Family-owned companies often do what they can to keep their businesses in the family, but at times, that’s not always prudent.
Case in point: Ada-based general contracting firm Erhardt Construction Co. will complete a nearly decade-long transition process on Dec. 31, 2017, when long-time President Ben Wickstrom will assume majority ownership and leadership of the 55-year-old company. Wickstrom will take over from the company’s current second-generation owner, Chairman and CEO Joe Erhardt.
Wickstrom was first identified as the next-generation leader and majority shareholder of the family-owned company in 2009 and has slowly been buying stock since, as well as taking on more leadership roles, he told MiBiz.
“The leadership piece of the company came first,” Wickstrom said. “The leadership is an important thing in my opinion in any family business. For us, there was always a bit of a separation between the ownership and the leadership, and the leadership came first.”
A nearly decade-long transition process actually makes for somewhat of a best practice, according to experts who study the dynamics of family-owned businesses. It generally takes between six and 10 years to identify the right person — whether it’s a family member or not — and then train them for leadership as well as communicate that plan to employees and other company stakeholders, experts said.
The well-planned transition process is a bit of a rarity in family-owned companies, according to a 2017 report from international consulting firm PricewaterhouseCoopers. According to the firm’s research, only 23 percent of family-owned companies around the U.S. have a “rigorous succession plan,” and just over half say they plan to keep the company in the family.
Locally, about 29 percent of West Michigan’s family-owned companies expect that their next top executive will come from outside the family, according to a report released in May by the Family Owned Business Institute, housed within the Seidman College of Business at Grand Valley State University.
Ana Gonzalez, director of the Family Owned Business Institute, said transitions outside of the family after the first generation are rare, but become more common as a company is passed down through generations.
“It’s most likely to happen because they’ve gone through the process once and they know what it takes to go through a succession,” Gonzalez said. “You understand that you need to have someone prepared and fit to take over in a responsible way so that (the business) survives across time.”
While handing over leadership to a non-family executive may be increasingly common, transferring majority control — as Erhardt Construction plans to do — remains quite rare, Gonzalez said.
No terms of the Erhardt deal were made public.
Once Erhardt Construction’s transition is complete, Wickstrom will add the CEO title. Erhardt will remain as chairman and serve as an adviser when needed. The company’s vice president, Taggart Town, will also have a minority stake in the company.
The executives declined to discuss specific internal and family matters, including whether other Erhardt family members were considered for leadership roles at the company.
However, Erhardt said that tapping Wickstrom was a way of making sure that the “exceptional leader” felt valued at the company.
“Our business, like many, is very complex with lots of moving parts and an enormous amount of risk,” Erhardt told MiBiz in a text message. “Sometimes there are family members with the drive and talent to take that on; other times, you want to find the best non-family leaders to do it. Talented people that don’t see that opportunity will go elsewhere to find it.”
Erhardt added that when he first began exploring a transition process, other possibilities such as selling to an outside entity or liquidating the firm’s assets were dismissed quickly because of the effect they could have on Erhardt Construction’s 68 employees.
“After that decision was made, we developed a plan to transfer ownership over a period of time,” Erhardt said. “This year is the culmination of all of the planning and efforts.”
As family-owned companies grow, scale and become more sophisticated, many bring in outside, non-family members as top executives, often as a means of professionalizing the company, sources said. (See roundtable discussion on page 21.)
Some non-family executives told MiBiz that they see their role as being a counselor as well as being somewhat of a buffer when family dynamics come into play.
Wickstrom, for his part, said he’s never experienced family drama during his 20-year tenure at the company. That is due in part to the Erhardt family’s ability to separate business and family matters, largely as a means of ensuring the company can continue to attract a skilled workforce, he said.
“I can tell you that for me it has always been nothing but a completely positive experience,” Wickstrom said. “The reason it has been positive is because of Joe Erhardt’s dedication, approach and knowledge regarding what it takes to successfully run a family business. I think he was always very thoughtful and forward thinking when it comes to the dynamics (within) a family business and making sure this was a healthy environment to attract talented people.”
That the company has been able to keep business dynamics from colliding with family politics isn’t always the norm, according to family business experts.
“I really feel strongly that you do need to have family time, and family time needs to be different than business time,” said Ellie Frey Zagel, director of the Family Business Alliance, a Grand Rapids-based advocacy organization for family-owned businesses. “That’s one thing that family businesses don’t necessarily do well.”
West Michigan’s family-owned companies play a significant role in the region’s economy, according to the May report from GVSU’s Family Owned Business Institute.
The organization reported that 65 percent of jobs in West Michigan come from family-owned businesses, contributing about $25.8 billion to the region’s economy.
Similar to Erhardt Construction, some of West Michigan’s largest family-owned companies have gone outside the family recently.
In the last year, both Walker-based Meijer Inc. and Wyoming-based Gordon Food Service Inc. tapped non-family members to lead the companies as the stand-alone chief executive for the first time in their histories.
The reasons for why a company might turn outside the family for new leadership are many and varied, according to sources contacted for this report.
Gonzalez with the Family Owned Business Institute noted that transferring leadership and ownership outside the family can be a sensitive manner for many companies, particularly as family-owned businesses have a certain level of pride in their structure.
Wickstrom, for his part, is quick to downplay that the transition underway at Erhardt Construction makes for any kind of critical inflection point for the company.
“The significant change is the message we’re sending to the public,” Wickstrom said. “Internally, in terms of leadership, strategy and direction, it’s not a significant change. This has been in process for eight years. It was a well-planned event. Leadership has been turned over to me and my executive team for quite a long time. There’s no major change coming.”