The founding and growth of Acme Corrugated Box Company is a classic story of family, hard work and the American Dream. So, when second-generation-owner Bob Cohen began thinking about the future of the company and its continuation after his own retirement, the idea of turning it over to the family’s third generation was a definite consideration. But, Cohen realized that he might need to consider other options as well. “I knew from my own experience that family members working together don’t always have the same business style,” he noted. “I also believe that it’s unfair to depend on children to take over the business. Your kids should not feel obligated to do so.”
Leading Acme on his own for more than 30 years has made Cohen cognizant of the entrepreneurial spirit and business acumen necessary to grow and sustain a business. Active and very hands on, he has taken the company in many new directions, bringing in advanced manufacturing technologies, changing business processes, expanding to larger facilities and guiding continuous growth.
Cohen’s two sons joined the company about ten years ago. Both had science/engineering backgrounds, along with business experience. One moved into sales at Acme, the other into operations. Both are making solid contributions to the company’s success. In addition to considering the leadership potential of his sons, Cohen wanted to consider members of Acme’s current leadership team. “I didn’t want to make assumptions about who might take over,” he said. “And, I wasn’t confident that we had a candidate with the right qualifications. I needed an objective way to analyze the management abilities of internal candidates, and to identify other possible options.” Cohen also realized that whatever option he chose, it would take time to prepare for any transition.
Cohen contracted with DVIRC for a Succession Planning consulting engagement. DVIRC Business Advisor Harold Floyd developed and implemented a structured process for evaluating options and taking the next steps in implementing the chosen solution.
Floyd spent time with Cohen and worked to understand Cohen’s succession planning thoughts, desires and plans. He also developed a full understanding of Acme’s competitive advantages, growth potential and challenges. Floyd then assessed how those factors were influenced by Cohen’s skill sets, in order to identify skills that would need to be replaced when Cohen left the business.
Floyd asked Cohen to evaluate Acme’s key managers and his sons on a comprehensive list of capabilities, including: entrepreneurship; abilities in leadership, management, finance, business, marketing, sales, operations and communications; and technical skills. DVIRC also administered a behavioral profile assessment that covered energy level, assertiveness, sociability, attitude, decisiveness, accommodation, independence, and objective judgment.
A structured evaluation of the leadership skills of current employees was conducted. The evaluation included a review of their background and desire to own and run the business. Assuming they were interested, Floyd assessed their thoughts and plans for the business. Floyd asked them to evaluate themselves and the rest of the leadership team on the list of capabilities. The capability ratings of their colleagues were kept strictly confidential. Floyd also administered the behavioral profile assessment, including a review of occupational interests. To ensure that his perceptions were clear, Floyd had other DVIRC advisors listen in on the interviews.
DVIRC’s evaluations led to the clear conclusion that passing the business to the next generation, or to a member of the current management team, was not a viable option. “Our skills and competencies analysis combined with our interviews indicated that Cohen’s sons and other current management staff, did not currently have all of the skills needed to take charge of the business,” noted Floyd. “Just as importantly, with regard to Cohen’s sons, the boys did not indicate a strong desire to lead the business. Finally, a transfer of the business to current management did not meet Cohen’s succession planning objectives.
Based on these findings, Floyd presented Cohen with several Succession Planning options:
1. Provide Leadership Training
Training could be provided to boost the management and leadership expertise of Cohen’s sons or other members of the management team so that they could eventually take over the business. This was eliminated as an option. Cohen’s sons had not expressed a desire to run the business, and a suitable candidate from the current management team did not stand out.
2. Recruit Externally
A search could be conducted to identify an individual with entrepreneurial skills to take over the company leadership. Cohen did not want to pursue this option. He considered it a risk that could do more harm than good for the company if the person brought it did not work out.
3. Sell the Company
Cohen and Floyd agreed that selling the company was the best option to meet Cohen’s succession planning objectives.
With the decision made to sell, Floyd worked with Cohen to begin the marketing process. He first recommended contracting with an outside accounting firm to determine the company’s market value, and for advice on how to further enhance Acme’s value. Cohen and Floyd then met with brokers who could manage the marketing of the company. Several were interviewed and evaluated.
Staying in Place
As plans to sell the company progressed, Cohen had a change of heart and decided not to pursue an immediate sale. “I wasn’t ready to sell,” he said. “I decided to stay, but to reduce my involvement with the company.” With Harold Floyd’s assistance, Cohen put safeguards in place so the company could continue to thrive despite Cohen’s reduced daily presence, and in case something unexpected happened to him. These safeguards included:
- Development of a Sudden Succession Plan that outlines what should happen if Cohen is no longer able to lead the company.
- Establishment of a Board of Advisors to help guide the company. The board includes five people, each with specific business and industry expertise. Harold Floyd is a member of the board. “My advisers keep me on my toes, challenge me and give me different viewpoints,” said Cohen. “They’re not there to be cheerleaders.” The Board of Advisors is helping Cohen strengthen company management, and is working on a transition plan so the company can function into the future. “The end result will be that if a decision is made to sell, the company will be in a stronger position,” Cohen noted.
- Management Training for key company personnel. Training is being provided for key Acme staff to strengthen their leadership and management expertise.
Cohen has now reduced his company involvement to three days a week, and is delegating more to his management group which includes his general manager, chief financial officer, vice president of finance and human resources manager.
Today’s Acme Corrugated Box Company had its origins in 1918, when Edward J. Cohen began selling scrap paper from a horse-drawn wagon on the streets of Philadelphia. Realizing that there was business potential in selling reclaimed corrugated boxes and factory rejects, he expanded his capabilities. In 1938, Ed incorporated his growing company, and Acme Corrugated Box Company continued to flourish and expand over the next three decades. Ed fell ill 1963, and passed away three years later. His sons, Arnold and Bob took over leadership of the business. Arnold left Acme in 1981, and Bob Cohen became the president and sole shareholder.
Thoughts from Bob Cohen on Succession Planning
“You need to be realistic about when you’re losing your edge. Be aware of how your ability to function affects your business – and when it’s time to think about what’s next.”
“I highly recommend the Succession Planning process. It’s a terrific exercise and it’s absolutely essential.”
The DVIRC Advantage
Comments from Bob Cohen on the Acme partnership with DVIRC
“Harold was insightful and honest. He didn’t pull punches in telling me where I stood, and in analyzing our transition options.”
“When your name is on the door, you are the business. I didn’t want the company to shrivel, and for people to lose jobs. DVIRC understood this. Harold Floyd was sensitive to the emotional factors, while also being direct in evaluating the pros and cons of each succession plan option.”