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A US family-owned conglomerate has made next-generation planning core to its governance. CampdenFB looks at its strategy.

Bill Yoh, the third-generation family member of American defence and engineering family business Day & Zimmermann, isn’t about to become a number any time soon. “We don’t want to contribute to statistics about families that, at some point, decided to sell the business or remained distant from it,” he says.

“Whenever we move into the fourth, fifth or sixth generation of Yoh family ownership, there will be someone to keep the family in the business and the business in the family for generations to come. We are trying to think not five years from now, but 20 or 50 years from now.”

The 41-year-old next-gen, who is the chief customer officer and owns the company along with his two older brothers Michael and Harold, is seriously committed to the business. “Our motto is: if we don’t have a thriving, growing family business then we are in trouble. And if we don’t have owners of all generation feeling some form of affiliation or connection to the business, then we are in trouble.”

Although they are now clearly deeply committed to the company, the Yoh family didn’t become involved with Philadelphia-based Day & Zimmermann until it was already established. It was first set up in 1901 as a consulting firm by Charles Day, an engineer, who joined forces with Kern Dodge to found what was then called Dodge & Day. The company soon expanded to offer construction services and was renamed Dodge, Day & Zimmermann in 1909, two years after John Zimmermann joined the business. The Yoh family’s involvement began in 1961 when Bill’s grandfather, Harold Yoh, bought the company.

Day & Zimmerman’s (headquarters pictured right) first big success was landing the contract to construct the machines that made the wrappers for Hershey’s chocolate Kisses back in 1914. It also helped construct the locks in the Panama Canal, build the Niagara Falls electrical substation and was partly responsible for designing the Mercury and Gemini space capsules.

Since then it has become a massive, sprawling conglomerate, which employs around 24,000 people in engineering, construction and related businesses. Munitions are one big area for the firm: over the past five years it has produced close to 125 million rounds of ammunition products for the US government. It currently stores more than 300,000 tonnes of ammunition, maintains around half the nuclear power plants in the US and provides engineering and information technology contractors. Revenues were $2.7 billion (€2.03 billion) in 2011.

The company history and development may sound complicated, but Bill says the transfer of ownership from the first Yoh member to the current third generation was relatively straightforward. “My siblings and I bought the business directly from our father, who, in turn, purchased it directly from his father. There are no cousins involved yet.”

This form of succession may sound smooth, but there are plenty of complexities behind the scenes when leading a business along with your older brothers, reckons Bill.

For a start, despite the business’s pedigree, when the siblings took over they still had to convince people they had what it takes. “We were a billion-dollar organisation with 16,000 employees and all of a sudden you had owners with an average age of 32 and 33 years,” he says. “The initial challenge was convincing and demonstrating to our executives, employees, customers, banks, lenders, everybody, that we were legitimate, capable and could do a lot of the right things.”

Over the years they have worked out ways to manage the complexities of being in a family business. “We are always conscious about what hat we are wearing at any given time – whether it is the hat of brother, shareholder, co-worker, supervisor or subordinate,” Bill says. “This has helped us work through difficult and conflicting periods.”

One of the tough phases Bill speaks about was the transition of ownership from the second to the third generation – when the siblings bought the business from their father Spike towards the end of 1998. They were five of them then – Bill, Harold and Michael, who still work in the business, and Jeffrey and Karen, who have since left.

Harold, 51, who shares the same name as his grandfather, is currently chairman and chief executive of the multi-billion-dollar business, while Michael, 49, is president and chief executive of the ammunition and government services division.

Jeffrey and Karen left the business soon after taking control, selling their shares back to the other three. Entrepreneurial spirit drove Jeffrey away, who wanted to be “one of one and not one of five” – he now heads his own portfolio of companies. But Karen, who died a few years ago, moved out of Day & Zimmermann due to her calling for philanthropy and volunteering.

Pursuing their desires outside of the family business was a wise move, says Bill – having an owner who wasn’t “all in” the company could have caused conflicts within the family and the business. When Michael, Harold and Bill took sole ownership, the first thing they did was discuss what they wanted out of working at the company.

“We handled the transition to our generation by working closely on communication and organisational expectations as owners. We tried to understand each other better, our strengths and shortcomings, dreams and aspirations – basically cleared the air between the three of us,” says Bill, who went in armed with an MBA from the Wharton School of the University of Pennsylvania and two years working at management consulting firm CSC Index.

This is a good strategy when siblings are put together, according to Gaia Marchisio, associate professor of management at Kennesaw State University in Georgia. “It is important to develop self awareness and try understanding what works best for each of the generation in the family. Siblings can often take each other for granted, but communication is important to make things explicit,” she says.

After that, the need to prove themselves to customers and executives kicked in. The three brothers put in place a board of advisers, predominantly with non-family members. The important message then was establishing meritocracy and legitimacy, says Bill (pictured left). “If your last name wasn’t ‘Yoh’, it didn’t mean you couldn’t get any of the top jobs in the organisation. The board was there to ensure no Yoh member gets a promotion without their approval.”

A few years down the road, the brothers once again shifted their focus, from the business’s operational performance to corporate governance, with attention on succession planning. The three brothers have 11 children between them, but just one fourth-generation member, Ryan, currently works in the business. Although the three still have a number of years left at the company, the brothers are already looking at ways to make the transition to the next generation easy.

To that effect, the Yohs organise a day-long meeting, once a year, for all next-gens who are 16 years and older. The first few meetings focused on educating the fourth generation about the business, followed by working together on small tasks – often something fun like a scavenger hunt.

“It was key to tell them about the business’s yin and yang – while it is a wonderful opportunity to be a shareholder, it comes with great responsibility,” says Bill. A mentoring programme has also been launched recently for fourth-gen Ryan, who is Michael’s son. This doesn’t focus on Ryan’s career but deals with work-life balance, family ownership and how it ties together, says Bill, who acts as his mentor.

Family values are also emphasised throughout the company. “Employees everywhere are required to be integrity- driven and make high-road decisions – there is no cutting corners for profits or doing things that will put people at risk,” says Bill. “Being family-run – with the ingrained sense of values, culture and stewardship – helps us be this way.”

Marchisio reckons this focus shows the family’s consciousness to all stakeholders. “It is not just about the family, but also employees, clients, suppliers, the community and the environment, which is the solid base for building sustainable success for the business,” she says.

Interestingly, the family is big on green initiatives – it not only emphasises using alternate energy sources, but also made changes to its internal operations. It stopped using paper when hiring staff – making recruitment online – and moved its main office to an eco-friendly building.

Family ownership played a big role in helping the company cope during the recent recession. Revenues dropped marginally from $2.3 billion in 2008 to $2.1 billion the next year. But recovery was quick – in 2010, the business had sales of $2.4 billion, which rose by $300 million last year.

The fact that they were independent helped. “We could be more nimble in some of the decisions we made,” Bill says. “This wouldn’t have been possible if we were public and there was somebody in Wall Street telling us that we missed our numbers.”

It’s hard work, no doubt, but Bill clearly feels that it is his job to ensure the company’s stability. “There was no pressure to join,” he says. “But I realised early on that there are thousands of other families counting on this family to do the right thing. It was a neat opportunity to make an impact, almost like it was a calling to help move the family business forward.”

This article was first published in CampdenFB, Issue 53

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