The best way to deal with the delicate problem of succession in a family business, when there is more than one child who wants it, is to give them some each. Often it can’t be done, which is one of the main reasons family businesses get sold – because cash can always be split.
The Smorgons famously divided Victor Smorgon’s great legacy nine ways, but that was unique. The usual split is into two, and the classic example of that is the Kennards.
Wally Kennard started his hire business in 1948. His eldest son Neville bought him out entirely in the early 1960s, then his younger son Andy bought 50 per cent from Neville five years later and together they expanded the business into a whole range of new things, the most successful of which was self-storage.
And then in 1991 the two brothers split the business down the middle and went their separate ways: Andy got Kennards Hire; Neville got Kennards Self-Storage plus a few other assets.
So let’s cut to the chase: who won? Well, 22 years after the equal split, Kennards Hire has twice the revenue of Kennards Self-Storage ($235 million versus $110 million) but a third of the assets ($250 million versus $750 million).
Neither side would tell me their profit, and who knows what other assets each branch of the family has managed to accumulate, so in the end the matter of whether Neville’s or Andy’s kids did best out of their fathers’ horse-trade back in 1991 remains a mystery.
But not only do the Kennards provide a great example of how to successfully deal with succession, they are also a wonderful case study in family business governance.
The Great Split of 1991 took several months and “a lot of tears” (says Andy) to negotiate. There were many emotional disagreements over value, with the most emotional being their father’s first property at Artarmon in Sydney.
But they had started the process determined to sort it out between them and to do it without any cash equalisation: it all had to be done with assets. They eventually did it, and two great Australian family businesses named Kennard were created from one.
And so the real patriarchs of the Kennard family business were Andy and Neville, who passed away last year aged 74. It wasn’t really Wally.
Wally started hiring out cement mixers from his Bathurst machinery dealership in 1948 and moved to Artarmon as a pure equipment hire operation a few years later.
Young Nev joined him in the business in the late 1950s but it didn’t take long for them to start arguing about the direction of the business. Wally was pushing 60 and his 25-year-old son was giving him grief, so he offered to sell it to him, on terms, which Nev gladly accepted.
At that point Andy was 20, but it didn’t take long for him to want in (their sister Joan did not). So Andy bought 50 per cent from Nev and the business became a partnership that lasted 27 years, but with Neville as managing director.
Together they grew the business steadily, opening a string of specialty hire operations, as well as a self-storage facility behind the hire outlet at Moorebank, near Liverpool in Sydney’s west. The storage business grew quickly and by 1990 they had nine storage locations.
Through the 1980s Neville stepped back and handed management over to Andy, determined to create space for the next generation (as perhaps his own father had not done). And it was in that spirit that the two men could see their own children coming up and wanting to take part, especially Neville’s son Sam.
Not only was Nev five years older than Andy, he had started his own family earlier, so that by 1991 Sam was 21, had finished university with a property degree and no job. He became the first of the third generation of Kennards to join the family business.
So it was largely for Sam that Neville negotiated the split with Andy, and Sam quickly became managing director of Kennards Self Storage just a few years later, in 1995, and Nev moved to the United States to give him space (Sam says he was a control freak and he knew it).
Then in 1998, Sam bought 24 per cent of the business through a salary sacrifice loan arrangement with his father, and when Neville died last year he and his two brothers, Walter and Jim, who aren’t in the business, shared a third each of Neville’s 76 per cent. So Sam now owns just under 50 per cent.
Since 1995, Sam Kennard has accelerated the growth of the business and now has 74 storage properties, opening about two new ones a year. It’s actually a real estate business, since they own all of the properties, combined with customer service.
He’s 43 now and still managing director, and has three daughters of his own. The oldest is eight.
Meanwhile, over at Kennards Hire, Andy took a different route. Three years after the split he bought the Australian operations of the British business, GKN Hire, and with it came its talented managing director, Peter Lancken. So Andy, still just in his early 50s, made him MD of the whole company and stepped back to become chairman, while retaining 100 per cent ownership.
Lancken saw an opportunity to consolidate the equipment hire business across Australia and expanded the business aggressively, taking it from 30 locations to 140 today. He finished up as MD in 2009 and today the company is run by another non-Kennard, Alan Besling.
Both Neville and Andy believed strongly in having an independent board, although Andy perhaps went a bit further than his brother.
In 2007 he left the board entirely, so that two of his children Angus and Kirsty are the two family representatives on the board, with two independents (Peter Lancken is now chairman).
Sam’s board consists of himself, his finance director, HK Tung, and two outsiders, Melinda Snowden and David vanAanholt.
Each of the branches has a Family Constitution that lays down future succession arrangements, including a right of first refusal over each family member’s shareholding in the event they want/need to sell.
Both Andy and Sam Kennard say the aim is to keep each of the businesses in family hands for posterity – that they are mere custodians of the business for future generations. Andy has four children and Sam has three, and there’s no doubt that all seven have been brought up in a strong culture of family business.
And these days Andy Kennard is President of Family Business Australia, the association that represents family businesses, with the aim of passing on to others what he has learnt from successfully organising his own business.
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