ACResolution Magazine

A Mediator’s Role In Successful Family-Owned Business Transitions:

A Case Study

Both families and businesses can find transitions
difficult. Combine family and business – as in fam-
ily-owned businesses – and the difficulties grow
exponentially. The network of family relationships
(the family system) invariably brings conflict that
can jeopardize the survival of family-owned busi-
nesses into the next and succeeding generations.
Mediators trained and experienced in the complexity
of advising family businesses can play a crucial role
in helping those businesses avoid the outcome so
aptly expressed in the adage “Shirtsleeves to shirt-
sleeves in three generations.”
We will illustrate the role of neutrals in helping
navigate three typical types of transitions that fam-
ily-owned businesses face: transitions in leadership,
governance and ownership, using as a case study a
hypothetical family-owned business, Simpson Gar-
den Supply.

SIMPSON GARDEN SUPPLY, INC.

Simpson Garden Supply Inc. (“SGS”), was formed in 1980 by Bob Simpson (now aged 62) and his brother Bill (65) as a garden supply and landscaping business in White Plains, NY. SGS is a New York corporation, with 15 full time and 10 part time employees When organizing SGS, Bob and Bill allocated themselves 40% each of the 100 shares and 20% was sold for $50,000 to their sister, Hope (64), and her husband, Larry (70). Over the years SGS became primarily a wholesaler to small retail garden centers and a landscape contractor for large commercial and public projects. There are a few large competitors, including Jones Landscape Supply, Inc. (“JLS”), of Albany, but SGS has the advantage of being geographically closer to the customer base in Westchester County, NY and Fairfield County, CT. Six months ago JLS made overtures to Bill to acquire SGS, but he and Bob have declined to consider selling.

Bob focuses on business planning and sales and
Bill takes care of plant stock, inventory, equipment,
and supervising the outside staff. Bob’s wife Bar-
bara (58), handles the financials, runs the office
and supervises the retail operation. Two non-family
members are also key employees: Jeff Hackett (40),
is Vice President-Sales and Sam Winslow (38) is Vice
President – Operations. Both have been with SGS
for over 10 years and are considered almost indis-
pensable. A few days ago, Bob and Bill became aware
that both Jeff and Sam have been approached by a
local investor to set up a new business to compete
with SGS which would pay them 30% more and give
them each 20% of the shares.

Bob and Barbara have two children, Katie ( 25), a college graduate with a degree in business, currently working for a department store in New York City, and Carl (30), a rock musician. Katie recently married Bruce (29), who dropped out of college to manage his family’s organic vegetable farm in Ridgefield, Connecticut (approximately 45 minutes from White Plains), after his father’s stroke. The farm supplies high-end restaurants and specialty markets in the New York City area. Carl recently married Chelsea ( 24), a land use planner who is CEO of Green New England, a well-funded grass roots organization working on projects to make the Northeast more environmentally sustainable.

Bill and his wife, Kathy, have two children, Stephen (28), who teaches at Columbia University, and Dolores ( 17), who has had difficult teenage years and is currently attending a therapeutic private school in Massachusetts. She has a high IQ and is said by her math teacher to be a computer genius.

In 2014, SGS gross receipts were $6,000,000, net profits were $800,000, distributed pro rata to shareholders –Bob and Bill receiving $320,000 each, Hope and Larry $160,000. SGS pays salaries to Bob and Bill ( $200,000 each) and Barbara ($75,000).

After a late night conversation last month, Bob and Bill acknowledged that they needed to think about eventual retirement. Bob insisted that his children Katie and Bruce should take over when he retires. Bill said that his children Stephen and Dolores should definitely have leadership roles in the next generation. Although Bob and Bill expect to continue to work for the next few years, they agreed to start thinking seriously about transitioning the business to the next generation, with the understanding that they both wanted to have retirement annual incomes

About the Author

WARREN
BAKER, J.D.

is a full-time mediator, group facilitator and family business advisor located in Chicago, with a national practice, The Family Business Fulcrum. He co-chairs ACR’s Commercial Section.