All in the family

Growing up in a tight-knit Italian-American family, Marcus Benedetti knew those ties would one day lead him toward taking over Petaluma-based Clover Stornetta Farms.

“I always did think that after seeing my dad and grandfather talk business around the fireplace,” Benedetti said. “I wanted that relationship with my dad that he had with his father.”

Those dreams came true in 2006, when at the age of 30 Benedetti succeeded his father, Dan, as president of the privately held business founded by his grandfather in 1977. He became CEO in 2010.

But making that dream a reality was a challenging two-year process: Six-figure bills paid to attorneys and estate planners. A structure to transfer equity from the second-generation to the third. Decisions made on shareholders and board appointments, and finding the exact roles where family members could prosper.

“You cross all the realms in personal expectations, health, longevity, business,” said Benedetti, who later quipped, “My only regret is not getting a psych degree.”

The challenge continues today in a consolidated industry where Clover is one of a handful of independent California dairy processors, facing a declining market for milk consumption while deciphering the taste preferences of a finicky millennial generation.

Still, Benedetti remains bullish, noting that Clover’s strength comes from family members who know the core values of the business while also operating as a meritocracy. For example, his cousin, Michael, who serves as director of quality, has undergraduate degrees in neuroscience and philosophy and previously worked for research labs.

Under Benedetti’s leadership, Clover has grown to 240 employees with $160 million in annual sales.

“I look at myself as a temporary steward of something I can pass on to my children,” Benedetti said.

The Benedetti story is one tale of many that Sonoma County family businesses have faced in the difficult task of navigating a transfer in ownership from one generation to the next: dealing with complex tax and estate laws; finding potential areas of revenue that allow the new generation to eventually buy out the preceding one; and handling occasionally volatile family relationships that could potentially sink a deal.

Sonoma County has a particular affinity for family-owned businesses, as the longevity of Friedman’s Home Improvement, G&G Market and Hansel Ford have proved in an increasingly competitive retail marketplace.

The county’s longtime agricultural roots have resulted in a crop of businesses that have survived and prospered under family ownership. For instance, approximately 85 percent of the county’s vineyards are still family owned, according to the Sonoma County Winegrowers. But the role of family businesses in the local economy spreads far beyond the county’s wine industry.

About 85 percent of the county’s nearly 18,000 businesses have fewer than 15 employees, said Ben Stone, executive director of the Sonoma County Economic Development Board.

“We’re a county of entrepreneurs,” Stone said.

The odds, however, are not in favor for a successful transfer of the estimated 5.5 million family-owned businesses to the next generation. According to the Family Business Institute, a North Carolina-based consulting firm, only 30 percent of family businesses survive into their second generation, 12 percent exist into the third generation, and a mere 3 percent of them operate into the fourth generation or beyond.

A strong governance structure with clear lines of responsibilities among family members can make a big difference, said Monika Hudson, director of the Gellert Family Business Resource Center at the University of San Francisco.

But not all are heeding such advice. A survey conducted last year by consulting firm Deloitte found that many family businesses are not prepared for succession of new leadership, nor do they have outside voices that can give important guidance beyond the family structure. Almost half of the 222 respondents said they only review succession plans when a change in management requires it, and 41 percent did not have leadership contingency plans.

“We see a variety of preparedness,” said Simon Inman, an attorney at Carle Mackie Power & Ross who works with family businesses in the wine industry. “Some have plans laid out. Some have no plans. Then there are some who have plans and then things change.”

Twenty-eight percent of the respondents of the Deloitte survey also indicated they have no board of directors.

Kim Stare Wallace, president of Dry Creek Vineyard in Healdsburg, said one key for her winery’s transition was having a board of directors with non-family member representation, even though she and her husband had 20 years of experience in the family business. She took over operations from her father, David Stare, in 2006.

“There are a lot of family dynamics when you are part of a business … there are a lot of personalities and interests that get in the way,” said Wallace, who has a younger sister that did not have an interest in the family business. “You have to be able to subject yourself to total transparency.”

An outside perspective can be beneficial for many family businesses, which can easily become insular. For instance, Santa-Rosa based La Tortilla Factory last month hired a non-family member, Jeff Ahlers, as its new CEO, given his vast experience in the supermarket industry. Family member Sam Tamayo said he saw Ahlers’ appointment as way to ensure La Tortilla Factory would eventually be transferred to the fourth generation of the Tamayo family. The company has had non-family members on its board of directors for the last seven years.

“By the time you get to a third or fourth generation you are competing in markets that are a lot bigger and different than your parents and grandparents,” Tamayo said. He added that his family has been particularly aided by workshops and seminars sponsored by the Institute for Family Business at the University of Pacific.

Some types of businesses have their own unique issues that complicate a transfer. For example, the succession in the wine business is more problematic because land transfers are very expensive, making it hard to pass down ownership without much planning and forethought, said Inman.

“The second generation steps in to a management role. It doesn’t necessarily control it (ownership of the business),” he said. “They can’t afford it.”

Wallace of Dry Creek Vineyard said the transfer of the winery with its 10 vineyards and 185 acres was aided by attorneys and accountants. The process is still continuing, given complexities in estate and tax laws. “That is very challenging,” Wallace said. “We’re still managing that process.”

In some cases, family dynamics are too much to overcome. The Seghesio family sold its vineyard in 2011 to the Crimson Wine Group - estimated by one analyst at $86 million - when a significant portion of the owners wanted out. In 2004, Sam and Vicki Sebastiani sold their winery to their seven children, but sibling rivalries emerged and they sold out a year later amid financial issues.

Even if family strife isn’t a problem, other economic factors can contribute to a demise. A prime example is Traverso’s Gourmet Foods & Liquors, which closed in 2012 after 80 years of operation by the Traverso family.

The closing was a result of a decision to move the store from its downtown Santa Rosa location out to Fountaingrove in 2009, said George Traverso, the grandson of the market’s founder. “We took a chance.” Traverso said. Only about half of the downtown customer base followed to the new location and the market could not attract enough new clientele. Lending standards then tightened up in the aftermath of the financial crisis.

“The name doesn’t pay the bill. You need capital,” Traverso said. “You need capital and a certain amount of good luck.”

But succession can be successfully done even when the stakes are much larger. Despite industry and media glare, the transfer of Kendall-Jackson Wine Estates from founder Jess Jackson to his family in the aftermath of his 2011 death is cited as a prime example of a succession that worked well. Through meticulous planning with trusts and other legal entities, Jackson’s wife, Barbara Banke, and his son-in-law, Don Hartford, assumed leadership of the privately-held company to take it into the next generation.

“You got to say that worked fantastic,” said Mario Zepponi, co-owner and partner at Zepponi & Co., a wine industry mergers and acquisitions firm. “It doesn’t mean there wasn’t controversy behind closed doors.”

Success stories typically depend on identifying a leader within the next generation and ensuring he or she has the right skill set for the job, said James Andersen, a partner at the accounting firm Hemming Morse. Andersen has done business evaluations for 45 wineries. The family member also must surround themselves with competent people in other areas where they lack knowledge or experience.

Dry Creek’s Wallace, Andersen noted, is strong in marketing and appointed qualified people in areas such as vineyard management and finance. “She’s a real positive example of how you can make it work,” he said.

Problems occur when a family member starts appointing relatives with little or no experience in certain areas to top leadership positions, likely out of familial pressure and obligations. “It causes disasters,” Andersen said. When he determines that family members aren’t in the position to assume responsibilities, Andersen said “often my advice will be to sell.”

Other times the choice is clear. Bruce Cohn named his son, Dan, as CEO of B.R. Cohn Winery & Olive Oil Co. in January; they will both share ownership in the Glen Ellen winery. Bruce founded the winery in 1974 and was able to keep it through two divorces.

But he was growing tired of the administrative duties and found that his son had proved himself: from working in the cellar during the winery’s first harvest to serving as a wine distributor at Young’s Market. Dan later served as the winery’s national sales manager.

The change is likely to benefit the winery, Cohn said, because his son is focusing on a younger customer base as well as new opportunities to sell directly to consumers rather than through wholesalers.

“The whole reason to start it was to keep it in the family,” Cohn said. “I have friends who have no one to take over (their businesses).”

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.