Event Recap: Outside Board of Directors with Eric Allyn

This Wednesday, FBA kicked of its third quarterly event in the best practices series about the importance of having an effective board of directors. Eric Allyn of Welch Allyn joined us here in Grand Rapids to share his family business story “Selling the Family Business . . . When You Don’t Want to Sell the Family Business.” In an honest and emotional presentation, Eric took us through the ups and downs that Welch Allyn encountered and how it surmounted each obstacle — from family disputes to the difficult decision to sell the business.

Welch Allyn, a manufacturer of medical equipment, was founded in 1915 in Skaneateles, New York. The business experienced significant growth from its inception through the early 2000s under the leadership of 2nd generation family member William G. Allyn. Later on, two of the 3rd generation brothers, Lew and William assumed leadership roles in the company. Conflict arose in 1994 when their younger sister, Elsa, returned home after years away with her husband, Peter Soderberg, who joined the business as president. Cultural differences between original family members and Soderberg rocked the boat, causing tensions not only between themselves, but all through the company. Facing a crisis, Welch Allyn, with the help of the 4th generation, implemented changes in the leadership structure and in the board of directors.

This launched a six year process to replace their current board ending in 2006. The company utilized outside consultants to help fill board seats and establish a new governance model. The end result was a majority outside full fiduciary board of directors. Eric expressed that finding outside board members was at times a difficult process, but it was important to find individuals with high emotional intelligence and a capacity to understand the special circumstances surrounding a family business.

In 2014, Welch Allyn faced another challenge requiring significant board input and guidance: deciding to sell the family business. Due to the shifting U.S. healthcare structure in 2010, Welch Allyn’s past sales opportunities diminished. Past customers – local clinics and physicians – no longer had purchasing power as they had been absorbed by a larger system where purchases were made at the corporate level. Outsourcing and competition made it impossible for Welch Allyn to make sales without reducing prices, eventually leading to zero growth and stagnation.

Around this time, an outside board member suggested that selling might be the only option. The best way to gain access to the corporate level sales environment was to be acquired by a larger, more established corporation. Eric emphasized that having a majority outside board of directors was crucial in getting through this difficult period and securing the sale. Family members were too emotionally invested in the business to make a decision that was best for the company, employees, and themselves. Under the outside board, they were able to separate emotion to make a decision that was best for Welch Allyn. While it was hard, and continues to be difficult, selling the business made it possible to keep Welch Allyn afloat and maintain the dividends upon which many family members relied.

Following his presentation, Eric moderated our panel of 4 local family business leaders. Featured panelists included Nate Koetje of Feyen Zylstra LCC, Dave Muir of Paragon D&E, Kim Norris of Glastender, and Doug Young of Behler-Young. In their discussion, the panelists shared experiences and board policies – finding commonalities even from a diverse range of industries.

One common theme surrounded board compensation. All four shared the same sentiment – while they knew their board members were there for passion rather than money, they still chose to compensate the board to show their respect and gratitude. The type of contributions varied among the companies, just as their needs in a board of directors did.

When asked how to search and fill seats for a board of directors, all panelists voiced that there is no strict formula. It is important for a company to view their strategic plan and identify where the company is falling short and look for someone to fill that hole. When searching for board members, Glastender knew it needed to grow outwards through acquisitions, but didn’t know how. A crucial component was finding someone who had experience in expansion. Individuals with experience in a company’s problem areas will offer the most benefit to a board. Filling these board seats can seem daunting, but with the proper resources and mindset, a seemingly impossible task becomes achievable.

A last key point from the discussion was to avoid doing it by yourself or all at once! Nate Koetje voiced the importance of this, “Think of it as a marathon rather than a sprint, it happens over time.” Nearly every panelist spoke of the outside help they had to find the right people, including Family Business Alliance, Young President’s Organization (YPO), family consultants and books, and simple networking.