There comes a moment in time many family business owners dread and many others underestimate. You’ve built your business your way, and it is successful because of the way you’ve operated it.
But now it’s time to retire and hand it off to someone else. It’s time for a leadership transition.
On the surface, the process seems simple: Here’s what we’ve done to get this far. Please take it over and keep it going.
Those on the periphery might merely see it as a handoff with a few pointers attached. But there are reasons why some transitions go smoothly and others flop quickly. In the apartment housing industry, wide-ranging and multi-tiered variables must be considered, yet a few clear steps emerge when speaking with leadership at two familyowned apartment companies—CAPREIT, which has already completed the transition, and ROSS Companies, which is in the initial stages of the process.
Step 1: Define owner-based goals and long-term objectives for the company.
It seems like a rudimentary first step, but there are several directions in which a company could go after the founder decides to step away from everyday operations. Are you transferring your business to your children? Maybe you’re selling it to a third party, or liquidating it, or selling it to other owners to merge into their own company. Perhaps you’re deciding to create an employee base that can effectively take the place of family members who decided not to join the business.
“You need to see where you’re going,” says Beth Ross, co-Founder of ROSS Companies and President of subsidiary ROSS Management Services. “It’s not an easy process to navigate by any means. We always knew that neither of the children wanted to be in the business. We could have forced the issue, saying, ‘We have a family business we’ve built since 1983.’ But we’ve seen that done with other real estate families and it hasn’t always worked.”
Having clear-cut objectives eliminates many unanticipated hurdles and allows for a clearer picture moving forward.
“You really need to decide that first,” Ross says. “If you don’t know where you want to end up, you’re not really going to know how to get there.”
Step 2: Identifying who should run your team.
While Ross and her husband, ROSS Companies Co-founder and President of subsidiary ROSS Investment and Development Scott Ross, understood they would have to look outside the family. CAPREIT was on the other extreme.
“My dad got me started early, as he had me counting vacant units on rent roll at age 5,” says Andrew Kadish, President of CAPREIT. “Vacations to Disney World were combined with trips to ‘check out this one community for five minutes.’ I was definitely groomed for the top spot for a long time.”
Kadish replaced his father, Dick Kadish, as President on Jan. 1 in a transition that long has been imminent. The younger Kadish served in various high-level roles for the Rockville, Md.-based company before taking over. His father remains its Chairman of the Board.
“It was apparent to me from the moment I joined the company that I would become President at CAPREIT,” Andrew Kadish says. “My dad consistently included me in high-level meetings and welcomed my participation in all areas. Further, he did his best to introduce me to anyone he conversed with at industry events. He always tried to boost my confidence, telling me, ‘You are so far ahead of where I was at your age.’”
The transition also includes Kadish’s sister, Jennifer Cassell, who now serves as the company’s Chief Administrative Officer. While such family-based transitions eliminate much trepidation, they are not always feasible.
That’s why ROSS, which specializes in assets in the Mid-Atlantic Region, started the process early. Beth Ross indicated it was about 13 years ago that ROSS first started exploring options. That process continues to unfold, as the company has both kept and weeded out potential takeover candidates during the past dozen years.
“You can either face it being prepared or you can face it up against the wall,” Ross says. “You can try to ignore it, but it’s not really going to happen that way. It doesn’t always work the first time, so that’s why you start early.”
Step 3: Determining how to bring non-family executives into an equity position at an existing business.
Whether family members are taking over on the executive ladder, odds are that not all high-level posts can be filled by the family. That means not only having to trust non-family executives, but also to make them privy to the intimate financial details of the company.
It can be a lengthy process to immerse a newcomer to the system, and if the changeover is at the top, options exist on how the transition will take place on the financial side. Transferring ownership generally is done via stock transfer or non-stock incentive.
“If the decision is made not to transfer stock or you can do things like phantom stock, cash bonus plans, nonqualified deferred compensation,” Ross says. “That is obviously one of the huge pieces, deciding what is really the right way to do it. The valuation of the company and tax planning that goes into the decision making is complex, time consuming and expensive. You have a business that has value and you can’t just give it away.”
Ross notes that it is essential to assemble the right group of advisors to navigate this piece of the puzzle. CAPREIT fully embraced that concept.
“We retained Shekar Narasimhan and John Cibinic of Beekman Advisors about one year prior to the transition,” Kadish said. “Shekar and John were instrumental in focusing our attention to what CAPREIT does right, where we needed support, and perhaps most significantly, how Jennifer and I could engender the full respect and loyalty throughout our company’s ranks.”
Step 4: Initiating the plan.
This is another concept that can differ significantly based on the company. Most crucial is selecting the proper time for the changeover. In ROSS’s case, such a key day in the lifespan of the business is not one to dive headlong into.
“It’s a process,” Ross said. “In our opinion, the farther you can plan ahead for it the better.”
At CAPREIT, however, carefully laid plans of a phased transition were scrapped when Dick Kadish battled serious health issues in early 2015. Once Andrew Kadish took over at CAPREIT, then that was it. Although he’d been groomed for the job, there was no changeover phase to ease the transition.
“I wish,” Kadish deadpans, noting there were no other options. “While Jennifer and I would have preferred to stick to our transition plan, we had to make do with what we had. It helped to know that Dick supported us through the entire process. Dick has always had unwavering faith in my ability to lead the company and always preferred a trial-by-fire approach to anything in my way.”
Step 5: Balancing the old regime with the new.
While this step is still to come for ROSS, Kadish already has had to balance his new concepts with the ideals of the company. He has had to endear himself to existing team members that might have been reticent of change.
He has adjusted his personal role from being hyper-focused on acquisitions to adopting more of a company-wide perspective. There also is self-imposed pressure: “These dark circles under my eyes aren’t from entering into Ultimate Fighting competitions,” he says.
Kadish hasn’t distanced himself from what made CAPREIT successful in the first place. He still speaks with his father on a daily basis.
“Our conversations span the gamut, from discussing why certain properties are not hitting occupancy targets to whether this could be the year that our Capitals finally bring home the Stanley Cup,” Kadish said. “While we don’t always agree on everything, he has forced me to constantly review and evaluate my decisions, ultimately leading to either stronger conviction of my position or perhaps a complete reversal.
“This healthy debate produces a much better result in the end.”