Transitions / Business and personal

Success for family-owned companies requires establishing rules and roles that everyone agrees to


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Bill Sarris will tell you that the biggest challenge in running a family-owned business is, well, family.

It's something that CEOs or presidents of publicly held companies generally don't have to worry about. But for family-owned firms, separating the personal from the business can be more vexing than satisfying the most demanding of shareholders.

"That's always difficult," said Mr. Sarris, president of Sarris Candies in Canonsburg. "Business is business and family is family. Sometimes it's difficult to separate the two."

Sarris isn't the only business affected by such issues. According to the Small Business Administration, family-owned businesses account for 90 percent of all businesses in the country and 62 percent of all U.S. employment.

Likewise, Sarris is one of numerous family-owned businesses in the Pittsburgh region. They range from some of the biggest -- Giant Eagle, 84 Lumber and Eat'n Park -- to more moderate-sized ones, such as Sarris, Millcraft Investments and Uncle Charley's Sausage. The Steelers may be the region's most pre-eminent family-owned business (though now less so that the Rooney family has brought in additional investors). Kennywood Park was family-owned before being sold to Spanish-based Parques Reunidos in 2009.

"Because of the nature of the region, the stability and dedication to community and service to the community, we have an incredible group of family businesses," said Ann Dugan, founder of the Institute for Entrepreneurial Excellence at the University of Pittsburgh's Joseph M. Katz Graduate School of Business.

The Sarris family has been in the candy business for more than 50 years, and now employs about 400 people. While Bill holds the title of president, his mother, Athena, serves as CEO; his sister, Sophia Heon, is vice president; and his daughters, Athena Simms and Candace Sarris, are in marketing and advertising for Sarris-owned Gardners Candies and Sarris Candies, respectively.

Mr. Sarris said the key to managing the family-owned business successfully has been in establishing clear lines of authority and areas of responsibility for each family member as well as for other employees.

"There needs to be one person that's in charge and the family needs to know that everybody has their own area to take care of," he said. "That eliminates the bickering that goes on even when you're not in a family business. In a family situation, it's important to know who's in charge and what their duties are."

At board meetings, family members develop plans for the business -- and agree to abide by them even if some disagreed with the approach as it was being debated.

"We put a plan together and we stick to it. We don't always agree but we agree to put a plan together and we agree to stick to the plan," Mr. Sarris said. "That way, down the road, no one can say we should have done this, we should have done that."

The Sarris members also have a succession plan in place to keep the business in the family in the generations ahead. Mr. Sarris said the plan does not necessarily mean the oldest child takes over, as has been the custom in some businesses. It's important to be flexible in the event there are other family members more qualified.

"I think that business comes first when it comes to business and when it's family things, the family comes first," he said. "If the lines of communication are open, that's very important. That's why things can progress and keep the success of the business where it's suppose to be."

Ms. Dugan said one of the biggest challenges facing family businesses is finding leaders who can carry through the next generation. She said all too often, businesses are passed down to the oldest son or oldest daughter without taking into account his or her ability to lead the company.

Studies have shown that as many as 70 percent of family-owned businesses don't survive their founder, either because heirs aren't interested in operating it or don't have the skills to do so.

But Ms. Dugan said that is slowly changing, as families become more aware of the need to leave the business on firm footing from generation to generation.

"Now, more and more, families are understanding that [taking over the business] isn't right for everyone," she said.

Charles S. Armitage, founder of Uncle Charley's Sausage, said it's important that any family member seeking to take over a family-owned businesses spend considerable time in the company learning the ropes and developing plans for running it.

"If they don't have that, then it's going to be a real struggle," he said.

After losing his son, Charles S. "Chas" Armitage Jr. in an airplane crash in 2011, Mr. Armitage is one owner who has decided to put his business up for sale. He said he has hired a broker to facilitate the transaction.

"We're going to try to have it sold this year," he said.

To help avoid family conflicts, family-owned businesses should have good human resource practices in place, including job descriptions, performance goals and annual evaluations. Those practices should apply to family members as well as other employees.

That, Ms. Dugan said, "takes favoritism and emotion out of the picture" and puts the emphasis on more objective criteria. If such practices aren't in place, it can give rise to conflict and mismanagement, she said.

While Sarris Candies doesn't have formal performance evaluations in place, family members do hold each other accountable, Mr. Sarris said.

"You see the results. Here's the area you cover. Here's what you're supposed to be doing. Anybody is able to tell if you're not doing what you're supposed to be doing. It shows up pretty quickly," he said.

At Millcraft Investments, chairman Jack Piatt has given the two sons who work for him, Lucas and Marcus, distinct responsibilities in the company.

Lucas, who serves as president and chief operating officer, oversees real estate development, while Marcus, as president of Millcraft Hospitality and Millcraft Tenant Construction Services, supervises the company's interests in the hotel and hospitality sector. Millcraft got its start in 1957 and currently has about 30 employees within the holding company and about 350 to 400 on the hospitality side.

"It works out well for the family, They both work together on some projects. Any major decisions, they are both involved," Jack Piatt said.

While both sons report directly to him, Mr. Piatt said the company's success has been a result of teamwork.

"They don't work for me. They work with me. I think that's very important. They're not small children. They're adults. They're gentlemen. They respect each other. They work very closely. I think that's probably the key to it," he said.

Like Sarris, Millcraft has a succession plan in place although Mr. Piatt would not divulge details. He did say the Lucas and Marcus would have a "co-chairman type of relationship" under the plan.

But there's also a twist with this family-owned business -- one family member is a competitor.

Lucas and Marcus battle for business against Rod Piatt, Jack's other son. Rod left Millcraft in 1997 and has been on his own ever since, as head of Horizon Properties Group.

While the two Piatt-led companies compete for work, and have been doing so for some time, Jack Piatt downplayed any tension in the relationships.

Rod "turned out to be a great salesman and a great businessman. He competes with us. I might say he's first-class competition," he said.

"There's no problem," he added. "We're good friends. We joke around. He's done a great job. He's a good businessman."

Like Sarris, Millcraft doesn't have any formal evaluation system in place for family members. But Mr. Piatt said he has his own way of making sure his sons measure up.

"They have to perform or they're going to get their butts kicked," he said with a chuckle.

intheleadstories

-- Mark Belko: mbelko@post-gazette.com or 412-263-1262 First Published May 3, 2013 4:00 AM


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