Friday, March 29, 2024 Mar 29, 2024
59° F Dallas, TX
Advertisement
Business

When Family-Owned Businesses Pass the Baton

When it comes time for the kids to take over, family-business owners need to communicate honestly and follow clear-cut exit strategies.
By Pamela Gwyn Kripke |
FAMILY TRADITION: Louise Eiseman and her son, Richard, work as partners at the jewelry store she founded with her late husband.
photography by Joshua Martin

Louise Eiseman thinks about the question, her petite frame ably supporting a strand of impressive pearls.

“I certainly wasn’t coddled,” her son Richard had stated, confidently. “Was I?”


Mrs. Eiseman, who with her late husband Richard Sr. founded the 45-year-old jewelry business that bears the family name, sits elegantly on an office settee.


“I think you were not coddled,” she says carefully. “But you had some of the advantages.”


Ah yes, those.


For younger generations who’ve assumed the helms of family ships—long-standing, thriving companies built by parents, grandparents and, less frequently, the greats and great-greats—lineage has its rewards. But it also carries the weighty responsibility of maintaining the course and steering it into future seas—if, of course, the kids are selected for the job in the first place.


Because the family business is a particular kind of animal—an unemotional corporate entity founded upon personal blood relationships that are, by definition, emotional—the task of transferring wealth sets it up for risk. Add to the mix a last name emblazoned on the side of a building, every wristwatch box, or car chassis, and the process can reach powder-keg proportions.


In fact, while family businesses generate half the gross domestic product and half of total wages paid in this country, 70 percent of those businesses fail when they pass the leadership from one generation to the next. The chief cause of this breakdown is a collapse in trust and communications, according to The Williams Group, a California-based research organization specializing in estate planning and family-owned operations. And, without open discussion in advance of what’s to come, heirs can’t properly prepare for their new roles.


“You know it is coming,” says Richard Tesauro, president and founder of Tesauro Management Counselors in Dallas. “You can either do it in a planned, rational way, or a reactive way, which is dysfunctional. If you are willing to talk honestly about it, you can focus on the continuation of the business, and not on all kinds of processes that are out there … the issues from when the heirs were young, the relationships that go back to childhood, jealousies. It all comes into play and makes this more complex.”

PASSING THE BATON: Donald S. Freeman Jr. (seated) and his daughter, Carrie Freeman Parsons, and son-in-law, Joseph V. Popolo Jr., say it’s important for employees to approve of a leadership transition.
photography by Elizabeh Lavin

Nearly 60 percent of majority-share owners in family businesses are 55 years old or older, according to a 2007 study co-conducted by Laird Norton Tyee, a privately held, Seattle wealth-management firm with more than $4 billion in assets under advisement. Nearly 30 percent are 65 or older, the research reveals, but fewer than 30 percent of these people have succession plans in place. Fewer than 40 percent have even designated the next in line.


The first step a soon-to-retire CEO can take is to start thinking early about crafting a clearly stated exit strategy. In the same way that a person prepares a will, a company leader needs to pinpoint a date and work backward, specifying how he or she will modify his responsibilities; who will fill his seat and how; which, if any, employees will be brought in from the outside or moved around within; and how these successors will begin to learn (under his wing) what they will need to do once he’s flown the nest. Financial and tax matters, of course, involve many details, depending on the size of the company, the number of heirs, and the way the corporation is structured.


“Get advice,” advises Jay K. Turner of the Charlotte, N.C.-based private-equity firm, CapitalSouth Partners. “We are all imperfect, and that imperfection is exacerbated by finances.” Issues such as deciding how much capital the current generation needs to take out of the business for retirement, how to fairly divide an estate among multiple family members, how to diversify income, and how private companies can avoid astronomical federal estate taxes are all subjects for serious consideration, along with gauging life and work-style differences between parents and their heirs.


“Often the older generation has a certain mindset. They are hard-working, frugal, they watch expenses closely,” says Turner. “Their whole life is the business, having started it. The second generation may be marketing-driven, wanting to grow the top line, and may not have the attention to detail. But they are also family-oriented, and their spouses and children will come first, which is good, I think. But it has to be put in balance; you have to be careful in how you leverage the company to accommodate the next generation.”


Despite the worrisome data, some conscientious executives manage to keep their companies profitable through several rings of the family tree. In Dallas, along with the Eisemans, many notable names have enjoyed enduring prosperity, from the Crows, Hunts, and Sewells to the Huffines, Freemans, and Marcuses. While each of their stories is different, the ability to maintain continued growth—and happiness among the ranks—derives from some of the same guiding principles. In addition to facing the issue head-on, discussing it and planning for it financially and operationally, departing leaders have a basic decision to make: Is my child the one for the job? And, in cases where more than one child may be, the question needs to be asked: Which one will do it best?

 

A Servant’s Heart
 

About 10 years ago, Donald S. Freeman Jr. read a magazine article that said a CEO’s most vital responsibility is to find a successor. In July 2008, after 31 years, he retired from full-time duties at Freeman, having grown his father’s party-outfitting company into a leading worldwide provider of integrated services for trade shows, exhibitions, and other events.


“My dad was the consummate salesman, outgoing, volatile, a guy who would go off the handle, then 10 minutes later say, ‘Let’s go to lunch,’ ” Freeman recalls. “He flew by the seat of the pants. I brought more structure, with financial statements, budgets, details.”


When Donald took over in 1977, 50 years after “Buck” Freeman founded Freeman Decorating Co. in Des Moines, Iowa, the privately held company had annual revenue of $19 million. Today Freeman has about $1.3 billion in revenue. Donald believes he is leaving it in competent hands: four competent hands, to be exact.


“Unlike my dad, who always said, ‘I have to be busy,’ I found that you could be busy without working in the business every day,” says Donald, who assumed a director’s role as chair-elect of the Dallas Convention and Visitors Bureau in October and will maintain a presence with decades-long Freeman customers. “There was always a time that we were going to do this, when I recognized that they had the capability.”


“They” are Carrie Freeman Parsons, Don’s daughter, and Joseph V. Popolo Jr., the husband of his other daughter, Chris Freeman Popolo, who chose to pursue a career in health care administration management. “Three or four years ago, Dad started talking to me and Joe, and framing up other positions in the company,” says Carrie, 45, who’s worked at Freeman since graduating in 1985 from Baylor University. “For him to have made the decision to put in place a plan, while still highly motivated to come to work, is just like him. It is like him to have everything well thought out. He drew the chart.”


Carrie is the company’s new vice chairman, retaining her title as chief marketing officer. As a kid, she used to play in the office on Saturdays. The family structured its life around her father’s schedule. “If dad had to go to D.C. to visit a customer,” she says, “that’s where we went for our family vacation.”


Joe, formerly president, now is the CEO. Don, who’s 70, keeps his position as chairman. “Dad was most concerned that we were positioned as equals, from the perspective of our employees and customers,” says Carrie. “Joe is a very astute businessman, driven by strategic initiatives. I’m the customer/employee person, setting vision, matching the culture, making sure everything works in sync. Both are very vital to the business.”


When it came time to take her first job, Carrie had intended to look outside the nest. But Freeman’s sales director tempted her with an opening. “Dad didn’t pressure me. There was more pressure from the employees, who had watched me grow up. I guess I’d hope he’d be a little disappointed if I didn’t join,” she smiles, “but ultimately, if the decision was based on the right reasons, he’d be fine with that. There was no blip when my sister said no.”


For Joe, 41, whose in-law status may magnify some of the challenges of carrying a super-sized torch, the CEO appointment caps 11 years of Freeman employment. “Don is the Conrad Hilton of our industry,” Joe says. “He is an icon, he is very wise, and he is leaving an extremely healthy business. Does that make you work harder to prove yourself? Yes, and I am glad to have the opportunity, but I don’t think he’d jeopardize what he’d built.”

THE NEXT GENERATION: Both J.L. Huffines Jr. (seated) and his son, Ray, worked early on at the family dealerships.
photography by Joshua Martin

Critical to the transition was making sure that Freeman’s 4,200 full-time employees felt secure with the change. The company is known for its generous spirit, which seems to emanate from Don’s unpretentious Midwestern roots. Many employees, who are employee-owners through an employee stock ownership plan, have not just stayed for 20, 30, and 40 years, but have brought in their own family members, too.


“This company has never been about my dad’s ego,” says Carrie. “It’s about the employees, the customers, and doing the right thing. Having a servant’s heart has formed the culture of the organization, and has enabled us to grow. We wanted our employees, with this transition, to have the trust and faith in the leadership to know that we’re doing the right thing.”


Unlike Don Freeman’s voluntary retirement, illness or death will often force a shift in leadership. Whether sudden or anticipated, forethought is essential for businesses to survive the trauma.

 

Selling Happiness

Richard Eiseman Jr. worked alongside his father for years, knowing that one day he would gather up the reins. That day came in 1996, when Richard Sr. died of Parkinson’s disease. Louise, who had managed the company’s marketing, stayed on as her son’s partner, traveling to Europe for buying trips, keeping an eye on the distinctive styles for which Eiseman is known. Now 79, she visits the NorthPark Center store several times a week. “If I hadn’t all the confidence in you,” she tells her son, “I wouldn’t have let you walk in.”

Richard Sr. worked in the retail jewelry business and Louise, whose own family owned a women’s dress business, suggested to her husband that jewelry might be a good industry to pursue together. In 1963 they took their savings and leased space in a Commerce Street department store. In 1980, they moved to NorthPark, where they now tie with Neiman Marcus as the oldest tenant. In time they grew to 11 locations. While most jewelry companies consign or finance their stock, the Eisemans own every piece that is in their store. The lesson they taught their children at home was simple—don’t buy what you can’t pay for. Louise still lives in the first home she and her husband bought in Dallas.


“People would ask my father what he does for a living and he’d say, ‘I sell happiness,’” says Richard, who used to stack timepiece boxes on weekends as a child. “One of the greatest burdens was trying to live up to him. Many sons and daughters live in fear, or live in the shadows. I felt lucky to have had my dad’s persona to emulate. He and my mom led by example, never insisting anything be done their way. I was allowed to grow, to make mistakes.”


“When you have someone who is so strong, so charismatic, it is intimidating,” adds Louise. “I think that Richard absorbed it. He has all of Dick’s genes, except for my wicked sense of humor.” Her business card reads: Louise F. Eiseman, Queen Mum.


Though Richard as CEO is fortunate to still have such a feisty sidekick (her official title is chairman of the board), the future of Eiseman Jewels rests with him. “You have to reinvent yourself a bit, but you have to hold true to the past,” he says. “Then you have to give back.” His sister, who lives in Toronto, is very involved in the company’s philanthropic giving.


Like the Freemans, who run their operation as though it were an extended family, the Eisemans work hard to develop relationships not only with customers but with employees. They offer respectful salaries, medical benefits, and an old-fashioned pension plan. They are closed on Sundays, despite the hubbub of the shops all around them. Quality of life comes first.


“I had my only job interview when I was 21,” says employee Lucy Hay, now 59. “I fell in love with Mr. Eiseman. Your dad was in the background, beaming, when you took over,” she tells Richard. “He let it happen naturally.”


While Richard and Carrie Parsons have only worked for their families, some believe that experience with other companies and other industries will help an heir appreciate a level proving ground and know, for certain, whether he or she truly wants to return home. According to the Laird Norton Tyee study, one-third of family businesses require family members to stretch first beyond the umbilical cord, for at least five years. Twenty-four percent require three to five years, and 13 percent require one to two.


“Heirs need to see how things work in other companies where they are not the son or daughter,” says Dr. Kristie Loescher, a lecturer at the McCombs School of Business at The University of Texas at Austin.

 

Gradual Transition

Ray Huffines is the third generation to lead Huffines Auto Dealerships, following his 85-year-old father, and grandfather, J.L. Huffines Sr.

J.L. Sr. “had a Denton dealership selling Willies,” Ray says. “My dad, J.L. Jr., who was an only child, grew up in the business. I worked in the summers starting at 15, doing simple jobs in the shop like removing wheels and fixing tires.” The second-oldest of four boys, Ray, now 56, was the only child to join the business.


In 1979, at 27, he went to work full time on Ronald Reagan’s presidential campaign. The following year, Ray became Texas Gov. Bill Clements’ personal assistant. He stayed with Clements for a little over two years, then returned to the world of automobiles. “My goal was not to be in government or politics, but to take the time to take advantage of the opportunity. Clements [had been] the deputy secretary of defense, and he was a businessman. To be around him, to watch and learn, was of tremendous value in my career,” says Huffines, who can’t pinpoint exactly when he “took over” the company.


“I don’t know if there was any particular day, and we don’t worry about titles. It’s been a gradual thing, as my dad has been stepping away from the day to day and I’ve been filling the position,” he says. “I’m the CEO, but that doesn’t really mean anything to us. Some people on the outside want a title, so that’s the title.”


Typically, car dealerships are owned by families, and surnames are synonymous with the product. Like the Freemans and Eisemans, Huffines knows that if a Chevy’s on the side of the road, broken down, with his name on its trunk, it’s not a plus.

 
“My grandfather started this, ran it, built it, and then my dad handed me a good name, a great reputation,” he says. “I want to make sure that I and all of our people enhance that name and do nothing to damage it in any way.”


The general manager of the dealership taught Ray Huffines the basics at 22. Richard Eiseman and Carrie Parsons were students, too, of valued professionals their parents hired. But combining non-family members with descendants can be tricky. “When there is nepotism, when the heir gets special treatment, a chain of events is put in place that is damaging to the morale of the employees,” says Loescher. “If you are promoting people who don’t have the skills or aren’t following the rules, good employees will go elsewhere. That’s a double whammy.” And, she adds, “if the children aren’t held to the same high standards, parents should not be surprised when there is not one to hand the reins to.”


It takes a certain kind of person to jump into the middle of a family dynamic, even one that’s healthy. “The most successful new entrants are the ones who can really navigate without creating drastic change,” says Nancy Keene, a director in the Dallas office of Stanton Chase, a global executive search firm. “It’s likely, too, that if the founder has been in the role for a long time, you will have other long-time people leaving at the same time. This will have a ripple effect from an age and skill-set standpoint. We see a lot of that across-the-board kind of thing, with aging baby boomers getting ready to retire. Gradual step-by-step phasing out is best.”


In the end, packing the box is a sentimental task, whether it’s filled to the brim or only part way. Even for people who have anticipated the change, the shift can simply feel strange.


Don Freeman Jr., a graduate of the U.S. Naval Academy, for years flew twin-engine turbo props. “There was a time when I thought I shouldn’t be flying this airplane, when I wondered if I needed new training, or whether my reaction times were as good as they used to be. I felt similarly about this business, so three years ago, I decided the time was right,” he smiles. “And I have no real regrets.”

 

 

EISEMAN JEWELS
Retailer of fine jewelry
Richard Eiseman Jr., CEO;
Louise Eiseman, Chairman of the Board
Headquarters and sole location: Dallas
45 years in business
16 employees
Annual revenue: would not disclose

 

FREEMAN
Provider of integrated services for marketing events including expositions, conventions, corporate events, and exhibits
Don Freeman Jr., Chairman; Joe Popolo Jr., CEO; Carrie Freeman Parsons, Vice Chairman, Chief Marketing Officer
Headquarters: Dallas
Offices in 41 North American cities
81 years in business
4,200 full-time, 28,000 part-time employees
Annual revenue: $1.37 billion

 

HUFFINES AUTO DEALERSHIPS
Automobile dealerships
Ray Huffines, CEO
Headquarters in Plano, 8 locations in DFW
84 years in business
575 employees
Annual revenue: more than $472 million

Related Articles

Image
Arts & Entertainment

Here’s Who Is Coming to Dallas This Weekend: March 28-31

It's going to be a gorgeous weekend. Pencil in some live music in between those egg hunts and brunches.
Image
Arts & Entertainment

Arlington Museum of Art Debuts Two Must-See Nature-Inspired Additions

The chill of the Arctic Circle and a futuristic digital archive mark the grand opening of the Arlington Museum of Art’s new location.
By Brett Grega
Image
Arts & Entertainment

An Award-Winning SXSW Short Gave a Dallas Filmmaker an Outlet for Her Grief

Sara Nimeh balances humor and poignancy in a coming-of-age drama inspired by her childhood memories.
By Todd Jorgenson
Advertisement