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Keeping it All in the Family? Not Necessarily

The Globe and Mail – Monday, November 14, 2005 – Page B12

Marketplace forcing more CEO/founders to rethink priorities about a successor, Shirley Won reports

WOODBRIDGE, ONT. -- Robert Schad founded Husky Injection Molding Systems Inc. and ran it for 52 years, but when it came time to find a successor, his children were never in the running.

In late September, he stepped down as chief executive officer of the publicly traded plastics technology giant, and handed over the reins to John Galt, Husky's 45-year-old chief operating officer. "I never wanted to build a family company," according to the 77-year-old entrepreneur who founded Husky in his garage in 1953 and has four children from two marriages.

Children of entrepreneurs don't always have the traits needed to run a company today -- especially with global competition, Mr. Schad says in an interview at the headquarters of Earth Rangers, an environmental charity in Woodbridge, Ont.

"In this world, you have to be the very best."

With an increasingly competitive global business environment and pressure to increase shareholder value, more CEO/founders are overlooking their gene pools to hand over the top job to professional managers they feel can take the firm to the next level.

"CEO/founders are being forced by the global market to think more broadly about the capabilities of their successor beyond family members," says Randy Cheloha, a Philadelphia-based partner with Mercer Delta Consulting.

But that decision doesn't come easy for entrepreneurs because the decision to appoint a successor is often an "emotional" one, and the preference is still usually to groom a family member, Mr. Cheloha says.

The challenge of handing over the top job to one's offspring was evident last Thursday when Jean Coutu, 78, took back the reins from his son as CEO of the Longueuil, Que.-based publicly traded drug store chain that bears his name.

The move by Mr. Coutu -- who had stepped down three years ago from Jean Coutu Group (PJC) Inc. but still controls the company -- was part of a shakeup aimed at fixing its struggling U.S.-based Eckerd stores that were purchased last year in a $2.4-billion (U.S.) deal. The company's shares had tumbled as investors grew impatient about a turnaround.

Asked if an outsider might now take over, Mr. Coutu replied: "Time will tell."

Under the company's new structure, Mr. Coutu's son, François, 50, lost his president and CEO titles, and was demoted to president of the Canadian operations. He also became vice-chairman. Mr. Coutu's other son, Michel, 52, still retains his job as head of the firm's U.S. division, but his key responsibilities fall to newly appointed executive vice-president Pierre Legault, who is also a company director and head of the dermatology division of Paris-based pharmaceutical giant Sanofi-Aventis SA.

"What is impressive is that the Coutu family has separated ownership from management," says Aron Pervin, a Toronto-based family business adviser. "It appears that they are making decisions from an owner-value perspective -- from the owning family as well as all investors."

But Mr. Pervin says he sees a growing trend by family-owned firms to seek professional managers to run their companies. That move is being triggered not only by the CEO/founder, but also their offspring, he adds.

"I am finding more and more families are putting their ego in their pocket ... and are looking at keeping their legacy -- their business -- in good hands."

Stewart Thornhill, a professor of strategic management and entrepreneurship at the University of Western Ontario's Richard Ivey School of Business, suggests there is also more pressure to seek non-family related CEOs in publicly traded companies.

"There is much pressure from shareholders through board governance structures to professionalize management," Mr. Thornhill says.

Mr. Schad, whose family controls nearly 48 per cent of Husky, says he was too busy running the company to think about succession until about 10 years ago. That's when he started to "watch people more closely [in the company] to see who could take over."

Bolton, Ont.-based Husky, a leader in making equipment used to produce everything from soda pop bottles to auto parts, has about 3,000 employees worldwide. It also has "campuses" in Milton, Vt., Luxembourg and Shanghai.

Luanna McGowan, a partner with PricewaterhouseCoopers, says any search for a professional manager would involve doing a strategic review of the company to decide where it is headed, and what skill set is needed to drive the firm.

Those skills often differ from the founder's entrepreneurial traits and vision for innovation that made the company successful, says Ms. McGowan, who also heads the Hamilton-based Centre for Entrepreneurs and Family Business.

Mr. Schad, who built Husky through innovation and creativity, agrees the company needed someone who was different from his "fly by the seat of your pants" style.

After consulting with U.S. management gurus such as Jim Collins and the late Peter Drucker, he was convinced his successor should be a non-family manager from within Husky's ranks, as opposed to an outsider, because that would cause "the least disruption."

He never saw his children, including two daughters and a son who are now in their 40s, in the top job. He also has a 12-year-old son from his second marriage.

Mr. Schad says several internal candidates were considered for the CEO post, and were given challenging assignments in recent years to see how they would perform.

But it became evident that Mr. Galt was the best candidate, partly because he turned around Husky's troubled Luxembourg operation from 2001-03 and "improved its profitability," Mr. Schad says.

"With a smaller company, my style works well, but with larger companies, you need more professional practices. I am more intuitive. John analyzes every situation very well, but he is also very passionate about what he is doing."

(Mr. Galt, who joined Husky in 1985 after graduating with a bachelor of mechanical engineering, is divorced from one of Mr. Schad's daughters. He has remarried, and has a family.) In Husky's case, there was an eight-month transition period from the announcement of Mr. Galt last January as the next CEO. "It offered me a rare opportunity ... to get my head around the job," Mr. Galt says.

Mr. Schad is not totally removed from the company though. He is still on the board of Husky and spends a few hours a week in the office.

But he devotes most days to running Earth Rangers, a charity he founded that operates environmental programs and operates a wildlife hospital in a sprawling energy-efficient building on the grounds of the Kortright Centre for Conservation.

"I still want to build something," Mr. Schad says.

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