Foundry industry executives examine family matters: In an era of increasing difficulty for small businesses, this year's conference focused on the keys to managing closely-held firms in rapidly changing times. (2001 AFS foundry executive conference).

With a program that centered on "The Future of Your Business," the annual AFS Foundry Executive Conference drew more than 100 attendees to Ojai, California on September 23-25. In addition to the event's keynote lecture, a government affairs update and the honoring of executive management leaders at the event's banquet, conference attendees also heard speakers provide tips for successfully managing closely-held businesses and insight into trust, tax and contingency plan issues.

National Management Recognition

One of the highlights of the annual conference is the national recognition of industry management officials. This year's event honored two executives. Jim Larson, vice president/manager of industry relations for Waupaca Foundry, Waupaca, Wisconsin, received the Keating Founders' Freedom Award for "significant contributions to the foundry industry and active participation in the fields of government affairs, human resource management, safety/health and education."

Al Hunter, chairman/director of product development, Hunter Automated Machinery Corp., Schaumburg, Illinois, was honored with the William J. Grede Award. Hunter received the recognition "for major contributions in the fields of management, marketing and education that have resulted in expanding the effective use of metal castings."

Rentschler

Memorial Lecture

Delivering this year's Rentschler Memorial Lecture was Bruce Jacobs, president/CEO of Grede Foundries, Milwaukee, who joined the company in 1971 and was named president in 1990. Jacobs' honorary lecture examined the 81-year history of the firm and its three generations of family leadership, which oversaw the growth from a single operation to a multi-plant company that reached $630 million in 2000. (NOTE: the entire lecture is the featured "website-only" article this month at www.moderncasting.com)

"If anything can make one happy to be private, it is a year of low sales, lower profits and the sobering need to close non-competitive capacity," said Jacobs. "Thankfully, family investors are usually far more forgiving than the public and the Wall Street analysts and the investment banking community.

Jacobs traced the evolution of the company from when his grandfather, Bill Grede, a 23-year-old with little education or foundry experience, bought (bankrolled largely by his father and father's friends) the tiny Liberty Foundry (Wauwatosa, Wisconsin) in 1920. Burleigh Jacobs (Bruce's father) joined his father-in-law in 1945 and was named president in 1960 when sales were $12 million. When he left 30 years later, "our sales were $225 million--not bad growth for what is often considered the custodial second-generation in a family business," said Jacobs. "When you are the second-generation coming into a family business--and especially if you are just an 'in-law'--your role is often perceived to be only to protect and preserve the investment of the founder. In my father's case, in addition to covering the downside, he desired also to build something new, more robust, larger and better organized."

After describing his own path at Grede (which started after a stint as a high school teacher and coach), Jacobs shared some lessons learned about a family-run foundry business. A first, and most basic, question to ask, he said, is "why be a multi-generational family business at all?"

"If your answer is to make a lot of money and a great return on investment, I think you're at the wrong conference," he said. After reviewing H Grede's change in net worth over the past 40 years, Jacobs said one would have done "better in a mutual fund with a lot less aggravation."

For Grede, the answer of "why" is answered by the ability to control your own destiny and to perpetuate a specific philosophy of business. "The primary reason for the existence of a family business is that it stands for something--something philosophical, not financial. The real freedom a private family business enjoys is the opportunity to put values above financial results."

After values and profit (Grede has been profitable in all but three of its 81 years), Jacobs cited a number of organizational and operational attributes that are important for the longevity of any family business. These include:

* a good bonus/compensation package to attract strong nonfamily managers without equity opportunity;

* a Board with a majority being outside, unrelated executives;

* long-term lenders who understand the needs of a foundry business and the peculiarities of a family business;

* sufficient size, versatility and diversity of customers and markets to protect against sector downturn;

* modest dividend payments with high reinvestment of earnings;

* outside auditors and zero personal use of company resources by the family.

* succession plans whereby only the CEO position is retained for the family.

The conclusion of the lecture focused on values--the very core of any business, said Jacobs. "We believe strong values will prevail long after economic cycles come and go." He cited specific examples of how the firm's principles guided its behavior in a tough year. Grede's key attributes are:

* Philosophy- "they are written down, but are only meaningful in our behavior."

* Trust-- "is the cornerstone of any relationship and goes way beyond any contracts or agreements."

* Commitments-- "don't get pushed aside when times are tough and they are difficult to meet. In fact, this is when they matter most."

* Perseverance-- "times get tough and a foundry is in a cyclical business. All we can do is keep our eye on the horizon and don't let up."

* Satisfaction-- "when all is said and done, if we have adhered to our principles, everyone should receive some measure of satisfaction--the foundry, the customers, the employees and the shareholders. We don't look for miraculous financial returns or extraordinary results. Steady progress is good enough."

Estate Planning 

A panel consisting of Ross Winn and Gary Ottoson, (both of Haight, Brown & Bonesteel) Richard Kagan, Kagan Life & Health Insurance Services, and David Green, PricewaterhouseCoopers, focused on initiating a process of successful future planning. The speakers noted that the average family business lasts 24 years, and only 30% make it to the second generation. They talked about using trust and insurance to facilitate succession and inheritance plans.

After detailing the pros and cons of the wide variety of insurance options available, the speakers stressed the vital importance of documenting a firm's succession plans. They also covered tax issues, the new tax laws and the effects they will have on planning over the next 10 years.

The panel concluded with an example of the net impact that proper lifetime estate planning programs can have on a family. In one of the scenarios, they demonstrated how gifting minority interests to the children, creating a family limited partnership to hold business real property, and doing a sales-and-leaseback of the principle residence provided a savings of $2 million dollars in death taxes to the heirs of a family-owned business.