MAY 18, 2017   |   VIEW AS WEBPAGE
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Steve Zumbach
Steve Zumbach, a partner in the Des Moines firm Belin McCormick, is a specialist in family business.

All In the Family

When an underground spring near Japan's Mount Hakusan was discovered in 718, it was decided to build a spa and hotel on the site. The hotel owner, known by his family name Hoshi, did well and passed it along to the next generation. And the next. And next, and … now Family Business magazine sees Hoshi Ryokan as the world's oldest reining family-run company—46 generations' worth.

That is a far cry from the 15 percent of family businesses that Des Moines attorney Steve Zumbach sees as surviving even into their second generation. Running any business is full of pitfalls, and family-owned versions face even tougher odds due to, well, the family. The interest and commitment of family members may differ, as may their skill levels. Marriages, divorces, births and deaths bring in and drop out players. Public company shareholders are free to come and go as they please, a status not available to family owners.

"Business has never been more competitive. When combined with the family dynamic, planning for the family business is geometrically more complicated," says Zumbach, a specialist in family business and a partner in the Des Moines firm Belin McCormick.

To prep for guiding family businesses, Zumbach obtained a law degree, a CPA designation and a Ph.D. in economics. He then learned there was one more education hurdle—psychology. His knowledge there has been acquired on the job, which overall has led him to build some useful observations on making a go of a family-owned firm:

  • A governance structure should be created that enables all family interests to be represented without interfering with efficient decision-making.

  • Family members must perform their responsibilities beyond expectations. In short, they have to work harder than anyone else.

  • Co-workers often feel that family members have an unfair advantage. Hard work and performance are the best ways to earn their respect.

  • Some family members may have a sense of entitlement that diminishes the work ethic. This is not conducive to positive performance.

  • The fact that non-family members may be better qualified to lead a company should be accepted. (Harvard Business Review notes that limiting the head office to a family member only reduces the pool from which management is drawn.)

  • Outside directors with appropriate skills can add expertise and stability. (Zumbach often sees first-generation entrepreneurs balking at outside counsel.)

  • Performance criteria must be set and the family member should be evaluated annually and held accountable by non-family managers.

  • A mentoring program is useful, though family members should not mentor other family members as training and constructive criticism are generally better received from people outside the family.

Family businesses are hard work, both to build and to maintain. There are lawyers and accountants such as Zumbach to help see that the cogs of the gears run smoothly. And luckily, academics who can help are abundant. The Center for Family Enterprise is based at Northwestern University in Evanston, Ill. And right down the road, in Chicago, are family business counseling groups tied to the business schools at both Loyola University and DePaul University. See them — see someone — on how best to nurture your life's work.
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Legacy Bridge

Get Up Close and Personal at Annual Meetings

Dan Houston is a competent, confident business executive, a man well chosen to lead Principal Financial Group Inc. You could have attested to this yourself on May 16 had you attended the company's annual meeting at its downtown Des Moines campus.

Alas, as Houston spoke about his vision to shape Principal into an even bigger, better financial services firm than it now is, very few people besides officers and directors was there to listen. This was not the fault of Principal but rather that of the hordes of shareholders who maybe figured it was too nice a day to spend an hour or so hearing the direction that lies ahead for the money they have invested.

To be sure, shareholder meetings are not the sole, definitive measure by which to judge the merits of an investment. They're usually low-key affairs meant to conduct little official business besides electing directors and approving outside auditors (though I still well recall witnessing a slugfest in Findlay, Ohio, between steelmaker USX Corp. and corporate takeover artist Carl Icahn as he tried to install his own board).

But at least an annual meeting puts the company leader on a personal stage with you, where he or she can speak in person—and be spoken to—about past performance and future plans. You get to judge the soundness of these explanations and see for yourself the people who are running the firm where you have entrusted your investment dollars.

These are brief encounters, and if your company is based in another time zone it's not practical (or tax-deductible) to jet over to the meeting. But how often do you have a chance to look Dan Houston or any other CEO in the eye and ask whatever it is about their company that interests you? If they can take the time, so
might you.
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dsmWealth's picks on what you need to know

  • Are rich retirees hoarding cash out of fear? There's a time in everyone's life to save. There's also a time when you're supposed to spend, writes Ben Steverman in this article from Bloomberg News.

  • Shockingly, says the best performing sector of the S&P in the last 50 years has been this one.


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