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FAMILY HANDOFF.

Byline: Sherri Buri McDonald The Register-Guard

Local family businesses know that passing the business from the old generation to the new can be a risky time rife with conflict.

They probably don't know, however, how few owners actually prepare for this inevitable transfer of wealth and power.

In a recent survey of family business owners - the first to zero in on the Pacific Northwest - 57 percent admitted that they don't have a written succession plan that has been communicated to the next generation, said Pat Frishkoff, a Eugene-based family business consultant.

Frishkoff conducted the survey for Laird Norton Tyee, a Seattle-based, seventh-generation family-owned business, which celebrated its 150th anniversary this year.

Frishkoff surveyed 93 owners of businesses in Washington, Oregon, Hawaii and British Columbia.

Oregon is a state dominated and dependent on family businesses, Frishkoff said.

It has a larger proportion of family businesses than many other states because it has a smaller proportion of large, publicly held companies, she said. Rural counties tend to have a higher proportion of family-owned business than urban ones, and Lane County is no exception.

What's distinctive about Lane County is the concentration of second- and third-generation family businesses that are 50 to 70 years old, Frishkoff said. Many of these firms are thriving, she noted, because the next-generation leaders are coming into their prime during a good economy.

But the true test of their strength - and ultimate survival - will come later as the senior generation dies, Frishkoff said, and the heirs find out whether an ownership transition plan is in place that can minimize conflict among family members and maximize the wealth retained by the family.

The odds of a family business lasting several generations are slim.

More than 30 percent of family businesses will survive past the first generation and into the second, according to John Ward, professor of family enterprises at Northwestern University's Kellogg School of Management. Twelve percent will still be viable into the third generation, he said, and 3 percent of family businesses will operate in the fourth-generation and beyond.

Eugene-based Forrest Paint Co., and the Gibson family's Lochmead farm, dairy and Dari-Mart retail operations, based in Junction City, are two local family-owned businesses that are working hard to try to beat those odds.

Father to son

A successful handoff to the next generation requires much more than just grooming a child to take over the business, or giving the business to a child.

Frishkoff identifies three stages of business succession: "The process is letting go of day-to-day decisions, letting go of strategic decisions, then letting go of ownership."

All three stages are important, she said. A founder can effectively pass on the management of a company, but fail to pass on ownership. Then taxes take a bigger bite of the business than they need to, which can put the company at risk, she said.

Specialty paint manufacturer, Forrest Paint Co., is in the beginning stages of both management and ownership succession, said Scott Forrest, 60, who founded the company in 1973.

He and the oldest of his three children, Mark, 33, began thinking of these transitions about four years ago, when Mark made it clear that he was committed to the family business for the long-haul.

Scott said: "I was getting to the stage in my life where I was asking, `Do I sell to someone outside? Do I sell to my employees?' Then Mark said, `I think you can plan on me being around.' "

The elder Forrest said he tried to let his son make up his own mind and not pressure him to take over the family business.

After running the paint company for 32 years, Scott said he sees the pros and cons of being a business owner.

"Owning your own business can seem from the outside to give you lots of freedom," he said. "You're your own boss. You can set your own hours. But in reality it can really be a prison. You don't have the opportunity to tell the boss, `Take this job and shove it.' You're stuck there."

Scott did, however, insist that his son enroll in an MBA program, so he would have the solid accounting and financial background to "make logical, quantitative decisions."

The elder Forrest has a chemical engineering degree from Northwestern University and said he completed all the work toward an MBA except a thesis.

With an undergraduate degree in music from the University of Southern California, Mark agreed with his dad that he needed more formal business training to eventually run a company the size of Forrest Paint, which has 130 employees. The privately held company does not release financial information.

Last year Mark completed the Oregon Executive MBA program, a joint program of the University of Oregon, Oregon State University and Portland State University.

"The MBA program was a turning point to give me the confidence to feel like I could manage an organization like this and to see the value in continuing it," Mark said.

"There are a lot of risks in any business, and having the education to understand and manage those risks is key to making the generational transition," he said.

Over the years, Mark has learned more about the business and has taken on more day-to-day responsibilities. He's in charge when his dad is on vacation. "Things go very smoothly when I'm not here," Scott said. "The other managers are very comfortable working with Mark."

Beyond the second generation

The Gibson family, with their Lochmead farm, dairy, milk and ice cream processing, and Dari-Mart retail enterprises, are planning to be among the 12 percent of family businesses still alive and well in the third generation.

Howard and Gladys Gibson founded their Junction City farm in 1941 and steadily built it into a vertically integrated company - from dairy farm to dairy retail store - with a division apiece for four of their five children to run.

Mike, who was always drawn to farming, manages Lochmead Farms, which grows a range of crops, including grass seed, mint, hazelnuts, sugar beet seed, green beans and corn, on 3,500 acres in Lane and Benton counties. Warren, who goes by the nickname "Buzz," looks after the dairy herd. Jock heads up the milk processing plant and Pat Gibson Straube and her husband, Gary, oversee the chain of 43 Dari-Mart stores, which are scattered from Corvallis to Cottage Grove.

Another Gibson sibling, Judy Olmstead, lives in Spokane, Wash., with her husband and family.

Thanks to advance planning, and founders who were willing to move away for several years in the 1970s - physically separating themselves from the business they had built - while their children managed it, the transition from first generation to second generation was relatively smooth.

"It was pretty seamless going from my parents to the siblings involved," said Pat Straube, the Gibson's eldest daughter and human resources director for the family businesses.

"This is probably what has made the family work so well together," she said. "Each brother had an area to supervise that was equally important to the whole," Straube said.

In the early '70s, after the 1965 launch of the Dari-Mart stores as retail outlets to sell Lochmead dairy products, Pat and her husband, Gary, found their own place in the family business. The couple and their family moved to Junction City from Portland, and Gary became general manager of the Dari-Mart operation.

"It really has been a joy" working with family members, Straube said. "It's been fun. We haven't had problems. It doesn't mean we haven't glared at each other, but we haven't had any knock-down, drag-outs."

Now, just as the second-generation Gibsons were encouraged to follow their own interests, they are encouraging their children to do the same.

For several of the third-generation, that has meant building careers in the family business. Kurt Straube, 40, is Dari-Mart operations manager. Jock's daughter Kim, 31, works alongside her father at the Lochmead milk processing plant. Jock's son Scott, 29, helps his uncle Mike manage the farm operation. And Chris Gibson, 24, works with dad Buzz at the dairy.

Other cousins are pursuing other interests now, but may return to the family business down the road, Straube said.

She said she encourages the younger generation to work other places.

"Get confidence in yourself; get some more skills," she said. "If you just jump in working for yourself, you never know what it's like on the other side."

She said she and her brothers want the family business to continue, and the next generation of Gibson and Straubes to run it. But that doesn't mean anyone is guaranteed a career at the company.

"Just because your name is Gibson doesn't guarantee you're going to walk in and work for the company," Straube said. "You're going to start at the bottom and work yourself up."

Straube, 66, and her brothers are all still very active in the business. Even their mother Gladys, 88, still goes to the office every day, Straube said.

"She signs the payroll checks and does accounts payable," Straube said. "She's still the president of the company."

But as the second generation ages and eases back on their day-to-day involvement, the systems are in place to transfer management and ownership to the third generation, Straube said.

Through ownership of company stock, each family unit has equal ownership in all the units of the companies, Straube said. Those shares may only be held by descendants of Howard and Gladys Gibson or by their spouses.

Each of the second-generation Gibsons are giving shares to their children, as they're ready to do it, Straube said.

Who's the oldest of them all?

We want to know what is the oldest, continuously run family-owned business in Lane County. Please e-mail nominations to reporter Sherri Buri McDonald at sburi@guardnet.com, or send them to The Register-Guard, 3500 Chad Drive, Eugene, OR 97408.

Please include the name and location of the business, founding date and contact information for the business.

Myth or reality?

Setting the facts straight about family-owned businesses

Myth: Family-owned businesses are small businesses.

Reality: Some of the world's largest businesses are family-owned, including the world's largest retailer, Wal-Mart Stores Inc., controlled by the Walton family of Bentonville, Ark.

Myth: Family-owned businesses don't contribute much to the national economy.

Reality: Family-owned businesses contribute 64 percent of the gross domestic product and employ 62 percent of the U.S. work force

Myth: Families in business are mostly in it for themselves.

Reality: Small and family-owned businesses contribute more to their communities, on a per-employee basis, than their large, publicly owned counterparts, according to a Small Business Administration study. CEOs of family-owned firms earn on average nearly 10 percent less than their nonfamily counterparts. And, in hard economic times, executives at family-owned firms might even take a pay cut.

- Source: Family business consultant Pat Frishkoff and The Family Firm Institute

CAPTION(S):

Kurt Straube (left), Kim Gibson, Scott Gibson and Chris Gibson work in the family business. Chris Pietsch / The Register-Guard Sara Gibson, 1, and her grandmother Gladys Gibson look over a stock certificate.
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Title Annotation:Business; Second- and third-generation companies in Lane County are thriving
Publication:The Register-Guard (Eugene, OR)
Date:Dec 25, 2005
Words:1844
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