Succession planning – the time is now

As baby boomer owners approach retirement, plans for the future should be discussed sooner rather than later

Canada’s fabricating industry comprises many first- or second-generation family shops that have succeeded thanks to the skills and entrepreneurial spirit of their founders. But what happens when that founder decides that it’s time to step away from the business?

Succession planning is an important issue for any company. But planning for the future in a family-run business is particularly challenging for many reasons. One of those reasons is simply that the nature of the business changes as it passes from a founder to those who succeed that person.

“Founders tend to be very Type A personalities,” said Michelle Osry, partner, family business advisory consulting at Deloitte. “They are hard-charging, entrepreneurial, and accustomed to working on their own and making all key decisions. So it’s not at all surprising that the business often tends to be a reflection of the founder’s personality. The next generation of owners face the challenge of sharing power with siblings or cousins who may not share the same aspirations or have the requisite skills. This is why communication and good governance begin to play an ever more important role as the business and family evolve.”

Osry explained that there is inevitably a fundamental change in the culture and the system in which a company operates when a succession occurs. This is a nuanced and complex transition process, requiring careful planning and preparation (of the family and the business).

“Most founders would rather avoid the succession discussion because it’s too hard,” said Osry. “They know that doing nothing is disastrous, but they much prefer living with the ambiguity because they don’t want to risk conflict in their family. Succession discussions can cause tension and a level of family drama that they’d rather avoid.

“Many founders don’t particularly like to plan, either,” Osry continued. “They just like doing.”

And if someone else brings up the issue, a founder can feel as if they are being encouraged to leave the business sooner rather than later.

Osry recommended starting the succession discussion as early as possible.

“I love it when a family comes to me and says, ‘We are thinking of a transition in about 15 years,’” she said. “That’s perfect because when you can explore and iterate without pressure, you can have all of the conversations you need to have. If you think it’s going to take you 10 conversations, it’s going to take you 100. If you think it’s going to take you two, it will take you 10.”

It’s also important to determine what part of the succession process is being discussed at any one time. Is it the ownership structure that is being discussed? Is it about the day-to-day management of the business? As Osry explained it, these can be two completely separate discussions.

One of the special projects Vanessa Heim recently was involved with in her succession planning journey was the creation of a new website that demonstrates how Brenco can help artists make their visions a reality. “Part of what I enjoy about a job shop like ours is that we can do something new every day,” said Heim. “A lot of what leaves our door doesn’t necessarily look like anything that most people would recognize; it’s often a part for a larger assembly. But when it’s a piece of art that’s going to be in the public eye, it shows both our ability to think outside the box and to create beautiful finishes and amazing pieces of art for everyone to enjoy. Some of these projects have gone as far away as San Diego, as well as places like Banff.” What Brenco’s resident art expert gives to the artists is a clear understanding of both materials and safety requirements. “With a normal fabricating job, an engineer comes to you with an idea laid out on paper,” said Heim. “When an artist comes to you, however, it’s more of a concept than a concrete drawing. Many of them don’t understand how metal works. And sometimes they don’t understand how public art works, and how you have to design to a certain level of safety. We supply them that expertise.”

“It’s also important to understand what the next generation wants,” said Osry. “It’s important to ask the next generation what would be good for them. And among the younger generation, it’s important to ask the founder or parents what is important to them, and what they are worried about in the transition. When do they wish to be out of the business? Why not sooner? Why not later? Discussing these questions is much easier when emotions aren’t involved and makes it easier to do.”

The next key step is to write out the plan – a step that people often leave out but which is crucial to clarify the succession journey.

“Some of the key questions to ask each other include: What is the purpose of our wealth? Are we better off together or apart when it comes to owning assets? What is our ownership vision? What are our shared family values? Who is best suited to leading the business in the future?” Osry explained.

Carefully working through such discussions makes it easier to determine who is best suited (and who wants) to lead the company into the future, whether that be an interim external leader or a particular family member. It may also lead to a discussion of selling the business, if that turns out to be the best solution for everyone involved. The earlier the conversation about selling happens, the better the family can position the company for selling.

The last point Osry pressed home was the fact that the financial security of the founder shouldn’t rest solely on the actions of his or her successors.

“If the founders depend on the success of the next generation of leadership for their financial security, it’s not going to be easy on them to truly step back from the business,” she explained. “However they manage the process, they should be financially independent of the next generation, if at all possible.”

Brenco’s Management Transition Plans

Brenco Industries, a provider of metal cutting, bending, fabricating services, and custom metal work in Delta, B.C., is one company that has been proactive in its management succession planning process. President and owner Steve Heim started discussing a potential transition with daughter Vanessa Heim even before she rejoined the company after completing her education and developing her business skills elsewhere.

“My brother had been working in the business as a laser operator, but he left to become an RCMP officer,” said Vanessa Heim. “I went to British Columbia Institute of Technology and the University of British Columbia for business, and both my father and I saw an opportunity for me to bring new skills to the company.”

Instead of thinking about Brenco’s management transition narrowly as a transfer from father to daughter, a transition team was created. The team includes Steve Heim, General Manager Dan McLeod, Dan’s son Tyler McLeod, who has a background in engineering, Vanessa Heim, and the company’s controller, Karen Flatt.

“The president and the GM have birthdays within two weeks of each other, and both turned 60 in 2017,” said Heim. “With that in mind, they want to transition out of the day-to-day business within a reasonable amount of time. They will remain on our board of advisers, but the daily operations of the business aren’t as interesting to them as semi-retirement is.”

During this transition period, the three younger members of the transition team are being exposed to a broad expanse of the business through special projects, with each ultimately being focused on one core competency. Flatt is obviously focused on the financial management of the company. Tyler McLeod is primarily focused on management of the shop floor, and Heim is focused on strategic development of new business.

The special projects Heim has been involved in during this transition process have included the introduction of the company’s new ERP system, launching a new website focused on artwork that Brenco has helped create, and serving on the company’s quality and ISO audit team. These varied roles have allowed her to better understand the challenges in managing the business, as well as the discipline required to keep production quality high. It also gives employees a chance to better understand her and her commitment to the company.

“The biggest challenge for me coming into the company and preparing for this transition is that all of the people in the shop and the office have been here on the job longer than I have,” said Heim. “Many people have watched me grow up; a couple of our employees were here before I was born. Although the company has been part of my whole life, it still takes a lot to gain the trust of others. But the more that I work in the team, the more I think they understand that although the role I will play will be different from the one my father had as one of the founders of the business, they understand that the culture isn’t going to change radically. In fact, the culture will remain very similar. If the business was sold, there would be a much more radical change.”

The succession planning team meets regularly to discuss leadership, the growth of the organization, and what they see happening in the future.

“In some of these discussions, we will look at a chosen situation and say, ‘If I had the opportunity to change this about the business, what would I do?’ We talk through our thoughts with the president and GM, and they guide us, often explaining what they have learned through being in the business for as long as they have,” said Heim. “They might say, ‘Consider this point when you’re making that decision.’ With age comes experience, and getting their perspective on issues is hugely beneficial.”

There is no one perfect way to manage succession planning. Vanessa is involved with a number of peer-to-peer management groups, and from those she’s learned that most people don’t have a succession plan, and many who do have only a broad plan.

The critical point that both Osry and Heim raise is that the succession process has to be discussed and regularly revisited as the transition is managed. The better the communication, the less likely the process will get stuck or go sideways.

Editor Robert Colman can be reached at rcolman@canadianfabweld.com.

Brenco Industries, www.brenco.com

Deloitte, www.deloitte.com

About the Author
Canadian Fabricating & Welding

Rob Colman

Editor

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Toronto, M1R 0A1 Canada

905-235-0471

Robert Colman has worked as a writer and editor for more than 25 years, covering the needs of a variety of trades. He has been dedicated to the metalworking industry for the past 13 years, serving as editor for Metalworking Production & Purchasing (MP&P) and, since January 2016, the editor of Canadian Fabricating & Welding. He graduated with a B.A. degree from McGill University and a Master’s degree from UBC.