Cox Family Enterprise Center Executive Director Joe Astrachan, recognized around the world for his expertise in family business, visited with Family Business Radio host Meredith Moore on Thursday, June 21, 2012, to talk about the Cox Family Business Enterprise Center programs and offer tips for family businesses.

Dr. Joe Astrachan Cox Family Enterprise Center
Emergence of Cox Family Enterprise Center

Faculty at Kennesaw State University (KSU) began working in the field of entrepreneurship about 30 years ago. Mike Mescon, former dean of Georgia State University’ business school, helped start an entrepreneurship chair on the campus. A few years later, Craig Aronoff was appointed to that chair. When the he asked entrepreneurs about their businesses, they often found that family issues—intergenerational communication, for example—were among the major problems in business. In about 1983, the first real research was done on family businesses, and for the first time a special issue of an academic journal was devoted to the topic. Only three institutions have family business programs that pre-date KSU’s, and only two of those were conducting research in the field at the time. Some independent researchers were working on family business topics as well.

Then, in 1987, Kennesaw State University (KSU) began hosting quarterly family business forums. As a relatively new college, KSU had an entrepreneurial spirit, and professors and staff members were freer to try new things than they might be in more established programs. The day-long forums started with breakfast, followed by a talk from a visiting expert. A family business owner would present, as would one of the day’s sponsors. The Family Business Forum model was copied by over 110 business schools around the country and came to be known as the K Model.

KSU’s family business program expanded from the quarterly forums also to include six breakfast meetings and one two-day, off-site retreat per year. The school also started the Georgia Family Business of the Year awards program to honor family businesses that have demonstrated commitment to families, employees and the communities. The awards go to multiple-generation families in small, medium and large categories as well as 100-year-old family businesses.

As the forums and meetings became more content rich, a change came about in the world of family businesses. Accounting firms, law firms and banks that had formerly ignored family business began targeting them with seminars of their own. Though the new offerings may not have been as neutral in content as KSU’s programs, they appealed to family business owners because they were free, whereas KSU’s family business participation required a membership fee.

The program continued to grow anyway. Joe came to KSU in 1992. In the mid 1990s, the relationship with the Cox family began to emerge. The Cox family owns a business that started in Ohio more than 100 years ago and has since moved to Atlanta. It is one of the largest family-owned businesses in the country. About 20 percent of the gifts from the Cox family and other donors fund ongoing programs at the Center, and the remaining gifts provide growth capital for new projects and research.

Executive MBA in Family Business Program

One of the projects was the establishment of the Executive MBA for Families in Business. Launched in 2009, the program began because researchers found that family businesses that were managed like non-family businesses experienced problems. Family businesses have unique issues that should be addressed and unique strengths upon which they can capitalize. The Executive MBA for Families in Business has now run four complete classes, each open to about 15 students who are family members in a business. Occasionally, if a family member has been through a course, the program allows a non-family member executive in the company to participate.

Though limited in size, the program welcomes students from all over the world. Every other month, class members travel to the businesses of other class members for one week of classes. One day is devoted to the host company, with tours, case studies and talks with family members or non-family member executives in that company.

In the future, Joe hopes to extend the Executive MBA for Families in Business offerings to non-family owners and professionals at the KSU campus, then to offer the curriculum at no charge to other business schools.

Meanwhile, he points to success stories coming out of the program. More than half of the participants have used their experience to help their companies make strategic decisions at high and integrated levels. He refers to Level 5 thinking, where businesses determine the optimal mix of activities to make the most money, given the demand for services or products and the restraints on resources. He says it’s similar to lean thinking, though KSU professor Dr. George Manners says it is “what lean thinking will be when it grows up.”

Other tangible results include more and better family meetings in participating companies. Joe says that relationship problems can’t be solved with structural solutions, such as regular family meetings. However, in families with good relationships, family meetings help ensure the participants are in continual conversation to educate and make decisions. He says families could easily meet once a month, but he’s happy if they even meet once a year. They should try to meet at least four or five times per year to continue conversations, some related to business and some related to the family itself.

Joe Astrachan’s Family Business Story

Joe himself grew up as part of a family business, Seatrain Lines. His father didn’t work directly for the company, but it was very much a part of his life. Publicly traded on the New York Stock Exchange, the company had in 1976 a market capitalization of more than $1 billion. It had 200 offices in the United States, several coal mines and owned the Brooklyn Navy Yards, where it built ships.

Joe says when he was an undergraduate at Yale and decided not to become a physician, he went back to his dream of being part of the family business. Yale did not have a business degree at the time, so he created his own major in family business, focusing on a combination of business and psychology courses.

During that time, the primary officer of the family business was Joe’s great uncle. In the 1970s, many things occurred to hurt the shipping industry. President Gerald Ford made changes in the flagging rules, and the Arab Oil Embargo was instituted. The company had already been harmed by the Cuban embargo and other international events before the end of the Vietnam War.

Then, about 1980, Joe’s great uncle had a heart attack and passed away. After six months, the family was still unable to choose a new leader. The company had about $300 million in debt, which was not a large amount for a company of its size. However, the bank called the debt in. The company’s shares started at $35 each one morning and fell to 19 cents by the end of the day.

Over time, despite the efforts of Joe’s father and grandmother to keep the family together, the family devolved. Without the core of the business they no longer communicated.

All of this happened while Joe was an undergraduate. As he talked to his advisors about what to do next, they recommended he pursue a doctorate. He was accepted into the program, where he continued studying family business.

Common Features in Successful Family Businesses

Joe says that the elements successful family businesses share depend on how success is defined, whether it is considered from the family dynamics side or simply from the business side. For example, to a family, a business that lasts multiple generations may be the most successful.

Joe says that those businesses that do survive have a different culture from other families, businesses or even from their local societies. In his travels, he has discovered that in virtually every culture, children are reluctant to disagree with their parents, and families don’t talk openly because they don’t want to risk conflict. Yet open communication is required in stable, long-term relationships. In successful family businesses, family members are willing to delve deeper into problems and to have difficult conversations. They have what Joe calls “pleasant confrontation.”

Another common factor of long-term family businesses is a willingness to put family interests before individual interests. In families where the parents have always put the happiness of their children first by giving them the things they want, children are not likely to learn to put others first and to cooperate. Yet in businesses and organizations, those skills are necessary. At some point, the parents have to step back and allow the child (or young adult) to take care of problems for him- or herself.

On the business side, successful family businesses must learn not to spend more than they make. If all family members receive a dividend from the business, then the business will have to grow fast enough to fund the rate of growth in the family. Joe says if a family is growing by two to three children per child, per generation, the profit growth rate must be 6 to 7 percent, before inflation to maintain a constant dollar level of payout per child. That means an overall growth rate of 10 to 12 percent after inflation.

Such a high growth rate can be hard to maintain. Joe says that in a mature industry, a company’s growth rate will mirror the population’s growth rate, which is about 3 percent worldwide. Yet if you need 12 percent growth, your company will have to make up that 9 percent difference. One way to deal with this is to scale back on the dividends family members receive. Joe says it’s important to have discussions about changes in dividend rates early rather than later in family life.

Joe says that only 30 percent of family owned businesses make it to the next generation, and the difference for those is in the family dynamics. If someone likes working with family, they will continue doing so as long as possible, even if the business is failing. If a family hates working together, they will leave the company, and likely the family, even if it is making money. Most family members can’t separate the emotion from the business.

Family Businesses Around the World

Joe says that the challenges of family businesses are similar across cultures. For example, one perception is that family businesses in Europe survive longer, but Joe says there is no data to support that. He points out, however, that the U.S. is a younger country, so businesses that started here will naturally be newer than some that have withstood centuries in other parts of the world.

As far as industries that seem to have more family-owned businesses, Joe says there aren’t really any where family ownership is more prevalent. Worldwide, almost every industry starts as family-owned businesses, though government regulation may change family involvement. For example, in the U.S., power generation companies are generally not family-owned businesses, but they are in other countries. Overall, the vast majority of businesses worldwide – 70 to 90 percent – have family involvement.

Bringing in the Next Generation

When only 30 percent of family businesses survive a generational change, it’s important to prepare next generation family members carefully. This is one purpose of family meetings. Family members need to figure out how they will treat each other, for example, and those guidelines may change as each generation matures. For example, cousins in their teens and 20s need to know how to handle boyfriends or girlfriends brought to the group, while parents in their 30s may need to discuss how to interact with or even discipline each others’ children. Families should also begin teaching new generations relatively early about how money is earned and managed. Family members should begin to understand important business concepts, such as balance sheets, equity and depreciation, in their teens and 20s. Joe says learning business is like learning a language; it’s easier to acquire when the student is younger.

Joe says no research has ever been done to determine whether it’s beneficial for a young family member to work outside the business before coming on board. While he says he doesn’t see a problem with allowing people to work elsewhere first, it’s unclear whether it’s better for the family, business or individual.

And when two family members simply don’t like each other? Joe says families must look at the underlying reasons, probably turning to a family therapist or psychologist before looking for business solutions. Often, such conflicts occur when each family member is putting personal needs or desires before the good of the family.

Joe Astrachan’s Three Tips for Family Businesses

Joe calls the following three items the “diet, exercise and don’t smoke” of family business—three things that businesses may not want to do and may not do all at once, but that are vital for healthy businesses.

1. Regular family meetings.
2. A functioning board of directors. Research is inconclusive on whether for privately owned companies the board should be made of family members only or include outsiders, but researchers have found that boards are most effective when they meet three to six times a year. The board should make sure the CEO and top management are doing what they say, when they say they will and with the expected results. The board members should not feel like they’re working for the business, but should remain neutral so they can make difficult decisions when needed.
3. Strategic planning. Family members should have an ongoing conversation about where the business is going, why it’s going there, and how it will get there. Strategic planning allows family members, management and employees greater autonomy. If all know where the company is headed, all can make decisions that support the goals.

Contact Our Guest:

Dr. Joe H. Astrachan
Executive Director of the Cox Family Enterprise Center
Wachovia Eminent Scholar Chair of Family Business
Kennesaw State University
Phone: 770.423.6045
Email: jastrach@kennesaw.edu
Website: http://coles.kennesaw.edu/centers/cox-family-enterprise/index.htm

Our Guest:

Dr. Joe H. Astrachan

Dr. Astrachan holds the Wachovia Eminent Scholar Chair of Family Business and is Professor of Management and Entrepreneurship. He served as editor of the Family Business Review and as an editorial board member of several other academic journals. Dr. Astrachan is an internationally recognized scholar in the field of family business.

Contact our guest:

Dr. Joe H. Astrachan
Executive Director of the Cox Family Enterprise Center
Wachovia Eminent Scholar Chair of Family Business
Kennesaw State University
Phone: 770.423.6045
Email: jastrach@kennesaw.edu
Website: http://coles.kennesaw.edu/centers/cox-family-enterprise/index.htm

Debbie discussed her research into the impact an IAF can have on family-owned businesses when she joined FBR host Meredith Moore in the Family Business Radio studios on Thursday, June 14, 2012.

Accounting and Family Business Interests Collide

For the last 15 years, Debbie has worked with Georgia’s Board of Regents which oversees the 35 public colleges and universities, the Skidaway Institute of Oceanography and The Georgia Public Library System in the state. The Board of Regents sets tuition, approves capital projects, approves presidential appointments, and makes other high level governing decisions. She came to the Board of Regents with 20 years of experience in a combination of private industry and governmental accounting and management positions.  She began her career at the Board of Regents as an audit supervisor, conducting audits and assisting institutions in their audit processes. She then served as the Director of Financial Systems and Services, involving the financial operations of the institutions and assisting them with business processes.  She then worked as the Executive Director of Business and Finance, serving as the Board’s Controller for seven years.

More recently, Debbie has served in a more strategic role as Business Process Manager, where she works with the system-wide implementation of business processes and change initiatives. One of the high-profile projects currently in progress is the consolidation of eight institutions into four. The mergers will include Middle Georgia College with Macon State College; North Georgia College & State University with Gainesville State College; South Georgia College with Waycross College; and Georgia Health Sciences University (formerly Medical College of Georgia) with Augusta State University.

As her career has advanced, Debbie has also steadily pursued academic achievements. She started college when she was 30, earning her associates, bachelors, CPA and MBA. She says she hit sort of a firewall at that point as she searched for a doctoral program in business that would allow her to continue working full time. She was accepted into the first class of Kennesaw State University’s Doctor of Business Administration (DBA) program in 2009, earning her doctorate degree in May 2012. Based on the European model, the class meets one weekend per month so students can continue to work while completing their studies. The average age of students in her class was 50, and the average years of work experience was 30. The experienced professionals learned from each other and from local and global scholars brought in to teach in the program.

As Debbie read about family businesses through her studies, she rekindled her own interest in the topic. She grew up in a North Georgia family-owned agricultural business focusing on poultry and cattle, and she and her husband owned a poultry business at one time. She didn’t think much about family business as an industry; she just saw it as a lot of hands-on, hard work. During her doctoral studies she came across an academic article on internal auditing in family businesses. The research came from Australia, and she found no similar efforts for privately held family businesses in the U.S. She decided to combine her love of accounting processes, governance, and family business to address this gap.

Researching Internal Audits in Family Businesses

Debbie admits that internal audits often carry negative connotations in any business. Employees may consider the process as an effort to police their actions or to catch them in doing something improper. Actually, an IAF is an independent activity that can provide reliable and consistent information to management so they can make good decisions. Not limited to accounting functions, an IAF can look at family and business culture, the company’s level of risk, processes and other aspects of business where management needs information critical to decision making.  An IAF can also help employees and management better understand roles, responsibilities, and mutual expectations.

An IAF should be structured so management knows the information is reliable, with consistent controls, processes, and feedback so management and employees can determine if different facets of the company are performing as expected.

Debbie wondered how often family businesses are utilizing an IAF and if the practice made a positive difference for the companies that relied on them. With the help of a research firm, she surveyed the CFOs or comparable officers of 257 privately held family owned businesses. Of those, 122 had an IAF and 135 did not.

While some studies of family businesses define “family-owned businesses” very specifically, her survey rated family involvement on a continuum. It asked the number of family members serving on the board of directors and in other areas of the company. She asked respondents to rate their companies in the areas of trust, affective commitment and performance using scales established in other studies. Performance was rated both as an objective measure, in which respondents marked their return on sales and equity within a range (to protect privacy), and as a subjective measure, in which respondents ranked their satisfaction with return on sales and equity on a scale of 0 to 100.  A key aspect of her research was the development of a new measure combining family and business culture and how it influences business decisions and outcomes.

Debbie had expected to find that companies with greater family involvement in ownership, top management, and on the Board of Directors would be less likely to have an IAF because the family members who worked closely together would not feel the audits were needed. The results indicated the opposite: businesses with more family involvement on the Board of Directors were more likely to have an IAF. While Debbie says she needs to complete more case studies to better understand the reasons, she believes that when more family members are on the board, those family member owners who are not on the board may show more concern and ask for an IAF to keep them informed of activities in the company. She also says the reason could be that when businesses have boards of directors at the center, the board may be directing management to conduct the audits. With the involvement of more family members, they become more aware of what’s happening in the business.

Why Do Internal Audit Functions Matter?

Because they can increase the bottom line.

Debbie found that having an IAF can increase business performance. In academic speak; she discovered that investment in internal audit functions was statistically significant in increasing objective and subjective performance. The mean levels of trust and commitment were also higher in companies with an IAF, but the results were not statistically significant for those variables.

If an IAF is good for business, why not have one? Debbie believes that the companies that don’t have them are simply younger than those that do. As companies grow, they become more complex and the family member owners more dispersed, perhaps leading to the additional oversight and need for information provided by an IAF.

Debbie says businesses wanting to get started with internal audits may want to outsource the function initially. However, ideally, someone within the company will perform the audit because of their company knowledge and expertise. The auditor must, however, maintain independence and report findings to management and/or the board of directors.

Getting the Word Out, Learning More

Debbie is now working with the Cox Family Enterprise Center at Kennesaw State University to continue her research and develop and present information at gatherings of family businesses and professional organizations.  She plans to provide family businesses with information on the value of an IAF, factors to consider in whether or not to implement, and how best to operationalize the function.  In addition, she plans to submit her current and future research for acceptance in family business and accounting journals and publications.

Next, she hopes to consider other data gathered through her research, including generational and gender data. To expand on her research, she would like to identify characteristics in businesses that might lead them to implement an IAF and conduct case studies with companies who have implemented an IAF recently or might be considering adopting an IAF.

Debbie Lasher’s Three Tips for Family Businesses

1. For businesses that currently employ an IAF, Debbie says that the IAF should be updated as the business changes with new products, services, technology and/or processes. The assessment and any updating of the IAF should be conducted as part of the change process so it will be less likely to meet resistance from employees. Make sure your IAF is focused on the most value-added activities of the business, while considering both the culture of the family and the culture of the business.
2. Businesses that are considering implementing an IAF should involve employees in its design for three primary reasons: the design will be better with more input, employees will understand why it’s necessary, and employees are more likely to embrace the change if they’re involved in the planning.
3. It’s best to plan and implement an IAF before problems arise so that the function is not viewed negatively as a policing reaction to the issues.

Contact Our Guest
Debra Lasher
Board of Regents of the University System of Georgia
Phone: 404.202.5036
Email: djlasher4@bellsouth.net

About Our Guest:

Debra Lasher

Debbie recently earned a Doctor of Business Administration (DBA) in Accounting. Her dissertation, “Antecedents and Outcomes of the Investment in Internal Auditing and the Moderating Role of Family Business Culture,” combines her research areas of interest related to the impact accounting processes and controls have on family business decision making and performance.

Debbie is a seasoned professional with more than 30 years of demonstrated leadership, accounting, management, and training and development accomplishments in business and not-for-profit settings. Currently she serves as Business Process Manager with the Board of Regents of the University System of Georgia spearheading several system-wide change projects. She also continues to manage her consulting practice for not-for-profit foundations and commissions. Previously, she served for several years as the Executive Director for Business and Financial Affairs with the Board of Regents of the University System of Georgia. She has also worked in the private sector in a variety of accounting and managerial roles as well as in other State of Georgia agencies.

Debbie earned her BBA in Accounting from North Georgia College and State University, and DBA and MBA degrees from Kennesaw State University. She enjoys weight training, riding road bikes, running and aerobics and traveling internationally with her husband Harry.

Contact Our Guest:
Debra Lasher
Board of  Regents of the University System of Georgia
Phone: 404.962.3203
Email: Debbie.Lasher@usg.edu

The Butler Group is a sales organization representing wholesale manufacturers and importers of home decorative accents, personal accessories and general gifts in a nine-state Southeastern region. The organization operates an 11,000-square-foot showroom in the Atlanta Gift Mart. The Butlers also are partners in Maison Chic, a manufacturer of baby gift items, and owners of Kaleidoscope, a distributor of jewelry and accessories.

Creating a Job That Won’t be Eliminated

Ed got his start as a janitor in a retail store. He says he gave extra in all he did and was eventually accepted to the manager training program. He then spent 21 years working in management for Montgomery Ward, a now-defunct department store with locations primarily in Texas and the Midwest. While Ed had planned to spend his entire career with the organization, his job was eliminated in 1982. He then worked for Federated Department Stores and managed Rich’s stores in Atlanta.

In 1988, Ed decided to create a job that wouldn’t be eliminated. He visited a business brokerage, where he first looked at retail businesses selling products such as paint, building materials and hardware. Every time he looked more closely at the businesses for sale, he could see their weaknesses. He then came across a manufacturer representative business for sale. Using money earned through investment in rental properties, he and Betty purchased it. Their main cost was for the lease of a showroom, which was located in the Merchandise Mart in downtown Atlanta. (Since then, a Gift Mart has been added to the Merchandise and Apparel Marts, and the three are connected into America’s Mart, the number one market in the nation.) Manufacturers provided free or low-cost samples for displays. Salaries were also a large cost, though he and Betty took no salary in the first two years of the business.

The Butler Group, Inc. got its start selling baskets, a popular item at the time. One of their largest accounts was Cracker Barrel, which offered a room of baskets in each of their stores. The Butler Group had 3,000 accounts managed through the showroom and five sales people who went onto the road to call on stores. About 90 percent of the sales were in baskets, with the remainder comprised of other gift items.

As the popularity of baskets dwindled, The Butler Group had to diversify offerings quickly. They analyzed the 3,000 stores in their customer base to determine the types of products they might use. Because their territory was the Southeastern U.S., they focused on lines that would be attractive to people in the South. In conducting their research, they found that their organization had developed a reputation as being one of the “must-see” showrooms at the America’s Mart. As they started to look for other manufacturers to represent, they found they were already well-known in the industry and their services were in demand.

Welcoming the Family to the Business

When they founded The Butler Group, Ed and Betty had one daughter who had finished college, a second daughter in college, and a son in high school. Ed says that none of the kids wanted to join the business because they thought their parents worked too hard.

Ed and Betty encouraged their children to pursue their interests in college. The oldest of the three, Christy, was working as a director for Mary Kay and home schooling her two children. The second daughter, Paula, earned a degree in theatre. While she landed a couple of bit parts and commercials, she also worked for a jewelry company. Greg worked in the warehouse of a wicker basket/furniture importer during high school. In college, he took every art class he could, exploring many different types of art.

Paula was the first to join the company in 2003. Her job was to drive a mobile showroom to florists. In 2004, Greg came on as showroom manager, using his artistic talents to design displays. Christy asked to come on board after her older child left for college. Ed wanted to use her sales experience, but there was no open sales territory. He gave her the clients that were a low priority for the other sales representatives, and she spent time with them to turn them into solid clients.

Family Meetings and Each Finding a Place

As Ed and Betty started to consider retiring and exiting the business, they realized their children might not have jobs if the business sold. They began working with Joe Astrachan and Kristi McMillan at the Cox Family Enterprise Center at Kennesaw State University. The Cox team interviewed each of the children and talked to the family as a group. They had some family council meetings so the children could become part of their retirement and exit planning.

As part of this process, Ed says he was concerned with having each of his children in the right position to match his/her abilities and interests. He interviewed each privately, asking them questions about their goals and things they enjoy doing. He also asked each what he/she thought the others should do in the company. Ed says they all agreed. Greg wanted to work with the displays and not have dealings with the manufacturers. He thought Paula should handle sales, which was exactly what Paula wanted to do. Christy also thought Paula was best suited to run the group, and she took on the role of cheerleader and supporter. Ed and Betty agreed with the assignments. As a family, they refined their respective roles and agreed to hire others to perform the additional functions.

Other family council meetings included one in which Ed says he and Betty revealed to the children how much money they make. While he says it was awkward for him and Betty, the kids’ response was neutral. The parents tried to express the time it takes to accumulate wealth. The family also talked about profit margins in a business where they work on a commission, which is limited and shared with sales representatives. They agreed to look toward finding a product they could develop on their own so they could enjoy the manufacturer’s margin. They would avoid situations they had encountered in the past where they had helped a manufacturer grow by teaching them good distribution practices, only to have the manufacturer leave them with no interest in the company. By having their own products to distribute, the family business could take advantage of revenue streams at different stages of the manufacturing and distribution process.

Opportunity Knocks With Maison Chic

In July 2008, the owner of Maison Chic offered the Butlers the opportunity to manage her business. The manufacturer of high-end baby gift items, the business had tried unsuccessfully to handle distribution from the factory, and the business had failed. The Butlers responded that they were not interested in managing the business, but they would be interested in purchasing it. Ed says they were mentally prepared when the unexpected opportunity came along because of the discussions that had taken place in their family council meetings.

The Butlers joined the current owner and her husband in a 50-50 joint venture partnership in January 2009. The Butlers handle distribution in North and South America, and the other owners handle the manufacturing and sell from the factory. She also has the final say in the proprietary designs of the textile-related products. Daughter Christy took on a new role and is the Executive Vice President of Sales and Product Development for Maison Chic.

The new line’s brand philosophy is to provide nicer textiles with hand-worked details. These details allow them to increase the price point. The venture has been successful for a number of reasons. First, the Butlers found that the customer base was already there. Store owners had liked the product, they just didn’t like that it was hard to get into their stores. With a policy in place to guarantee delivery, the customers returned.

Also, because the higher end product is primarily used for gifts, it attracts repeat customers. Finally, Maison Chic had the advantage of displaying products in The Butler Group’s nationally known showroom, where sales representatives come in looking for lines to represent. The company now has 150 people selling the line.

New Jewelry Focus With Kaleidoscope

In the original family meeting where new ventures had been discussed, jewelry had been the first idea. It’s small and easy to ship, women love it, Paula had experience, and Betty had a natural interest. In March 2009, Ed and Betty started Kaleidoscope, which offers 2,000 items including fashion jewelry, handbags, scarves and accessories. Their customers are the same kinds of gift stores that carry other items they have represented. Like Maison Chic, Kaleidoscope rents space in The Butler Group’s showroom in America’s Mart.

Kaleidoscope’s product line is also a sign of the times. Ed explained that many gift stores relied on home accents as a large portion of their sales in the past. With the housing bust and fewer people buying new homes, those sales have slowed considerably. His observation is that Americans still want to buy something personal in a down economy, they just buy less. The result is that 11 percent of sales in gift stores now come from fashion jewelry, greater than the amount sold in clothing stores. Accessories such as scarves and purses comprise another 6 percent of sales.

Responding to Changes in Consumer Buying Habits

Ed says it is important in his industry to be able to listen to and react to the customers. He has to be aware and have the flexibility to switch products. Except for the Kaleidoscope and Maison Chic lines, the Butlers do not have to acquire products, but the products The Butler Group represents need to reflect the economic environment. The sales representatives at The Butler Group also serve their customers—store owners—by helping them keep up with trends they may not see while they are tied to their shops.

What are some of the trends Ed is seeing? Right now he says that fashion jewelry, scarves and accessories make up about 17 percent of sales in gift stores. These categories are followed by Christmas items, baby items, candles and related accessories, and picture frames. Picture frames used to be a major category for retailers, but thanks to digital photos and the many new ways of sharing them, they have fallen to only about 1 percent of sales.

He says that this is the year of the scarf. Sales took off in January, and they will be big in the fall. He says belts were popular for a while, but interest has waned. Interest in gold fashion jewelry has increased this year, though silver is still 90 percent of the business.

In the Southern market, Ed says we see more bright colors and more monogramming and personalization than in other areas of the country. One advantage of the specialty stores they service is that they can base their product selection on the clients in their own neighborhoods.

Mixing Family and Business

The Butler family does not schedule regular family meetings, but calls them when an opportunity or need arises. Most recently, they’ve talked about goal setting. Ed has revisited his questions to each of them about what they enjoy doing and how their preferences may have changed in the past several years as their situations have changed.

While he wants to guide them to jobs they find fulfilling and interesting, he has to balance that role with also holding them accountable. They are currently looking at what the market value is for the jobs each of the children holds. Each will then be paid a salary according to his or her contribution to the company and receive separate funds for their ownership in the form of dividends.

The family is also looking at ways to involve the next generation; Christy’s daughter is in college and already helps a little. She is planning her studies so she’ll be prepared to work in the family business.

Outside of business, the Butler family enjoys many family gatherings where they don’t discuss work unless something unexpected comes up and they schedule a brief meeting. Initially, they had planned to have a special family council meeting as part of their annual family-centered Thanksgiving retreat so they could share with the third generation. The grandchildren were not interested, and the family has discontinued the practice.

Ed Butler’s Three Tips for Family Business

1. Allow each child to do what they enjoy and hire others to do the rest.
2. Separate ownership from job responsibilities. Pay a salary and bonus for the job and dividends for ownership.
3. Communicate with each child individually and with all as a family. Listen to the spouses in the family; they know what’s going on.

Contact our Guest:

Ed Butler
Chairman
The Butler Group, Inc.
230 Spring Street NW, Suite 1212
Atlanta, GA 30303
Phone: 404.577.6941 or 800.241.9533
Email: ed@butlergroupgifts.com
Website: www.butlergroupgifts.com
Website: www.Kaleidoscopeaccessories.com
Website: www.maisonchiconline.com

Our Guest:
Ed Butler

The Butler Group, Inc., established in 1988, is a sales organization representing wholesale manufacturers and importers of home decorative accents, personal accessories and general gifts. The organization operates an 11,000-square-foot showroom in the Atlanta Gift Mart. Its territories cover nine southeastern states.

Contact our guest:

Ed Butler
Chairman
The Butler Group, Inc.
230 Spring Street NW, Suite 1212
Atlanta, GA 30303
Phone: 404.577.6941 or 800.241.9533
Email: info@butlergroupgifts.com
Website: www.butlergroupgifts.com

Currently a professor of accounting and management with the Coles College of Business Administration at Kennesaw State University, Dr. Manners began his career as an actuary with an insurance company. He earned degrees in actuarial science and accounting. In his work, he realized that most issues in business arise from the “people side,” so he earned his Ph.D. in management, focusing on behavior. He taught at Rensselaer Polytechnic Institute for 10 years, and then began consulting with large companies, focusing in the areas of manufacturing site start ups and managing research and development. He spent a decade with the James River Corporation as Director of Organization Development and Director of Technology Services.

Dr. Manners then returned to consulting and teaching. He has taught at Kennesaw State University since 1997 and currently works full time with the Cox Family Enterprise Center at KSU.

Family Business Choose Long-term over Short-term Success

Dr. Manners says that throughout his career, he has observed that businesses of all types and sizes are built by a series of choices. Those four types of choices are the same, no matter the kind of business:

1. You choose your attitude.
2. You choose short-term gratification or long-term development.
3. You choose whether or not to take risks, exposing yourself to failure.
4. You choose your associates.

Dr. Manners says the first time he was asked to help a family business in 2002, he noticed that the second generation brothers who owned it were making long-term choices that larger, public companies wouldn’t make. The brothers, owners of an aluminum finishing business, were trying to decide whether to sell the business versus to move it into the next generation. They decided to build it for the next generation. As a result of their planning, the company has quadrupled in size over the last 10 years.

Dr. Manners then started working with a family-owned snack food company. He again saw them making decisions based on a multi-generation time horizon. They were willing to take risks for the long-term, a willingness he says many public companies don’t have.

Dr. Manners says the most dramatic illustration of the different approaches of family business owners compared with executives of publicly owned business comes in watching them manage through different business cycles. He compares the different responses during difficult times in the business cycle with the fable of the tortoise and the hare. Like the tortoise, family-owned businesses are more likely to avoid panic and stay the course.

Changing Perceptions of Debt

Businesses have always used OPM—Other People’s Money—as leverage to help achieve initiatives they wouldn’t meet otherwise. Debt is good; excessive debt is bad. Debt service limits the freedom of a company in the future. The amount of debt considered excessive varies from person to person and business to business according to their willingness to take risk. A good rule, however, is generally, if more than half of your cash flow is going to service debt, your debt is excessive.

Dr. Manners has observed that most companies maintain a significantly lower debt ratio now than three years ago because they worry about being able to repay that debt during tough times. They also are considering more stable long-term debt over short-term debt that can be changed or called in.

Even before the economic difficulties of 2008, family business and large corporations have had different approaches to debt. A large company, such as GE, can negotiate good terms in borrowing. Even a reasonably sized family business, such as a $100 million company, can run into problems. As a result, businesses are being more careful now than before 2008. For example, they avoid balloon payments. They are finding financing on terms that will allow them to stay in business. Dr. Manners also sees them being more careful to keep relationships with bankers, whether they need them or not.

Understanding the Interdependence of Financial Variables

In thinking about debt and risks, Dr. Manners says that family business leaders need to understand the interdependence of four financial variables:

1. The basic earning power of the business. The more earning power a business has, the more freedom it has to grow, pay dividends, avoid borrowing and achieve objectives.
2. Growth objectives. How fast does the company want to grow? Leaders need to plan for growth.
3. Payout. Leaders should consider what they need to pay each year in terms of dividends, to maintain the short-term wealth of the owners.
4. Debt to meet objectives. Leaders need to understand how debt works and how changes to debt, in terms of interest rates, for example, affect the business.

Goals related to these four variables cannot be set independently, but must be considered together.

Preparing the Next Generation for Financial Management in Ownership

Dr. Manners, quoting work by Joe Astrachan and Torsten Pieper of the Cox Family Enterprise Center, says that many family businesses do a good job of helping their future owners understand the financial variables and the responsibilities that come with ownership. Preparing next generation owners, he says, should start early. He recommends the following sequence:

Ages 3 to 5: The child should understand actions and consequences. Waiting too long to teach this lesson, Dr. Manners says, could impact the child for this rest of his/her life.
Ages 5 to 8: The child should understand what money is. It’s more than just coins and paper, but something of value. It must be earned.
Ages 6 to 9: A child should learn how to trade and to reach agreement. If each child has something of value and each has something the other wants, they should learn what a fair trade is. They should understand that it’s better in the long run if everyone walks away from the trade feeling good about it. It’s important to get across while they’re young that it’s not good when someone walks away from an agreement feeling cheated. At this age, siblings should learn to make decisions together because they’ll have to work together when they are owners.
Ages 6 to 10: Children should learn the trade off between short-term gratification and long-term development. (See further discussion of delayed gratification below.)
Teenage Years: After getting children to understand the importance of delayed gratification, it’s time to start thinking about the difference in ownership and business leadership/management. At a minimum, they will need to learn how to be good owners.
Ages 18 to 25: Regardless of their areas of interest and whether they’ll work in the family business, the family should teach future owners to read financial statements. They should learn to recognize changes. Whether parents teach them, they learn at the office, or they’re taught in family assemblies, by the age of 25 future owners should know how to read the statements, and they should be encouraged to ask questions about the business finances. Information should be recognized as a tool for empowerment; families who aren’t willing to share financial information create an environment of distrust.
Going into the business: If the future owner will be going into the family business, he or she should gain experience outside of the business first, unless the company has a large portfolio of businesses.
By 35 years: Owners should develop the “crowning skill” by the age of 35—substantive financial analysis. They should understand the economics of value-added, cost of capital and “Dupont-type methods” of decomposing and return on equity.

Prepare Future Owners Through Understanding Delayed Gratification

Dr. Manners spoke of the “Marshmallow Test” conducted by Stanford University researchers in the 1950s. During individual interviews with 4-year-old children, the researcher excused himself for a few moments. He gave the child a marshmallow and said the child could eat it immediately or, if the child waited until the interviewer returned, he would bring a second marshmallow, and the child could have both. Forty percent of the children did not wait for the second marshmallow. Researchers followed the children for 14 years and found that those who had been willing to forego the marshmallow for the promise of another were more likely to excel in their pursuits, whether they were academic, athletic or in other areas. (View a video of a current version of the test on YouTube.)

Dr. Manners then referred to a 2006 issue of Business Week magazine that focused on leadership. Leaders from many different areas, including sports, religion, government and business, wrote a few paragraphs about leadership. The recurring theme was preparation. When young future owners see the value of foregoing the instant gratification of watching TV or playing video games to do homework or practice skills, they will see that delaying gratification will lead to preparation.

Referring to Tom Brokaw’s book, The Greatest Generation, Dr. Manners observed that the willingness to take action for the future and for others is not as strong in subsequent generations. He says not as many Baby Boomers and younger owners are willing to do what’s best for the family rather than for self. In contrast, successful family businesses will have a multi-generation time horizon. The concept of servant leadership is also more prevalent in family businesses than in public corporations, leading the family to grow not only in the business, but also in values and spirituality.

Teaching Next Generation to be Good Owners

Dr. Manners gave the following qualities of good owners:

1. They are willing to make good decisions for the family, not just the individual.
2. They understand the governance of the company, how decisions are made and how the company works.
3. They work with a multi-generation time horizon.
4. They know how to communicate desires to management and how to solve disputes.
5. They understand how goal setting works.

Many of these lessons begin while the future owners are young, and may be taught through family assemblies. Preparing the next generation is an important role of the previous generation.

Dr. Manners observed that the European family business model tends to set up family members as owners who work with separate company management. This often happens because members of the family don’t trust other branches of the family to make good decisions. He has observed, however that the passion of the owners, such as the third generations now beginning to work in Chick-fil-A and leading Little Debbie, will not be replicated in non-family member executives.

What if the Next Generation Does not Work Out?

While Dr. Manners appreciates the passion family members bring to a business, he acknowledges that family members aren’t always the best choice for succession, and the obvious “next-in-line” family member may not be as well suited for business leadership as others in the family. He says decisions of succession should be made objectively.

In the case where there are no qualified successors, Dr. Manners sees one of two options. First, he says never underestimate the power of people to change. Second, he referred to the book Necessary Endings by Dr. Henry Cloud. Sometimes, he says, a family may have to admit that the next generation can’t continue the business. In that case, they will need to allow the next generation members to live on the dividends, buy them out, or even cut them off.

Dr. George Manners’ Three Tips for Family Business Owners:

1. Do anything you can to develop in yourself and those around you the avoidance of greed. Greed is insidious and will ruin relationships with family, vendors and customers.
2. Assume responsibility for your actions. Understand that it is your responsibility to move forward from where you are.
3. Have the highest regard for the truth.

Contact Our Guest:
George E. Manners, Jr.
Professor of Accounting & Management
Coles College of Business Administration
Kennesaw State University

1000 Chastain Road #4900
Kennesaw, GA 30144-5591
Email: gmanners@kennesaw.edu
Phone: 770.499.3663
Website: http://coles.kennesaw.edu/centers/cox-family-enterprise/index.htm

Our guest:
Dr. George E. Manners, Jr., Ph.D.

Dr. Manners has had decades of experience as an educator, a consultant, and a business executive. His primary expertise is in strategy development, organization design, operational modeling, management accounting, and the management of technology. His clients over the past 25 years include GE, IBM, Cynamid, Philip Morris, Bank of America, Weyerhaeuser, Georgia Pacific, Cox Communications, WellStar Health System, McKee Foods, and Beaulieu.

Dr. Manners has occupied tenured positions at Rensselaer Polytechnic Institute, Clemson University, and now Kennesaw State University. His primary industrial experience was 10 years with the James River Corporation, where he held the positions of Director of Organization Development and Director of Technology Services. Dr. Manners received his Ph.D., MBA and BBA from Georgia State University. He and his wife, Beth, currently live in Acworth, Georgia.

Contact Our Guest:
George E. Manners, Jr.
Professor of Accounting & Management
Coles College of Business Administration
Kennesaw State University

1000 Chastain Road #4900
Kennesaw, GA 30144-5591
Email: gmanners@kennesaw.edu
Phone: 770.499.3663