Family businesses rely a lot on succession

By William Conroy
Asbury Park (N.J.) Press

Leonard Zeik, founder of Leonardo Jewelers in Red Bank and Elizabeth, N.J., retired in 1994. But he still is giving advice to his children on how to run the business.

"He's never going to be shy about voicing his opinion," said Leonard "Leo" Zeik Jr., 43, the founder's son and president of the company. "(I) ignore it."

But he also says Leonardo Jewelers would not have succeeded for more than four decades without the vision of his father. If it is to continue to succeed, the second-generation must to do what they think is best, the younger Zeik said.

About 85 percent of family-owned businesses do not survive to the second generation, according to the Raymond Family Business Institute, a nonprofit foundation in Alfred, N.Y.

Family businesses fail for the various reasons that all businesses fail, said Leo Rogers, director of the Rothman Institute of Entrepreneurial Studies at Fairleigh Dickinson University in Madison, N.J.

An added challenge is trying to balance the family side of the business while creating a very professional environment.

Rogers said family businesses need to plan for the future well in advance of when the next generation is ready to take on the reins.

About 39 percent of American family-owned businesses will change leadership within the next five years, according to a survey sponsored by the Raymond institute. Yet 55 percent of family business CEOs who are 61 and older and plan to retire within five years have not chosen a successor, according the survey.

The first-generation founders are often reluctant because "if they announced who their successors are, all the other kids are going to be mad," said Leonard C. Green, a business consultant who teaches at Babson College in Wellesley, Mass.

Another way some founders try to avoid rancor is to split ownership equally among the children, regardless of how much they contributed to the business or whether they are active in it, said Green. But the successor should be determined on merit, he said.

For many years, family-owned businesses were dominated by the males in the family, Green said, but women increasingly are accepted as owners and even CEOs.

Zeik gives his father credit for setting up a succession that was fair. The founder specified that in order to have a share, a child had to be active in the business.

For a while, there were five second-generation owners. But Michael Zeik, active in the business for about three years, left to return to his prior career as a healthcare consultant, so he no longer shares in the profits, Leo Zeik said.

The other four siblings have a say in both stores, but Leo Zeik and Lourdes Zeik-Chivi concentrate on Red Bank. The third generation is represented in the store by Anne Leonard, a granddaughter of the founder, who began working there full time in 2000.

"My father did it perfectly," Leo Zeik said.