Professionalizing a family business - Crane Plastics Co - Company Profile

Nation's Business, Dec, 1996 by Sharon Nelton

A company takes steps to become more professional and position itself for the future.

When Jameson "Jim" Crane reached his 70th birthday in March, Crane Plastics Co. announced a changing of the guard. Jim's niece Tanny Crane, 39, would become president and CEO of the Columbus, Ohio, company, and his son Michael S. Crane, 43, would become executive vice president. Jim would give up overseeing day-to-day operations and become chairman of Crane Group Inc., a holding company that includes Crane Plastics.

The event was significant for two reasons: It marked the succession of leadership of the third generation of Cranes at Crane Plastics, and it was a milestone in the continual professionalization of the 49-year-old company, which, until a decade or so ago, was nm quite informally.

"As family businesses grow and evolve, third- and fore, h-generation companies find a new and different set of issues confronting them," says Mike Cohn, president of The Cohn Financial Group, Inc., a consulting firm in Phoenix.

Such challenges include the sharing of ownership with siblings and cousins and the dilution of ownership and control. At the same time, says Cohn, the business "may be professionalizing, moving away from entrepreneurial management styles."

Professionalizing, according to Colin, demands that owners "mature in creating and respecting the boundaries between themselves and the family business." He says it also calls for developing a system of governance--the method of governing or managing a business.

Crane Plastics' journey toward professionalization began in the early 1980s. Jim and his brother, Robert Crane Jr., sons of the founder, were running the growing company, a custom plastic extruder and manufacturer of vinyl siding. The company now has 700 employees and $130 million in annual sales.

Although Jim's son Jay was working in the company, Jim and Bob Crane tended to discourage family members from joining the business. "We simply felt that having family members in here would stymie the nonfamily people and would block their avenues for progression," recalls Jim.

But as the Crane brothers grew older, they realized they had to make some provision for the company's future. As they saw it, they had three choices: go public, sell it, or pass it on to a new generation of family leadership.

Their nonfamily managers urged them to keep the business in the family. "They certainly didn't want to be swallowed up by some of the people who could acquire us," says Jim.

At the same time, Peter Eastwood, whom the Crane brothers had hired in 1980 as vice president of finance, began encouraging them to explore estate and succession planning. Bob and Jim each had four children. Bob (who died in 1992) began talking with Tanny, who had an M.B.A. in marketing and was working in Chicago, about returning to Columbus to join Crane Plastics, and Jim began talking with Mike, who was then a partner in a Columbus law firm.

About five years went by before Tanny, along with her husband, John Wolff, now vice president of new-business development, joined the company in 1987. Mike, who had served as the company's counsel while working in the law firm, went into the business two years later.

They were soon joined by Tim Miller, who is married to Tanny's sister. Including Jay, now a vice president, that brought to five the number of third-generation Cranes and in-laws in the family business. The company thrived in the 1980s, in part because customers such as Andersen Windows and office-furniture maker Herman Miller Inc. were growing and the vinyl-siding market was thriving. But the new generation of Cranes asked how the company was preparing for the future.

Forces both inside and outside the company-including the level of experience that the younger generation brought to the firm--propelled Crane Plastics toward becoming more professional. Central to the process was the creation of a new governing structure consisting of four groups:

* A management committee made up of Tanny, Mike, and four key nonfamily managers. An outgrowth of an earlier, informal executive committee, it meets weekly and oversees day-to-day operations.

* An internal siblings groups--the "sibs group" made up of the third-generation cousins and siblings who work in the company. The sibs group has addressed the broad issues that can't be resolved by the management committee.

"We dealt with such issues as sibling compensation and other siblings joining the business," says Mike. The group also proposed that Tanny, who had served the company first as director of personnel and then as vice president of sales and marketing, be named president.

* An expanded siblings committee, which includes all eight members of the third generation and their spouses. It plays an advisory role and provides a mechanism for communication about the business. It meets twice a year, and members receive monthly financial statements and other company information.

Tanny says the internal sibs want the spouses and siblings who are not in the business "to be very involved in the strategic thinking of the business."