12 percent make it through the transition from second- to third-generation ownership.

Generational succession has been a dicey proposition throughout history and has long made for plotlines in literature brimming with greed and jealousy. When Shakespeare’s aged King Lear decides to divide his kingdom among his three daughters, disaster ensues, leaving all four dead.

In an article titled, “Why your son or daughter should not inherit your business,” the late author and sales guru Sid Friedman recalled the case of Warner LeRoy, owner of New York City’s landmark Russian Tea Room. When LeRoy died in 2001, he left the business to his 22-year-old daughter. One year later it closed its doors forever.

Leonard Shoen, founder of the U-Haul truck and trailer-rental business, had 14 children and made all of them stockholders in the company. By 1986, the patriarch had all but removed himself from ownership. It was at this point that two of his sons mounted a successful takeover. The feuding surrounding the event produced lawsuits, physical altercations between brothers and, in 2003, Chapter 11 bankruptcy for the company, according to a report in U.S. News & World Report.

Chris Eckrich (’85), a consultant and family business adjunct professor in the Mendoza College of Business, comes from a happier family-business story. His paternal great-grandfather, an immigrant from Waldsee, Germany, founded a meat-packing business in Fort Wayne, Ind., in 1894. Over the course of the next century, Eckrich meats passed from one generation to the next until Beatrice Foods bought it in 1972. And that’s just one part of his family. On his maternal side, a fourth- and fifth-generation family construction company founded in 1890 is the other half of his business DNA.

Eckrich is now a principal in the Chicago-based Family Business Consulting Group, Inc., a 16-year-old consortium of 23 consultants who work with family business owners throughout the world and have consultants based in Great Britain, the Netherlands, Canada, and the United States.

As Eckrich has seen, family businesses come in all sizes and industries and face different challenges. But the one issue they will all face is succession.

“The idea of transition—of letting go—is a topic that the senior generation of a family business often doesn’t want to discuss,” he says. “They know it’s time to go, but it’s very difficult to do … I used to think of succession as a baton pass from one individual to another, but few businesses transition in this way. For most, it is a gradual process over time.”
 

The Right Moves

When Charles Dosmann started his own business in 1971, his focus was on feeding his family. Dec-O-Art, his vision for a company that would produce warning and information labels for the local recreational-vehicle and manufactured-housing industries, started in an 800-square-foot converted neighborhood grocery store. It was a right-place-right-time decision. Seventeen years later, when it came time for retirement, he’d not only provided his family sustenance, but he’d also carefully planned a career path for the next generation of Dosmanns.

The process started in 1984 when the second generation began to move into management.

“My father knew he was going to retire,” Carl Dosmann remembers, “and he basically informed us that we’d need to form a family council and begin formal business meetings. Over the last 20 years, we’ve since developed a number of family and spousal employment programs and a code of conduct for family members.”

Charles Dosmann’s 1984 plan was that oldest son Tony would take on the president’s role with sons Carl, Dan and Fred joining him in senior management. In 2006, Dan retired and another brother, Ron, joined the management team. And, as the company’s plant footage has increased from 800 to 30,000 square feet, so has the engagement of the Dosmann family in Dec-O-Art.

Over time, they have brought younger members of the family gradually into the company.

“Way back in high school, we offer the kids summertime employment. They come in and mow the grass, work in production, and get an idea of how well they fit in,” Carl Dosmann explains. “And the people in the company get to know them as well.”

During college, he says, they work as their studies allow, and the introduction continues. “They go through a meet-and-greet process with other employees, and we get feedback from both sides as to how well they fit in with the company.”

For family members who aspire to management positions, however, the Dosmanns do have one rule: Get out.

“We don’t want to become cloistered to the extent where our culture is the only culture they experience,” says Carl.

Although there are open opportunities on non-management tracks, anyone with eyes on the front office is required to go elsewhere to develop other skills that they can bring back to the family business. For instance, Nathan, Tony’s son, joined the firm in the spring of 2010 in an information-technology post after working for seven years as a database manager at Notre Dame.
 

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Louis J. Andrew Jr. (’63) is chairman and CEO of Guaranty Service Group (GSG), a financial-services company he founded in a single room in the back of his law office in Fond du Lac, Wis., in 1984. Andrew remains the public face and the driving force of an organization that has grown to include more than 80 employees, a couple of subsidiaries, and a number of businesses that have been merged into GSG through acquisition. Over time, the company has expanded offerings to the real estate market beyond abstract and title services, to include mortgage tax and flood hazard offerings.

At present, Sara, 32, the youngest child and president and COO of a GSG subsidiary, is the only member of the next Andrew generation to hold a titled management position.

“It’s a chance for her to get her feet wet, to prove herself,” Sara’s father explains. But it’s no guarantee of a promotion into management of the parent company.

“The key is having the best people. We’re a meritocracy and this is a way we think we can encourage a family member who can rank up with people we bring in from the outside,” says Andrew. “She has a business of a sufficient size to run. We’ll monitor what she’s doing and help her. But she’ll have to be successful over time to stay in that position.” That’s a lesson one of her siblings learned as a young man when he decided to leave the company after a less-than-gratifying experience.

The Andrews are serious about balancing family versus non-family input in the company’s governance, too. Louis Andrew and his wife, Sue, occupy the family seats on the company board of directors and share corporate oversight with four non-family directors drawn from the business community. The five adult Andrew children serve on a family council, whose by-laws call for regular formal meetings once or twice a year.

Andrew says he opens the books at family council meetings by reviewing financial statements and strategic plans for each of the companies and assessing net worth. “Let them ask whatever they want,” he says. “We talk about how much the business supports the family and which charitable contributions will be made. I tell each of them, ‘You have a stewardship role, and help them understand what that entails.’”

In addition, the council has been charged with electing the two Andrew siblings who will eventually replace their parents on the board of directors.

The council brings the entire family together for business and recreation. Two to three hours of each formal meeting is given over to a family forum in which all Andrews, including the spouses of the married children, get an equal voice. And there’s a formal mechanism that ensures full participation.

Sue Andrew volunteers in a restorative justice program. To get perpetrators and victims talking freely, they are brought into a circle and a stone is passed until it makes its way around the complete circle. Whoever holds the stone has the floor.

“It’s a tradition that we’ve brought into the Council,” says the chairman/CEO. “If you have the stone, no one can interrupt you. It gives all the family members a chance to say whatever they want to say about the company or the family.”

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Family relationships are inherently tricky, says James Davis, the John F. O’Shaughnessy Professor in Family Business at Notre Dame, but a strong family enterprise can provide a sense of purpose for the family, which often bonds family members together.

“People in an organization can get angry and crack it apart,” he says. “In families, you work things out. It’s much harder divorcing your parents or your siblings.”

Davis’ research bears this out. He surveyed family employees and non-family employees working at family enterprises and found that the family employees were 27 percent more committed to the company than their non-family counterparts.

An example of that commitment is Fogel de Centroamerica, S.A. The commercial refrigeration business traces its lineage back to Philadelphia and the turn of the 20th century. Expansion into Nicaragua brought the Tefels, a new family of partners, into the Fogel family business. The enterprise flourished under the management team until it was confiscated by the Sandinistas, Nicaragua’s socialist party, in 1981.

The Tefels fled to Guatemala City, where they all but had to restart the company from scratch, beginning production of refrigerators in a tiny warehouse with 12 employees. Twenty-nine years after relocation, the Tefels are sole owners of the business and have added a new plant in Colombia. The company’s workforce has grown to more than 1,000. Last year, Fogel broke into the African market with 10,000 of its refrigerators being purchased by a South African brewery to cool beverages for the millions of soccer fans attending the World Cup.

Today, three Tefels head up the business. Jacobo Tefel Sr. is chairman; Jacobo Tefel Jr. is CEO and Federico Tefel (MBA ’02) is vice president/operations.

Says their father, “Even though [my sons] don’t always agree when it comes to the priorities of certain projects—and even though they both have strong personalities—they share many values such as responsibility, honesty, loyalty, excellence, respect, teamwork and perseverance, all of which guide them in their daily lives.”

They also oversee the work of four other family employees: three third-generation grandchildren and the husband of one of Jacobo, Sr.’s daughters—a group responsible for management, sales and customer service for the company.

Says the family patriarch: “There are seven of us who have lunch together every day. Of course, the subject of business predominates in our conversation, yet we frequently joke around and try to have a good laugh.”
...
 

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How did the Velasquezes resolve their succession dilemma at Azteca Foods?

Matriarch Joanne Velasquez says she and her husband, Art, together with the board, looked at the qualifications of their two children who wanted to be president, Art II and Renee Togher, and saw they had “two perfect people who would make a perfect president.”

Which didn’t help.

To make the “impossible” choice, the Velasquez brought in a facilitator—a third party who could objectively present the options for the next-generation leadership.

In the end, the decision came down to practical concerns.

“Our retail business is our bread and butter. And Renee had strong experience in retail,” says Joanne. That background won her the presidency in January 2009.

So far the decision has worked out.

Renee’s experience in marketing and sales has helped expand the retail operation. Art II’s entrepreneurial energies are reviving Baja Foods.
It was an opportunity that seems to have been just waiting for him, according to his mother.

“We got involved with Baja Foods,” Joanne Velasquez says, “and didn’t do very well with it. So, we passed it along to Art II. For him, it was an opportunity to have a fantastic hands-on education. And, little by little, he is turning Baja Foods around.”