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Sunday, 07 August 2016 13:34

West Michigan family businesses adjust to new realities

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CEO Marc Schupan says the future for Schupan & Sons Inc. — whether it will stay in the family or pursue a sale of some sort — remains somewhat up in the air. The reason: Like many family-owned businesses, the Kalamazoo-based industrial recycler has not finalized its strategy for succession. CEO Marc Schupan says the future for Schupan & Sons Inc. — whether it will stay in the family or pursue a sale of some sort — remains somewhat up in the air. The reason: Like many family-owned businesses, the Kalamazoo-based industrial recycler has not finalized its strategy for succession. Courtesy Photo

The company CEO Marc Schupan runs today barely resembles the Schupan & Sons Inc. he took over more than 40 years ago following the sudden death of his father. 

The Kalamazoo-based industrial recycling firm began with fewer than 10 people and now employs about 500 employees over multiple divisions with 13 facilities in four states. Family members, including two of Schupan’s three children, his brother, son-in-law and two nephews, work in various roles in the company, with some in charge of entire corporate divisions. 

Given the complexity of the business and the added family dynamic, Schupan says it’s important to ensure that family members are in proper roles and — even more importantly — that he avoids playing favorites. 

“You try to find the strengths of family members, and if they are involved in the business, they have to add value,” Schupan said, noting he hopes to recruit his youngest son back to the family business from his technology job in California. “I always think there’s more responsibility, not less, if you’re a family member. It’s not an entitlement situation by any stretch.”

From navigating family dynamics to operating in an increasingly global economy, West Michigan’s family-owned businesses face an onslaught of challenges, particularly as many long-time owners explore their exit strategies. 

As such, it’s crucial for family business executives to ensure they’re fostering the next crop of leaders to step in when they’re ready to pass the torch, according to Ellie Frey Zagel, the director of the Family Business Alliance, a Grand Rapids-based advocacy organization for family-owned businesses in West Michigan. 

The Alliance’s membership is laser-focused on leadership development for next-generation executives, including teaching up-and-coming family members how to “gain credibility” in companies they may be taking over and how to demonstrate they’re separate from previous generations of leadership, Frey Zagel said. 

“You have fiduciary responsibility to everyone, so the worst thing you can do is put somebody as a president or to lead the company just because they’re family,” Schupan said. 

After more than 40 years running the company and leading it through multiple phases of expansion, Schupan notes it’s that fiduciary responsibility that weighs on him as the firm goes through a somewhat undefined succession process. 

“I plan on living forever and so far I’m doing OK,” Schupan jokes when asked what that process looks like. 

Whether he opts for an exit by acquisition or to leave the company to family or to other top executives remains unclear, he said. 

“I’m at a point … because of age, when we make a decision, whether it’s acquisition or to do something (else), it’s not just Marc Schupan anymore,” he said. “Even if you think it’s a benevolent dictatorship, that’s not the way to go.”

Schupan & Sons’ somewhat murky succession planning strategy falls in line with the findings of academic research on closely-held, family-owned companies. 

According to a 2014 survey by Grand Valley State University’s Family Owned Business Institute (FOBI), just 19 percent of family-owned businesses have formal, written succession plans in place, while slightly more had emergency plans in the event that the current leader became incapacitated. 

LOOKING AT NEW DEALS

While executives at family-owned businesses have always had to contend with figuring out how to leave their company to the next generation of family or deciding to explore another option, experts in the field say that younger family members are increasingly using their entrepreneurial know-how and family resources to start new ventures. 

“We call it enterprising families,” said Joseph Horak, a consultant working with family-owned businesses and the previous director of the Family Owned Business Institute. “(The older generation) may be more interested in passing on entrepreneurship than the specific enterprise. If the family business isn’t the passion for the next generation, they may sell but still create an enterprising family for the next generation.” 

Laurel Ofstein, an associate professor of management at Western Michigan University in Kalamazoo with a focus on the study of family-owned businesses, described the practice as creating a “family-owned venture capital fund.”

Indeed, John Grzybek, director of family and foundation services at Greenleaf Trust, a Kalamazoo-based wealth management and trust-only bank, said new generations are increasingly interested in new ventures separate from the long-time family business, necessitating the formation of new family offices. 

“This is a trend that is dramatically different than when I entered the business in 1998,” he said. “The family is actually setting up their own funds to do deals in.”  

Grzybek described the process this way: If a family sells a business and has $75 million left over after taxes because the next generation had no interest in being involved in the enterprise, they could structure the family office as a pyramid with the older generation at the top and the younger generation pitching them on potential new deals. 

“The family wants to maintain the destiny of the wealth,” Grzybek said. “Now you have the kids saying let us help and not being passive. New generations (appear) more interested in getting into the new economy.”

ADJUSTING TO NEW ECONOMIC REALITIES

Family-owned businesses that began decades ago as small operations and grew either organically or through acquisition now find themselves at the whims of an increasingly global marketplace, according to academics who study the dynamics of family-owned business. 

Many of them no longer fit the description of mom-and-pop companies, as they’re often stereotyped. 

“I think (family-owned businesses) are definitely more in line with broader, global trends. I don’t think they’d be around if they were still working the same way they were 20 years ago,” WMU’s Ofstein said. “Just because they’re family-owned doesn’t mean they’re outside the competitive forces of the market. I think most have really modernized. So many started from a very small scale and had to grow and modernize.”

Indeed, Schupan notes that as his company has taken on new endeavors in the sphere of industrial and scrap recycling, Schupan & Sons finds itself with more of a global perspective than he ever could have expected. 

“What happens on the London Metal Exchange today affects us,” Schupan said. “(The business) is much more sophisticated.”  

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CLARIFICATION: In an initial interview with MiBiz, Marc Schupan said the company was keeping its options open for the future, which included possibly pursuing a deal. In a follow-up with MiBiz after this story was published, Schupan clarified that the company plans to remain in the family, but that it “might do a joint venture to strengthen the company.” In the follow-up, Schupan also said that the company has a “strong succession plan in place” to groom family members to run it.

Read 3660 times Last modified on Thursday, 11 August 2016 17:48

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