Barbara Murray is Editor of Families in Business magazine.
Innovative vision and strong values have guided GW Sohlberg through 125 years of mixed fortunes and unexpected surprises
Family business success often comes at a price and many lessons have been learned by the four generations of Sohlbergs who built and shaped GW Sohlberg. The most notable of these lessons is to make sure meticulous plans for continuity are in place – with the understanding that unexpected events may put these plans into complete disarray.
The planning process brings peace of mind or perhaps the illusion that fate can somehow be controlled. But events can dictate that a different course of action is needed. In such circumstances, the Sohlberg's family values of commitment to its enterprise and employees have seen the family and the business through several upheavals in the past 125 years.
With a group turnover of €63 million in 2001 and over 600 employees in Finland, GW Sohlberg (GWS) is a significant business in a country with a population of just over five million people covering a massive geographical spread and challenging climate. GWS has interests in a diversified mix of wholly-owned firms, some struggling with intense competition in traditional, saturated markets, or in geographically distinct markets where competition has intensified.
These subsidiaries focus on internal efficiencies and productivity improvements, alongside exploiting marketing opportunities. GWS activities include industrial workstations and production systems (GWS Systems), project management and production of retail shop-fitting equipment (GWS Pikval). These businesses are dominant in the Nordic countries, and have a significant presence in Russia, Poland, France, Germany, the UK, the USA and China.
But there is more to GWS than its size and stature as a business. GWS is also renowned for embracing and preserving the ethical values of its founder and the four generations of successive Sohlberg families, while ensuring continuity by seeking innovative new areas of activity to strengthen the group and guarantee its future. It is also known for being affirmative about its family origins and the "edge" gained from its roots. Given the Sohlberg family's interests in publicly quoted companies, one might expect them to conform to expected norms and shy away from publicising the family's values and their influence over control, investment strategies and operations.
However, the Sohlberg businesses and the family's contributions to Finnish society and business are a testament to their values. This is eloquently described by Heikki Mairinoja, the company's first non-family Chief Executive Officer appointed in 2001, who commented: "[It] means, among other things, maintaining the best traditions of a family company and responsibility towards the staff. Correctly understood, these factors do not constitute a strain, but provide the edge in ever-tightening competition. In all business operations, profitability is, of course, the fundamental prerequisite, which cannot and must not be compromised."
When the family dimension brings advantage to the enterprise, why hide it? Normally, such statements, at the least, unsettle analysts and observers. Correctly understood, they explain the phenomenon of family entrepreneurship.
Last year, the Sohlbergs and their 650 employees celebrated the 125th anniversary of the founding of the company four generations ago at a magnificent gathering in Finlandia Hall for owners, employees and veterans of the company. Events like these are one of the rites of passage for an organisation and often for its owning family, too. They bring the opportunity for pause and reflection on where the organisation has come from, the challenges that have been overcome and the achievements over this period.
The first transition
Most entrepreneurs are driven by the sometimes opposing forces of what they want to do and what they have to do. They want to be their own boss and they have to provide the means to support their families. Those who get it right can enjoy a real sense of satisfaction. Then the time comes to consider what all this effort has been for – other than self-satisfaction and providing for a growing family – and they have to consider the legacy they want to leave behind.
Gabriel Wilhelm Sohlberg (called Wille), the founder of GWS, was no exception, according to fourth generation family member and present Chairman, Klaus Sohlberg. He reflected on how GWS started in 1876: "As one of 10 children born into a farming family to the west of Helsinki, Wille could see there was no economic future for himself in agriculture, so he moved to Helsinki.
"Seeing the need for a reliable income, he focused his efforts on qualifying by apprenticeship as a master blacksmith. He got married shortly before he had his master blacksmith papers and sought the opportunity to start his own business. He saw an opening for hand-crafted goods such as coffee pots. So the company was founded in 1876. Wille's first wife died at the age of 31 in 1881. As the father of three children and running his own business, he married again soon. Of course, you have to make a lot of coffee pots to feed a growing family.
"He soon saw more benefit from providing the roofing needs for Helsinki's growing population in the late 19th century than in craft work. But now that he had his own business, a growing staff of skilled craftsmen and apprentices, he was hampered by a seasonal market. He then saw the opportunity to fill the winter months producing tin stoves to supply the growing numbers of houses."
In Klaus's view, there are two features that differentiate Gabriel Wilhelm Sohlberg from the archetypal "self-made man" who makes as much money as possible and then sells out: "He was one of Finland's earliest social entrepreneurs. The first thing to note was his strong commitment to the requirements and social needs of working people, as he himself had come through the apprenticeship route and knew what it was like for a man to be faced with the awful prospect of having mastered a craft, yet have no work to provide for his family.
"When his business was big enough, he introduced pensions and he made 1 May a staff holiday. At the societal level, he was actively involved in the Helsinki groups, which established banks, insurance companies and cultural institutions.
"The second differentiating feature was his instinctive sense of what continuity planning is and therefore what was needed to ensure the business was passed into safe, socially responsible family hands, and to ensure his offspring would have a means by which to support their own families in the next generation. The transition from first to second generation was meticulously planned and Wille educated his two sons to prepare themselves well for their roles, in good time, ensuring they had a lot of experience behind them."
The reluctance of second generation successors to embrace entrepreneurial risk as their fathers would have is often noted in business families. There is a lot at stake for successors if it goes wrong and observers are watching all your moves. If the father has been a strong, autocratic, often absent, parent, the family home is more likely to have a culture of paternalism and compliance rather than one embracing consultation and shared
Of Wille's three offspring from his first marriage, the eldest son Wille and youngest son Toivo became the sibling team of successors as Managing Director and Technical Manager respectively; they became the "caretakers" of what they inherited, preserving it somewhat cautiously.
Klaus explained: "Sadly, Toivo died young, not long after his father. Wille also became the managing director of a bank and so he employed these skills to create a solid, solvent, well managed company. However, this "low risk" period in the company's history is not noted for any major developments."
Gabriel Wilhelm's actions can be used to teach a general lesson about passing on the legacy of what first generation family business owners have created. If entrepreneurial continuity is the goal, it requires an honest appraisal of what skills the adult children can offer and how the gaps will be filled. This is a completely different goal to the one founders often sense instinctively – continuity of control: that as long as there is family control of management and ownership after their day, somehow it will all work out well.
The second transition
Klaus explained that over the generations, his family continued the tradition of meticulous and diligent planning started by Gabriel Wilhelm: "Although the transition from second to third generation was as equally well planned as the transition from first to second generation, it did not, in fact, take place as planned at all. The business had become concentrated in Wille's hands due to the early death of his brother and Wille had only one child. His son, Sakari, was not interested in the business and studied law with a view to a career in the judiciary. Relations between Wille and Sakari were not good following Wille's divorce from Sakari's mother.
"Wille therefore began to think that the business would not go forward in the family's hands in future generations. Sakari developed a successful career in the law by becoming a member of the High Court. So Wille looked further afield for a family successor and sought out Toivo Gabriel (called Soko), the eldest son of his late brother Toivo, and began to prepare him for the role of the third generation leader."
This plan, however, also went awry because relations between the two were not harmonious. As a result of this tension, Soko left and started his own business. Unfortunately, his life did not turn out well and, tragically, he committed suicide. "When Wille died," says Klaus, "it really looked as if no one was interested and family business continuity was not possible. However, the wider family's sense of commitment to the enterprise and all it stood for came to the fore. Cousins Sakari and Olavi [Soko's younger brother] got together to discuss the seriousness of the situation.
"Sakari did not want to give up his legal career and left the decision to Olavi – my father – about whether to stick to his dream of being a judge or whether to take up the call to join the family business. This really was a life-changing decision, but my father decided in favour of the family business. So, in 1939 he threw himself into the challenge. He succeeded very well and made the company what it is."
The third transition
Olavi's career in the business spanned more than 50 years. Klaus reflected on his father's control of the business: "He took over a business that was financially very solid, but after the war he spotted opportunities and started to invest. We were using out of date machinery in the business and the latest technology had changed a lot. He made big investments for the future.
"Our first factory was in Helsinki and obviously we could not expand within the city, so in 1942 he acquired a site in the suburbs of Helsinki, where a new modern factory was built. In 1947 he moved the entire factory 10 km outside the city – there was nothing there at all then! He also expanded the firm to 800 employees. And in 1975, the remaining production units also moved to this site."
Continuing the Sohlberg tradition of having a family successor in mind, and conducting meticulous and detailed succession planning, Olavi invited two of his three sons, Kari and Klaus, into the business. Both Kari and Klaus started their GWS career working for a few years under their father. Kari took over as CEO in 1973 and Klaus became Deputy CEO in 1974.
An interesting feature of this generational transition was the brothers' approach to renovating the firm's corporate culture. Each new generation usually struggles to make its mark in some way in the business once installed in leadership positions, often because the previous generation's success track record leads to people feeling comfortable with the status quo. Currently, many next generation successors in family businesses are struggling to convince the incumbent generation that an executive can aspire to being the leader of a business and lead a balanced lifestyle. In the early 1970s, when Klaus and Kari took over, theirs was a different challenge.
Journalist Jyrki Vesikansa, author of From Tin to Perlos, described the changes brought in by Kari and Klaus: "The hierarchic, slightly militaristic style of management was replaced by group work, shared responsibility and an emphasis on strategic planning. Relations with the staff have always been nurtured at GWS, but patriarchy was replaced by a more modern style. In this respect, it was agreed that all those in the firm should address each other by their first name."
Compared with earlier transitions, this succession was relatively smooth, largely due to two factors: the quality of the relationship between the brothers and the fact that the two live and work in different areas of Finland. In 1973, the company had the opportunity to buy some furnishing companies north of Helsinki in Jyvaskyla. Since Kari was established as CEO in Helsinki, it fell to Klaus to become the architect of this acquisition.
Klaus worked on developments and was soon in charge three factories in Jyväskylä. This quirk of fate allowed each brother to have his own personal space and autonomy in which to operate as business leaders and as social entrepreneurs. As with the founder and subsequent generations, both brothers have devoted a lot of time to various activities in their area, as well as the local Chamber of Commerce and trade associations. Being in different cities meant that there were no leadership issues, and both brothers were known and respected for their roles and contributions to society in their respective areas.
The other reason for this relatively smooth transition was to do with the quality of the relationship between these men. Klaus commented, "Bear in mind that my father Olavi came from a generation of hands-on business leaders, and even though he had planned for his retirement and had other activities and hobbies, everyone knew he would have been miserable if he didn't have the opportunity to follow what was going on in the business.
"Even though he formally retired at the age of 65 in 1973, he was 83 when he retired completely from the board. His cousin Sakari had been Chairman of the Board since 1939 and wanted to continue as such. My father had no other obvious role in the system from that date and this created somewhat of a problem."
Kari and Klaus therefore had to find a solution to a potentially difficult problem with several facets to consider – a problem most successors face: how to honour the desire of their father to remain engaged with the business, how to retain the benefit of his experience and wisdom, and how to find a role suited to his stature in the business and in the family.
The solution they decided on was to amend the governance structure of the enterprise. Klaus explains: "My father was CEO until 1973. In 1980 he became Vice Chairman of the Board of Shareholders. In 1983 he and his cousin changed places: my father became Chairman and Sakari became Vice Chairman of the Board of Shareholders, and they both completely retired in 1992.
"We created a three-tier governance structure in 1973 to accomplish this. There was a Board of Shareholders on the top layer and an executive team of management on the bottom tier.
"Because we knew my father could not really retire, an 'informal board' was created and he was Chairman of this structure. This board was in between the management team and the shareholders but it comprised the same people as the management team, plus my father.
"Yes, it created a new layer of decision making and yes, perhaps decision making was a little more complicated, but he added value to our decisions by checking our assumptions, and he never tried to impose his own strategies or views on us. It was an elegant solution that suited the business, the family and the individuals involved."
Solutions to these succession dilemmas are often multi-faceted. Seniors can see from this case that it is extraordinarily difficult to let go – even when there is a life structure to move into that is satisfactory and appropriate for your stature; it is important for seniors and their supporters to prepare this structure and explore what "letting-go" means. It is also incumbent on adult children to help their parents prepare this new life.
The board also has a role in this process: it is its duty to be convinced the juniors are ready, willing and able to take on the role and the responsibility of leadership. No one willingly lets go unless there is sufficient faith in the ability of the next generation. The Sohlbergs' solution of a "transitionary structure" was one borne of personal and familial respect, and mutual benefit for the father, sons and the business.
Klaus clarified that the managers of his father's generation retired at the age of 65, but in the 1980s he and Kari initiated a policy of retirement at 60 for the members of the management team – and they have stuck to it. Kari retired at 60 last spring. Said Klaus: "We made a policy when we were still young that the retirement age should be 60 because we had seen the problems ourselves, especially because the senior generation managers don't see that much need for development and investments."
As is the Sohlberg tradition, planning for the next transition, from the fourth to fifth generation, started early with the creation of the GW Sohlberg Family Council at the beginning of 1990s with representatives from every Sohlberg family branch. As the Chairman of the Family Council, Klaus Sohlberg informs members of the council about the current company situation at every meeting.
Klaus described the approach used to prepare the next generation of Sohlberg owners for their responsibility as owners and possibly leaders in the future: "Next generation individuals interested in working in the business can plan a career with the company or can be initiated into the company operations through company-related memberships. They are also familiarised with GWS as members of the boards of the subsidiary companies where they can learn first hand how the performance of a business is monitored and controlled, and how change and innovation are managed in complex businesses. There is also the opportunity to become members of an unofficial Audit Committee and improve their knowledge of the family business in that way. Also for higher level positions at GWS, the next generation candidates have to acquire a suitable professional education and have proper and sufficient experience outside GWS."
Klaus continued, "When Kari retired from the CEO's position in 2001, we did not have a family member who met the high qualifications for the job, and so we now have the first CEO to come from outside the family. We hope somebody from the fifth generation will be able to take over the position in due course."
Looking to the future, Klaus sees that the profile of GWS family business ownership is in the process of change, especially as more women are becoming involved in the family council and in the overall governance of the business:
"In Finland, the significant role of women in working life results mainly from two facts. First, the level of education among women has grown continuously and second, women could be used as a work force while men were at war. The percentage of working women in Finland is high, and within the generations born during and after World War II women have strengthened their share of the leading positions both in politics and the Civil Service, as well as in the business community.
"You can see strong examples of this in that Finland has a female President, our parliament is chaired by a woman and our former CEO of the Bank of Finland was a woman (now Member of Board of the European Central Bank).
"As for GWS, ownership has always been available for female family members but none of the first through fourth generation female family members have shown a willingness to carry the responsibility and commitment that ownership calls for. This finally became reality at our annual shareholder meeting in spring 2002 when the first woman was elected a member of GWS board of shareholders."
GWS signifies tradition balanced by an open attitude toward change. This balance is not easy to achieve but the steps taken by successive Sohlberg leaders over the generations offer valuable insights to those aspiring to this philosophy of family entrepreneurship.