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Turning Your Family Business into a Business Family (with Phil Clemens)

June 30th, 2021

Listen to the Bigger Than Business Podcast’s interview with Phil Clemens on your favorite podcast providers!

What is the difference between a Family Business and a Business Family? How can transitioning from one to the other while reaffirming the family mission and values take a company from declining profits to being a billion-dollar business?

Phil Clemens began his career on the clean-up crew of the family business, Hatfield Quality Meats, and worked his way up to be the CEO of the company. Over the decades, he worked in all areas of the family business, with 20 of those years in Human Resources and seven as CEO and President of the legacy business, now known as The Clemens Food Group. Listen as Phil shares how and why his family engaged in the challenging transformation of being a Family Business to being a Business Family and restructured the company’s governance by the owners, the Board, and management to ensure the company would continue to thrive into the sixth generation of leadership, a very rare feat in today’s marketplace!

Phil Clemens retired from The Clemens Food Group in 2015 as Chairman and now serves as an ambassador to family businesses throughout the country, as well as being a national speaker on family business issues and teaching leadership skills. Phil currently serves and has served on numerous boards such as Crown Financial Ministries, North American Meat Institute, Eden Bridge Foundation, Profit Sharing Council of America, and American Red Cross. He has received many awards in the meat industry, as well as community service awards, and has honorary doctorates from Lancaster Bible College and Elizabethtown College. Phil and his wife Linda live in Lancaster, Pennsylvania and have three daughters and seven grandsons.

What Makes a Family Business Endure for Six Generations?

By Jeff Holler

While many family businesses succeed, they simply were never structured to endure for a century and beyond. Most eventually fall prey to challenges that arise from an ever-increasing number of heirs and owners that can lead to dissolving or merging with a larger conglomerate that takes control. Very few can withstand the governance restructuring that is needed to stay independent and successfully address the differing interests of equity ownership, business management and family dynamics. Clemens Food Group is one of those few.

The key, according to Phil Clemens, the founder’s grandson, is to transition from a “family business” to a “business family” before it’s too late. My curiosity aroused, I asked him to explain the difference.

“You know you’re looking at a Family Business,” Phil shares, “when all family members are entitled to come into the business, and any family member that wants a job generally can get one.”

  •  “Another sign is that when it comes to the work environment, there generally are very different work rules for family members than for all of the other employees, whether it comes to pay, benefits, workload, anything.
  • As for leadership, in a family business, the family always chooses the leader. Some go all the way to the point that the oldest male leads the business. However, even if they actually bring an outsider in to lead the business, the family always chooses the leader.
  • Another aspect is that the main goal of the business is family harmony. Profitability is at least secondary, maybe even lower than that.”

In contrast, the key to transforming into a Business Family is the structure and the boundaries that are put in place.

  • “These are two business models, virtually the opposite of each other,” Phil points out, “but to the outside, they look exactly the same.”
  • “In a Business Family, family members may be encouraged to come into the business however, but they need to be qualified. You don’t get in because you just have the right last name or because you’re an owner.
  • When it comes to leadership, it’s always the most qualified. It’s great if it’s a family member but if not, that’s okay.
  • Also, if you’re a family member who comes into the business, the only hat you wear is the employee hat. You don’t wear a family hat, you don’t wear a shareholder hat, and all employees have the same work rules.
    • Finally, in a business family the main goal is profitability. As a result of being profitable, then you can work on your family harmony.”

I asked Phil what has to be put in place to make all this a reality and still protect the interests of the family.

  • “It all begins with the governance,” and what Phil calls the Triangle of Trust. “There’s the family circle, the owner’s circle, and the business circle.”
  • “Our Family Circle is run by a Family Council with members from each branch of the family. They represent 371 shareholders and over 800 living family members. The council’s purpose is not to work on the business, but on family harmony, by arranging events, charitable works in the community, etc.”
  • “Next is the Owner’s Board. They speak as one voice for all of our shareholders. They’re also there to interview people for our independent Board of Directors, where our goal is always to have the majority of our directors be independent and not family members. The third goal is for the Owners Board to work on expectations for all shareholders, and we actually break that down using a balanced scorecard approach with four different categories:
    1. Financial metrics
    2. Shareholder satisfaction
    3. Risk of the business
    4. Stewardship – concerning factors such as the environment, turnover, charitable contributions, etc.
  •  “Finally, our Board of Directors oversees the business circle. They hold management accountable, the owners do not. So, our management reports back to the Board of Directors, the Board then reports back to the owner’s group, who then reports to all the shareholders. We call this our trust triangle.”

If you have any interest in owning, managing or working in a family business, I strongly encourage you to listen to the full interview. It features tremendous detail on how all of this works in reality, and Phil also shares:

  • What his company looked like before and after the restructuring
  • The exact process they undertook to transform the company (which was difficult, but worth it).
  •  How to use different forms of stock to ensure family members retain control even if they must sell an equity stake to raise cash.
  • Why the transition from the third to the fourth generation is always the most difficult one to go through.
  • Why the success of a family business can eventually lead to downfall.

Also, be on the lookout for a second interview with Phil Clemens where we will dive into the topic of succession planning, particularly succession of CEOs.