Suzy Bibko is editor of Families in Business.
From chicken house ventilation to climate control systems, the O'Hea family have turned the Colt Group into a global concern. Strong research and development and a business-like approach to the family council are the foundations, finds Suzy Bibko
When entrepreneur Jack O'Hea (pictured) began a business venture with William Colt in 1931, he probably didn't think the company would end up going very far. Pessimistic? Not really. Just realistic, as 48 of O'Hea's hitherto business ventures had failed. Almost 75 years on, that business venture has grown into the Colt Group, an international company based in the UK that offers its customers the best in products and systems to make the environment associated with buildings healthy, safe, productive and comfortable. In other words, Colt Group is providing people with a breath of fresh air.
The company has been steadily growing since its formation 75 years ago. Jack had shown a flair for supporting a wide variety of business ventures and was not afraid of failure: his motto was "the sky's the limit". From humble beginnings in chicken house ventilation, O'Hea went on to develop blackout ventilators during the second world war and then on to smoke and climate control systems for buildings. Today, the company has sales in excess of £115 million and continues to invest in the future.
Simon O'Hea, director of Colt Group and marketing director of Colt International (a subsidiary of Colt Group), is O'Hea's grandson. The only third generation member presently working in the company, Simon recalls how the company quickly expanded overseas early on: "The 1950s was a time of many milestones in terms of the company and the family. On the business side, we saw the start of overseas expansion with the aid of manufacturing licenses in Australia, New Zealand and South Africa. The overseases licenses worked out well for us; and in 1960 we set up a joint venture with a Dutch company as a spearhead of expansion into Europe, with new companies formed soon afterwards in Holland, Belgium and Germany. The philosophy was not to remain a minority partner, but to use a joint venture to attain quick growth and then hopefully to persuade the partner to sell their shares – which happened in most cases."
Right from the start Jack invested heavily in research and development, setting up an in-house wind tunnel. In the 1950s a new opportunity appeared. Simon recalls that: "Following a large fire at a car factory in Livonia, USA, Colt started to sponsor and participate in research programmes to develop the science of smoke control. These programmes have spanned many decades. Smoke control essentially allows smoke to escape from a building in the event of a fire, thereby reducing risks to life and property. The sponsorship and participation in this research continues today."
It was so significant, in fact, that it prompted Simon's grandfather to gift a large proportion of Colt's shares into a new trust called the Colt Foundation. The Foundation funds research projects in the field of occupational and environmental health, especially those aimed at discovering the causes of illnesses arising from conditions at the place of work. The Foundation also supports students studying related health issues, who will become the scientists of the future.
"The work of the Foundation very much underpins the values of the family, as well as reflecting what the business does, in improving people's living and working conditions," says Simon. In addition to funding research, the Foundation also makes grants through selected universities and colleges to enable students to take higher degrees in subjects related to occupational and environmental health and sponsores the award of PhD fellowships.
It is felt that people view the business differently with the Foundation as owner, even though the family does not devote a lot of resources to its promotion to the general public. The Foundation is a significant shareholder of the business, with 22% of the equity.
Several members of the family attended the inaugural FBN Leading the Family Business Conference in Geneva in 1988. As a result, the Company bought back a number of family held shares to concentrate the ownership within the two families of the then working members. "We saw the need to reduce the shareholding pool, to prune the family tree, and to reduce the shareholding of the Foundation," recalls Simon.
"The original gift of the Foundation was 33% of the equity," explains Simon. "This share reorganisation enabled this to be reduced. It was felt that the trustees could unduly influence the future of the company and that the family shareholding group should have a greater say."
Apart from two other small charities with about 1% each, the remainder of the equity (about 59%) is now held by two discretionary trusts controlled by the families of Jack's two sons. "So, the FBN conference was a big turning point for us", reflects Simon.
This business-like approach to ownership is another reason Colt Group seems to breathe easy. The family seems to be able to take potentially emotionally charged situations in its stride. Gradually the family has been handing over the management of the company to outsiders. "We have a positive attitude to promotion on the basis of merit," says Simon. During the 1990s the Board had almost exclusively consisted of family members. At the end of the decade a new Board was established consisting largely of non-executive directors, one of which became the non-executive chairman. With the retirement of Jack's grandson Paul as CEO in 2003, the family then appointed its first non-family CEO.
Another major development was the setting up of the Colt Shareholder Council in 2000. "We feel it's a good model and enables us to be slightly removed from the daily workings of the family business and be a bit more objective about what we want from the business. We have created a Constitution. The Council has enhanced the communication between the company and the shareholders. It is a means of debating issues before they develop into major problems. A permanent outside advisor has improved the skills and knowledge of the shareholders".
The new CEO has implemented five key strategies to achieve growth. He has taken measures to unify the Group and to invest more strongly for the long term. As a result the Group has grown steadily, with an increase in turnover in 2005 of nearly 13% over the previous year. Colt has recently bought out its joint venture partners in Saudi Arabia and France, established new offices in Dubai, Taiwan, Prague, Bratislava and Warsaw, and now has new representation in Australia and South Africa. Forays are also being made into the US. "We're building our presence there, but it's a very difficult market for an outside company to tackle," explains Simon of their hesitation to join this potentially lucrative market. "It's a very, very big market. They do things differently over there, and there is a lot of domestic competition." The strategy is different in Asia. "In 2006 we set up a new factory in China, principally to service the domestic Chinese market," says Simon. "We're expecting great things from that part of the world."
Few companies, even within such specialised sectors as Colt operates in, operate a monopoly. In order to differentiate, Colt aims to demonstrate, and live out, unique and special values. "The values we want to communicate are the following. We're financially strong and stable – we're here for the long-term. We're dependable, and we won't let our customers down. We're knowledgeable about the technologies and techniques that we bring to the market. We're not only wide in terms of the breadth of technology, but we're vertically integrated in so far as we have five factories around the world and we control the quality of the goods from the metal coming in, to the manufacturing and then when the material is serviced. We manufacture about 40% of what we market and we have international reach, which is of increasing importance with the steady globalisation of construction," says Simon.
Business and family values are something many family businesses hold dear, and justifiably so. In a fast-paced world where speed doesn't always equate to quality, a long-term vision and commitment to values is a breath of fresh air. "Over the years, we have demonstrated long-term vision and patient capital," explains Simon. "In terms of vision and values, we believe our familiness and family culture permeates the company. Our vision is that we're agile, we show integrity and we're passionate. We do try and live those things out, though it's an area where we can always do more. We also believe that one advantage of being a family business is that we have personal relationships with all our stakeholders which has a positive impact on our employees and the local community."
Simon says that the Colt Shareholder Council is an excellent forum as the family firm charts its course for future generations. "We are aiming to maintain momentum and adaptability in the business without the availability of deep pockets that some of our competitors have. Indeed, differences of opinion, and thus the need for an effective forum, are likely to become more marked as the shareholding group has become more and more dispersed, and as both the family and the business grow. These differences of opinion relate to the acceptable levels of risk and return, and policy for re-investment and dividend policy. Moreover, in the longer term, the shareholder council plays a key role in enabling the family and the company to find the financial means to allow some family members to divest themselves of their shares".
It must be all that clean air that makes for such clear thinking.