All in the Family
As nearly 80 percent of all businesses in Kentucky are considered family-owned, UK's Family Business Institure is filling a needed niche.

Bruce Pieratt knows how difficult it can be to juggle family and work demands. For him, they're often one and the same. Pieratt is a partner in Group Six, Inc., which is the real estate company of the Pieratt family. The family owns both Pieratt's and Almost Home Furniture in Lexington. In all, four family members are directly involved in company management. Other family members play indirect roles.

"You've sort of got a board of directors meeting every time you get together," said Pieratt. "We try to maintain the family bond first and then business concerns come second."

There's no doubt that family-owned businesses offer unique challenges, according to Pete Menard, executive director of the University of Kentucky's Family Business Institute. The institute is a program of the Gatton College of Business and Economics. The Family Business Institute was started in November 1998 specifically to address the needs of family-owned Kentucky businesses.

Menard, 44, a native of Rhode Island, has since plunged headfirst into the world of family-owned businesses. Menard worked as a human resources executive at SuperAmerica before joining the institute. He has been able to bring his own experiences into his still-new position. Menard's first job was in a family-owned wallpaper-and-paint business.

Statistics show that nearly one-third of all Fortune 500 companies are family-owned businesses, according to Menard. In Kentucky, he said, nearly 80 percent of businesses are either family-owned or closely held. However, the survival rate for family-owned businesses is somewhat less impressive. Studies have shown that the average longevity for these businesses is less than 25 years and that less than one-third survive through the second generation. "There's a large market out there for this type of organization," Menard explained.

The goal of Kentucky's Family Business Institute is to help navigate these companies through a myriad of complicated decisions. For example, if the founder of a family-owned business is considering retirement, whom does he designate as successor? Does he automatically choose his first-born son or daughter, or does he choose his highly talented third or fourth child to run the business? How are in-laws treated in the family business? Do they have the same chance for promotion? Succession is often one of the most difficult stumbling blocks for a family-owned business, according to Menard.

'"It (succession) is the number one issue," he continued. "It pervades just about everything else that goes on. How do mom and dad pick the talent within their own family?"

A company ignores the issue of succession at its own risk. Lack of planning for the future is touted as the primary reason these businesses fail. 'In terms of succession, you should plan at least five years out,' Menard noted. Other touchy issues for family-owned businesses include compensation between siblings and in-laws, estate planning -- which keeps the founder secure but allows the business to flourish -- and balancing work and family.

Addressing Unique Needs

The University of Kentucky's Family Business Institute is one of approximately 70 nationwide. Most are based in universities. At UK, The Family Business Institute was started based on input from several sponsors. Those sponsors -- in addition to the university -- include the law firms of Stoll, Keenon & Park, LLP and Brown, Todd, & Heyburn, PLLC. Other sponsors are accounting and financial management firms, Crowe Chizek, Potter & Company, and Merrill Lynch, and MassMutual, a business and personal insurance consulting firm. "All of those (sponsors) have a division or segment of their business that focuses on family-owned businesses," explained Menard.

The institute is currently attempting to enlarge its membership. It now has approximately 45 members from 15 Kentucky companies. Many of the companies, such as Dawahare's, Pieratt's, Bank of the Bluegrass and Milner Electrical Company, are well known in the Central Kentucky area. The institute's goal is to have 25 company members within its first year of operation. "What we're trying to do now is attract companies," said Menard. Since this is a new program, many companies appear to be "in a wait and see mode."

In August, the Family Business Institute held its first of four forums this year. The first session featured Craig Aronoff, co-founder of the Family Business Consulting Group located in Marietta, Ga. Aronoff's session dealt with generational transition within family-owned businesses. Pieratt, although relatively new to the Family Business Institute, said he has attended similar programs in other regions.

"I think that the forum I attended here was the best one I had been exposed to," Pieratt said.

The next forum, 'Getting Along in Family Business,' is scheduled for November 10. That session will be followed by one early next year, which deals with estate planning, transition and taxes. The fourth forum will be held on April 12, 2000 and will focus on balancing work and family life. "It's the programs that we're going to put most of the money into," said Menard.

The advantages of membership

Businesses can join the institute based on a sliding scale fee. The cost varies according to the company's annual sales. For example, a company with up to $1,999,999 in annual sales will pay a $500 fee. A company with up to $5,999,999 in annual sales pays a $1,500 annual fee. A business is eligible to participate in the institute if a family has a controlling interest in the business and at least one family member is currently employed there. The cost of membership entitles at least two members of the business to four forums per year plus referral assistance and discounts on publications related to family businesses.

Menard said the institute is an economical way for family-owned businesses to plan for the future and gain valuable insight from others who are in a similar situation. "They'll be able to get, for a very economical cost, the four programs, discussion groups where they can get free advice from other businesses that have been there and valuable networking opportunities," Menard explained.

In fact, besides the forums themselves, Menard said the informal discussion groups are one of the highlights of membership. The Family Business Institute has been able to use its affiliation with the University of Kentucky to offer its members discounted prices on books and materials related to family businesses. Members have access to the University of Kentucky library, are also able to obtain continuous education units (CEUs). In addition, membership offers opportunities to create business with other members and the ability to use the Gatton College to seek confidential referrals for professional services.

For more information on the Family Business Institute, contact Pete Menard at (606) 257-8746 or by e-mail at Pmenard@pop.uky.edu. You can also visit the institute's website at www.familybiz.org

Lisa Summers is a staff writer for The Lane Report.

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