Family businesses that stand the test of time - SPECIAL REPORT

Not many family businesses in WA have survived, let alone prospered, beyond the 2^nd generation; we talk to some that have defied the odds to achieve just that.

Steve Samson knows better than most the challenges of keeping a family-owned business together.

The national chairman of Family Business Australia spent nearly 30 years in Western Australia’s oldest family business, Lionel Samson Sadleirs, which traces its origins back to 1829.

“When you do get into a consortium of cousins, which effectively starts with the third generation, it becomes very unwieldy by its nature; the number of people involved and the different personalities,” Mr Samson said.

“I’m fifth generation and so we’re fighting the odds. We shouldn’t be around because of the nature of that succession process from generation to generation.”

Despite the challenges, Lionel Samson Sadleirs is still going strong, having just appointed two sixth-generation family members, Angus Samson and Tom Wisdom, to its board of directors.

The continued family ownership contrasts with many other family businesses, such as Bunnings, Aherns, Boans and Clough, which have been sold into big listed companies.

One factor in Lionel Samson Sadleirs’ longevity is its willingness to bring in non-family members – its chairman Michael Smith and chief executive Neil David are both ‘outsiders’.

It joins a handful of family businesses, including D’Orsogna, Craig Mostyn Group, the Wright family’s VOC Group and the Bennett family’s AMB Holdings, in going down this path.

Staying together

Mr Samson believes the growth of the Lionel Samson Sadleirs business, which is diversified across wine, packaging and logistics, was an important factor in enabling continued family ownership.

“If you go back to the 1940s when we bought into Sadleirs, it was so that different brothers had something separate; they all couldn’t go into the liquor business,” he said.

“My father got involved and really built up the business, which has been probably the strongest part of our organisation.”

Sadleirs started as a brokerage agency but has grown to become a national player in trucking and logistics, with annual turnover of $200 million and 500 staff.

Many other long-running businesses have stayed in family hands, only after certain family members bought out their siblings.

A prime example is ship supply and food service business Sealanes; fourth-generation family member Leeanda Paino runs the business after her father, Sam, moved to outright ownership 10 years ago.

Dawson’s Garden World and Galvin Engineering have also been through multiple ownership changes, all within the same families.

Dawson’s Garden World

HANDOVER: Ian Dawson (right) is preparing to hand the reins to the family's fourth generation, including his son Charlie.

Ian Dawson is the third-generation owner of Dawson’s Garden World, which employs about 90 people at its nursery in Forrestfield and garden centres in Swanbourne, Joondalup and O’Connor.

Mr Dawson said succession across each generation had brought challenges.

His grandfather, who started the business in 1903, had three sons and two daughters.

“In those days, the girls were never mentioned much, they obviously didn’t get a look in,” Mr Dawson said.

One of the sons wanted to go orcharding after WWII, so his brothers bought him out.

“That was the first time they had to do a buy-out; dad had to sell his house to get over that hurdle,” Mr Dawson said.

Mr Dawson’s father and his uncle George owned the business for some years until the 1970s.

“George wanted out, his kids had grown up and he wanted to travel and enjoy life, but dad just loved the place,” he said.

The solution was for Mr Dawson and his cousin Andrew to buy out their parents and siblings.

“It was a complex deal that involved the siblings getting interest payments over 10 years, then a capital payment, plus the parents’ houses, and a commitment to look after the parents financially for their lives,” Mr Dawson said.

The next, and probably most difficult change happened in the mid 1990s after Mr Dawson and his cousin started working on a plan for the former to acquire the business outright.

The buy-out got a lot more complicated when other family members, along with lawyers and accountants and valuers, got involved.

“Once we got so many people involved, they just wanted to sell the whole thing because they thought that would maximise their return,” Mr Dawson said.

It took three years to negotiate and implement the buyout.

“We shed land out of the company and I had to take out a fairly big loan; it was not a happy three years,” Mr Dawson told Business News.

“It could easily have tipped the whole thing over; we were very close to selling the whole thing.”

Galvin Engineering

GOING SOLO: Chris Galvin (left) has become sole managing director of the family business, after his brother Paul moved to a part-time executive role.

Galvin Engineering is one of several businesses built up by Roy Galvin in the 1930s and beyond.

Roy Galvin’s three children undertook a series of transactions to make the business structure manageable for their respective families.

This started with John and Jim buying out their brother, Tony, who became a doctor.

They subsequently split ownership of the various businesses, with John buying the hardware and concrete operations and later the plumbing business, which was much bigger.

Galvins Plumbing Supplies is now run by John Galvin’s son Mark and nephew David Galvin.

Brothers Chris and Paul Galvin bought the engineering business in two tranches, buying out their uncle John in 1992 and their father Jim in 1997.

“There has always been this paring back,” Chris Galvin said.

“They’ve always been very smart, thinking pragmatically – the business was getting bigger and they all had kids.”

The mechanics of buying the engineering business were relatively straightforward – it was independently valued, and the purchase was vendor financed.

Managing growth

BDO director Mark Pollock, who has advised many family businesses, highlights the ‘four Ls’ that contribute to family business success.

The first is ensuring that family members learn about the business world, and acquire broad business skills, before they learn about their own family business.

Family members need to learn leadership skills if they want to take over the family business, and then need to learn how to let go, so the next generation can step up.

When Chris and Paul Galvin purchased Galvin Engineering, they brought their outside experience in accounting and engineering.

That has proved beneficial, as Galvin Engineering has grown from a WA-focused business with $3 million annual turnover to a national business with $20 million turnover and 85 people on board.

It has become more focused, supplying specialised taps and valving for the health, education, research and correctional industries, and has manufacturing operations in India, China and Italy.

Chris and Paul Galvin worked as joint managing directors until about five years ago when they recruited an external CEO.

That didn’t work out, so Chris returned as sole managing director

“We knew we were in for tough times and thought one person would be able to act faster, but still with the support of the other,” he said.

Paul Galvin has moved to a more non-executive role, working two days a week on special projects for Galvin Engineering, plus handling the other businesses and investments the brothers own.

Chris said turnover jumped during the GFC because of the BER education work, but “the past couple of years have been very tough”.

The group has won work on a number of big hospital and prison projects but there has been less underlying small-to-medium work.

Despite that, Chris still has an eye on growth opportunities.

“The next five years are about continuing our expansion into the eastern states, New Zealand and hopefully South-East Asia,” he said

A notable initiative was the establishment of an advisory board, which provides strategic advice and management accountability.

The advisory board is chaired by Cumberland Consulting Group’s Jim Crockett, who has worked as a consultant with the Galvin business for about 10 years, and they are considering appointing a fourth board member in 2015.

Managing the family

Mr Samson urges all family business to maintain an open dialogue to deal with issues like succession and governance.

“There is a lot of research showing that successful family businesses have a strong sense of what their values are, what they stand for, and they are able to manifest that within the business,” he said.

“If you can do that, you’ve got a really strong family business because everybody knows exactly what the rules are and what it stands for.”

His experience also tells him there is no magic formula that applies across all businesses.

“At the FBA, we throw up a framework of best practice, but each family has to adapt it to be appropriate to their history and values,” Mr Samson said.

Lionel Samson Sadleirs, which has about 80 shareholder ‘members’, has a family council and a family charter to deal with these challenges.

“Instead of waiting for an issue to arise and all of a sudden you get a bunfight, let’s talk about all those issues with no heat in it, in a very controlled space Mr Samson said.

Chris and Paul Galvin have led the establishment of two family councils, which are independently chaired.

One deals with their immediate families, and covers the family business plus other investments, which Paul and Chris have shared 50:50.

Paul and Chris are also looking at succession, for both their children and for management of the business.

“These things have a habit of sneaking up on you, so you can’t leave it,” Chris Galvin said.

They also helped in the establishment of the Jim Galvin Family Council, which includes their parents and three sisters.

 “It was a way of getting mum and dad to the table, and saying ‘instead of dealing with this in a will when you’re dead, let’s talk about this as a family and deal with it while you’re on your feet and enjoying life’.”

The family council meets four times a year.

Chris said the children would get invited on to the family council after they turn 21, but they needed to be interested.

They also used the council to start the James Galvin Family Foundation.

It has supported a range of causes, including for the performing arts and music, child education, health advocacy, the homeless and drug rehabilitation.

“We’ve also used it very much as a learning vehicle, for all of us, but more so my sisters who were less involved in the earlier years,” Chris said.

It includes clauses to deal with family members who want to do charitable work overseas.

The children have a separate committee in the charitable foundation, and they are responsible for disbursing some of the money

“That has really got traction over the last few years, they are now going out and researching and meeting with people.

“By getting involved in that they get a better understanding of the businesses, which is where the money comes from.”

Mr Galvin said the structures that had been out in place helped him segment different roles.

“The businesses are run professionally; we don’t just sit around the dinner table and chat about it.

“We’ve got a senior management team that meets monthly and I’m part of that; when I go to the board I report as CEO; and when I got to a family council meeting, I’m there as a council member.

“They are separate hats I wear and that helps to put in focus what you are there to talk about.”

He emphasises that Galvin Engineering is still very much a family business.

“One of the main reasons is the way we interact, our sense of purpose, our involvement.

“We can’t offer the money and the career paths that people might get in a larger business.

“We can give them security, a sense of purpose, fun, respect as a person, and certainly involvement.

“Everyone is in a profit sharing scheme, they all know what profit we make.”

Succession planning

Ian Dawson started working on a succession plan nearly 10 years ago, after being prompted by his wife.

“Helen asked, what if you die, what are we planning?”

“That started my series of ’When dad dies’. It was about three foolscap pieces of paper.”

Mr Dawson recalls giving the first version to his three children as the family was boarding a flight to Melbourne.

“They were all sitting together behind us, and I could hear them laughing as they went through it,” he said.

However, the first draft served a serious purpose; it started a family conversation that is continuing today.

“I’m up to number five or six now. It’s changed as they’ve had input into it.

“So that’s my succession plan and it’s evolving.”

Keeping the family involved

Mr Dawson wants all of his children to be involved in the business “but I want to create areas where they can take it in new directions”.

“The current business can keep growing but we can also go off in a few tangents, so long as we do it in a measured way,” he said.

This includes using the family’s Yallingup vineyard to establish a Dawson label, led by his daughter and winemaker, Liz, and building up the food side of the business at Forrestfield.

“At the weekends, we can’t handle the crowds who want to have a light lunch or Devonshire tea,” Mr Dawson said.

Steve Samson said that family businesses need to ensure family members are engaged in the right way, and can make a positive contribution.

“I’ve said this before and it’s pretty critical,” he said.

“You want to encourage family in the business, and you need to put them in a situation where they are going to be supported and succeed, because if they don’t succeed, everybody loses.

“You educate them, and put them in a position where they can add value, and through that you try to maintain the essence of what it is to be a family business.”

Mr Samson said it was a “recipe for disaster” if family members lacking appropriate skills and experience were put into positions beyond their capabilities.

To help families deal with these issues, the FBA runs a directors course tailored to suit family businesses.

It also hosts an annual conference, which Mr Samson said was an opportunity for families to share their experiences.

“People can share their stories, and don’t need to worry about competitors,” Mr Samson said.

“The willingness to share is just amazing; you learn a lot from each other.”

Chris Galvin and his brother Paul have attended a dozen FBA conferences.

“The best thing is when you get the families up on stage sharing their ‘warts and all’ stories,” Chris said.

“Some are very successful stories and others are gut-wrenching stories of where it all went wrong.

“They share that so that you don’t go down the same path.

“Typically the bad ones result from people making assumptions, or poor communication, or leaving things too late.”

Chris said he and his brother, along with some of their senior staff, also benefited from their membership of The Executive Connection.

Chris meets once a month for a full day with 15 other CEOs, where they share their experiences and help each other.

“That’s been invaluable, especially in hard times,” Chris said.