“Family Affair”

Is your company a family business or a business family? Although they may sound similar, the two concepts are actually opposites, says Phil Clemens, CEO and chairman of the Clemens Family Corp. (CFC) in Hatfield, Penn.

This is an important issue for entrepreneurs to consider. Family members may not be involved in a startup at first, but that could change as a company grows. "Begin with the end in mind," advised Clemens at a TEI Presidents' Forum, where he shared CFC's metamorphosis from family business to business family.

A holding company for Hatfield Quality Meats, which manufactures pork products, CFC generates about $550 million in annual sales and employs more than 2,200. Twenty-four family members work for CFC with about 200 family members holding stock.

The company traces its roots back to 1895 when Clemens' grandfather, John C. Clemens, began making hams and sausages on the family farm in Mainland, Penn., aided by his wife and their 10 children. Eventually, four of the sons purchased the business.

As the company evolved from survival mode to a more mature organization, it established formal policies and practices. It also became more entrenched as a traditional family business — providing a job for any family member who wanted one. "It didn't matter whether you had skill or education, if you were family, we had a job for you," Clemens says. "And if you did a half-decent job, you probably would be promoted because you were family."

That attitude became more pronounced over the years. "Pay scales were often made to keep everyone fairly equal," Clemens explains. "And it became a family expectation that some day, if you were loyal to the company, you would become an officer, maybe even on the board of directors."

For many years, the business was very successful. Yet by the mid-1990s, the growing sense of entitlement and lack of accountability began to take a toll. Sales continued to increase, but profits as a percentage of sales began a steady downturn.

At first, owners weren't concerned. "We were still paying dividends and giving to charity," Clemens says. "We were doing everything we had done in the past — just not as much. But our actions were clearly pushing us in a direction that would either force us to sell the business or put us out of business."

Neither of these options was attractive, so in 2000, the company began to make a 180-degree turn — from being a family business to being a business family. The difference? A business family has the success of its organization clearly in mind, and while family values remain important, members don't interfere with business operations.

To achieve this turnaround, the company made a number of changes, including:

• Forming a holding company. Instead of operating under Hatfield Quality Meats, subsidiaries now operate independently with better focus.
• A new board of directors. In the past the company's board was dominated by family members. Today the majority of CFC directors are outsiders with strong qualifications.
• HR housecleaning. Some family members working in the business were asked to take early retirement; others were challenged to go outside the business to gain additional experience.
• Restructured management. Clemens, who had been serving as president, CEO and chairman relinquished his presidential post to a fourth-generation family member. The roles were in conflict, he says: "A CEO's job is to look out, to set the vision and pace, while the president's job is to handle day-to-day operations."
• Owners' advisory council. To avoid the chaos of 200 family shareholders giving input into the business, four elected officers now establish expectations for financial results, shareholder values, risk and stewardship activities. The owners' council meets annually with management to share these expectations and agree on objectives. CFC's board of directors reviews these objectives to make sure expectations are realistic and then holds management accountable to reach the agreed-upon goals.

The shift to a business family was painful but worthwhile. "Our profitability has soared, we've begun a diversification process and owners take a very different view of our business," Clemens says. "Instead of blurring family and business roles, we're very clear about which hats we're wearing."