The Role of Effective Governance in Succession

Transcription

1 The Role of Effective Governance in Succession Darcy Howe, Bama Companies Martha Furst, Furst-McNess Cynthia Watts, Furst-McNess Lindsay Geyer, Port Blakely Companies Jonathan Flack, PwC Port Blakely Companies: Background 150 year-old, values-driven, family-owned forestry and forest-products company built on a century of stewardship Family-owned and managed for 5 generations; family in business together for 7 generations Eleven-member board, six independent, five family Family Council since 2000 CHRO responsibilities included oversight of leadership succession, staffing board committees and shaping and facilitating family council

2 Furst McNess Background Furst-McNess Company 107 year old $350 million livestock feed company, majority owned by 3 rd and 4 th generation Furst and McNess families Fragmented shareholder base, including community members and management Conduct formal audit and annual shareholder meeting Board 3 Furst family, 1 McNess family, 3 independent The Bama Companies, Inc. Background 88 year old company with third generation female leadership, currently the sole shareholder. Global food manufacturer and distributor to global quick-service restaurant companies which rely on long term view of relationship and capital expenditures. Two of the four G4 recently began to work in the business. Board of Advisors (BOA) began in 2010 with 4 outside members, 3 of the 4 current Advisors new since BOA will turn into a fiduciary board at the death of the current shareholder and trusts will own the stock. Some overlap in BOA and Trustees. Family Council formed in 2015, this conference is their first! Darcy is BOA representative responsible for Family Council and G4 education oversight. Keeper of the 100 Year Plan.

3 Context Describe what was happening in the business where the environment was conducive for active board involvement in succession. Port Blakely: Context Historically family-led No identified successor within family or the company Fortuitous timing: Began CEO succession planning and Family Council formation simultaneously

4 McNess Generational Succession Changes 1st to 2nd Generation Frank Furst (President/CEO) in fatal car accident; non-family President/CEO put in as transitional leader as second generation groomed to take over. Second to Third Generation Smooth transition to Frank Ned Furst, groomed to be President then CEO. Later in Ned s career, a feed industry exec is added as President to support him and groom next generation. Third to Fourth Generation--Company seriously investigates sale of its largest business. Martha Furst slated to run stub company. Sale does not go forward. Martha named President/CEO of McNess. Evolution from Family to Non-Family Management Company suffers during recession; exits 100+ year old smaller legacy business; head count/salary reductions; largest customer goes bankrupt Ned Furst, Retired, 71, chairman and controlling shareholder Martha Furst, President/CEO, 49; had run McNess for decade Martha recommends promoting a key manager to COO Board resists; didn t feel they knew individual Ned/Martha at odds Martha suggests family business planning/counselling; not followed through on

5 Bama Companies: Context Sole shareholder attempted to step back from day-to-day leadership with hand-chosen successor and it failed Organization of next succession plan has taken two years, including amending trusts, promotion of younger team members and training and education of G4 Competing interests in use of company cash flow and lack of clarity for sole shareholder about her ability to fund both business and personal endeavors Port Blakely: What Happened? Company: Succession Planning Company 5 year strategy defines CEO competencies Timelines developed Multiple sources (family, company & external) Candidates identified Family: Governance & Engagement Family Council Family Employment Policy Trust building Values defined Family Council visits to board meetings Family Director policy Board: Strategy, Risk Management & Advice Board guiding company strategy & managing risk of possible family leadership void N&G committee advising on CEO succession Director visits to family council meetings

6 Port Blakely: What Happened? Company: Hire and Grow the CEO Initial role defined and subsequent roles followed Crafting and making the offer Development planning Internal communication Family: Communication & Engagement Candidate earning trust and support Family Council and Annual Meetings touch-points Quarterly business reports Board: Oversight & Approval N&G recommend candidate Compensation recommend compensation package Board approves Chair announces to family Ongoing progress reports to N&G and the board Evolution from Family to Non-Family Management Second in command leaves company (unplanned) Martha has strong confidence in next layer of management; Ned hasn t worked with these managers and reinserts himself into day-to-day operations Martha bristles at Ned s increased involvement; family conflict ensues; discussions whether Martha should stay involved Final outcome (after lengthy board participation): Board assigns one of independent members to negotiate with Ned and Martha Ned becomes President/CEO and continues as Chairman of Board Martha becomes Vice Chairman of Board Martha s candidate to become COO becomes COO

7 Evolution from Family to Non-Family Management COO promoted steadily from to President and then President/CEO First time no members of Furst or McNess families active full-time Ned Furst, Chairman; Martha Furst, Vice Chairman Company has turned around and has grown postrecession and with management changes The Bama Companies: What Happened? IMMEDIATE NEEDS ADDRESSED Shareholder used her BOA for: gut check and support strategizing immediate leadership needs BOA was also involved in executive compensation negotiation Individual leadership team mentoring. SUCCESSION & GOVERNANCE Longer term structure for broader succession planning in manufacturing, legal, non US operations and People Systems. Family governance consultant was hired to structure Family Council and work with G4 Family Office was formed to put structure and clarity about sole shareholder s personal financial picture and to help G4 with financial education and structure.

8 The Bama Companies: What Happened? BOARD BOA lead process to amend trusts and estate plan of sole shareholder and education BOA and G4 on action plan BOA responsible for oversight in G4 mentoring BOA member moving into People Systems role and off Board as the best use of his talents on behalf of Bama FAMILY G4 is now more clearly aligned and engaged in their roles within and outside of the company Sole shareholder is now more free to engage in personal endeavors and strengthen family relationships Impact & Lessons Learned

9 Port Blakely: Lessons Learned Plan! Then diverge as needed. Plan ahead: Ten years! Create meaningful assignments & roles. Partner with HR for expertise & objectivity. Engage HR with the family. Board, management & family council collaboration. Family support of candidate. Family s trust of independent directors. Candidate s ability to earn trust in the company. Communicate, communicate, communicate! Impact at Port Blakely Succession completed with family member who has grown from CEO to Chairman & CEO Family trust and cohesion continues to build Generalized succession planning to other executive positions and the board Company positioned for growth Longer time frame, but better late than never!

10 Steps that Increased Likely Success of Non-Family Management Caliber of board steadily improved; increased # of independent board members from 2 to 3; most recently through executive search candidate who brought strong industry experience Prior to transition, Martha worked with consultant to overhaul Strategic Planning process transformed culture to greater accountability Implemented quarterly dashboard, tracking annual operating plan and 5-year strategic plan Exited 100+ legacy consumer business; greater focus to core business Against other managers recommendation, Martha made salary and personnel cuts to help ensure McNess survival Steps that Increased Likely Success of Non-Family Management Coming through recession, worked aggressively to clean up Accounts Receivables These steps enabled promoted internal managers to start with relatively clean slate Ned came out of retirement to mentor greatly increased their confidence to manage without much direct involvement

11 Lessons Learned Make sure Board is familiar with management below top layer Use assigned non-family board member as hub of communication/negotiation between family members if relationship is strained Work to formalize lines of communication between board, management, and shareholders Family can continue to set culture/tone through Mission and Values statements A strong strategic planning process with clear goals and metrics can help the family/board drive accountability for new senior managers Creating liquidity opportunities for family members or other shareholders who have different goals or perspectives can ease pressure on everyone Bama Companies: Impact of Actions Right people in right roles for long term Retirements allowed the plan to work G4 family members being mentored and trained as they enter the business learning from the ground up Broader Bama team leaders brought into the picture to understand their role in helping to keep Bama family-owned