A headshot of Mitchell Kaneff.

July 15, 2019

Taking Over: Mitchell Kaneff Shares Tips for Next-Generation Family Business Leaders

Mitchell Kaneff, the third-generation CEO of his family's business, Arkay Packaging, a folding carton company operating in New York and Virginia, started on his succession path early in life.

"My dad brought me around the factory when I was five years old so I'd get used to the smell of the ink, the stacks of paper," said Kaneff, who took his first job as a packer on Arkay's production glue line at age 15, during summer break.

Kaneff fully joined the family business shortly after graduating from Rochester Institute of Technology, where he studied printing management and sciences, turning down other offers. When he became the company's CEO seven years later, however, Kaneff learned that taking over wasn't as simple as changing the sign on his door.

“My dad made me president at age 30 and basically gave me the title in name only, so what ended up happening is he, without realizing it, was undermining me," Kaneff said in an interview. The family did not have a documented succession plan at the time.

While he'd been groomed for the role since his youth, Kaneff says in his book, "Taking Over: Insider Tips from a Third-Generation CEO," he was ill-prepared for the conflicts involved in inheriting a family business and had to make his way "mostly through trial and error on the job."

Indeed, for many heirs, taking over the family business adds a layer of emotional and management challenges that outside buyers may not encounter.

Patricia Hausknost, City National Bank wealth planner and senior vice president, cited the family dynamics and personalities that the "new kid" has to manage. A lot of the transition journey will depend on how the parent positions the change, she said.

It can be hard for the older generation to empower a next-generation leader to make his or her own mistakes. “Dad may still be around but the kid is ultimately going to be the new owner," Hausknost said.

In his book, Kaneff documents how it took years for his father, an industry leader, to relinquish control. Meanwhile, their management styles clashed and the dual leadership frustrated employees.

Tensions erupted seven years after Kaneff became CEO when he went out of town and his father started giving orders to key staffers, prompting one executive to threaten to resign. Kaneff, angry at having his authority undercut, made the difficult choice to terminate his father's employment — offering to let his dad buy him out if the older man wanted to stay on and lead the company - and laid out his position in a firm but loving letter.

The elder Kaneff surprised his son. He agreed it was time for him to resign, and expressed pride that his son had insisted on taking full control.

Kaneff, now 52, offers a number of tips for younger family members in line to take over family businesses, and to older family members who will be ceding control. He's preparing succession plans for his own twin 18-year-old sons, Josh and Max Kaneff, who have worked at Arkay and who recently received small ownership stakes in the company for their birthday, while acknowledging that they are free to choose other career paths.

"It's never too soon to begin this process of succession," he said."It's never too soon to expose family members to the business."

Assess Family Dynamics

There's a key question that prospective business heirs need to ask, Kaneff said: "Is there mutual respect in the family?"

If you're a next-generation leader contemplating taking the reins of a family business, it's important to explore family dynamics, define expectations and nail down your new job description before you step in, according to Kaneff.

You may need to consult with an industrial psychologist or another expert to help discern the outgoing owner's retirement timeline and concerns. It's not uncommon for the family patriarch to fear he's being sabotaged, or worry about his next chapter in life.

As an incoming heir you must "realize that you're potentially a threat, even though you may not see it," Kaneff said.

In his book, he warns that the mix of power, money and family dynamics could lead to explosive conflict that destroys the business and the family. In his case, despite their earlier conflict he and his father have remained close — a relatively rare feat for third-generation businesses — and the company overcame the crisis and thrived.

Listen to Your Heart

If you're taking over a family firm as a young leader, it's important that you have a true passion for the business.

“If you don't have passion, everyone in the company's going to see that and say, 'Uh-oh, I don't see this lasting very long,'" Kaneff said.

Ask yourself: What are the things that you gravitate toward, and do those things align with the company?

Whether you enjoy people, selling, numbers, making things or strategy, your passion should mesh with the company's priorities and needs, Kaneff said. As you take over, this understanding will help you examine the company's current leadership team and see where you may need to make changes.

Kaneff suggested you start by determining why you want to be in the business. "What's the mission? What's the vision of the company?" he asked. And again: Does it align with your goals?

He also recommended that company heirs get business experience by working for an outside company before they take over at their own family firm.

Check Your Ego

Kaneff recommended that new family business leaders exercise humility and prepare to constantly learn.

"Be patient," he said. "Check your ego at the door when you walk in."

This involves showing a willingness to learn from others in the company. “First seek to understand, then seek to be understood," Kaneff said.

“Look to surround yourself with people brighter than you and people who have some experience, and find a mentor," either within the company or, if that's not possible, outside the business. “Everybody needs to be constantly looking to improve themselves, and I think the best bosses listen to the people who work for them."

Leaders should continue to develop themselves by taking courses and getting involved with supportive groups like the Young Presidents' Organization, Kaneff advised. “Education doesn't stop because you just got your MBA or your PhD," he said.

Showing respect to others will not only help you grow as a leader, but it will help you hire and retain employees in a strong economy when finding qualified people is difficult. "We're competing for workforce," Kaneff noted. "Treat your people well."

Get Rid of Toxic People

Another important priority as you step into leadership is identifying your most loyal staffers — family and non-family alike — and weeding out those who stir up negativity and drama, Kaneff said. In some cases, this may even involve buying out family members.

"You will have your naysayers and your doubters," said Kaneff, who noted that he fired one key executive for bad-mouthing him and, years later, another for creating drama within management.

This doesn't mean that your team can't disagree with you or deliver bad news. In fact, Kaneff believes that CEOs should encourage employees and managers to feel free to deliver all news, good or bad.

Employees need to be cooperative team members, though.

"I cannot be surrounded by people that are going to undermine me," Kaneff said. "You can't tolerate toxic people in the workplace."

Hire Consultants

If a family member working in the company is toxic, bring in an objective third-party mediator, such as an industrial psychologist - who serves as a combination therapist and executive coach - to help you handle the situation, Kaneff advised.

Kaneff also uses an industrial psychologist to run off-site retreats for the company, and to work with him on his personal growth and problem-solving strategies.

Outside advisors can also help design training programs, generate standard operating procedures and contingency plans, build teams, write budgets and advise on long-term plans. Because they are so versatile and can be so valuable, it's important to carefully select consultants and advisors to make sure they're the right fit.

Measure Everything

When he first became CEO, Kaneff, who loves people and gravitated to sales, didn't focus on finances, relying instead on other key executives to stay atop the numbers. Unfortunately, this proved to be a mistake that cost the company millions, he later realized.

Looking at the numbers became his passion, and he started measuring every metric he could — quality, on-time delivery, sales per employee. He put together industry best practices on EBITDA (earnings before interest, taxes, depreciation and amortization).

Measuring helped Kaneff share timely updates with his team about where the company stood and where it was headed. “If you don't know where you are, you don't know where you're going," he said.

As a new CEO, you also need to monitor your company's online reputation and discover what clients want from you, Kaneff said. Based on real-time feedback from sites like Yelp, you may even decide that your company needs a rebranding.

Kaneff, citing Jim Collins' management book, "Good to Great: Why Some Companies Make the Leap...and Others Don't," said leaders must confront "brutal facts" about the business. He also recommended that a new CEO assess the company's "SWOT" — strengths, weaknesses, opportunities and threats.

Be Fiscally Responsible

In his book, Kaneff notes that people go into business for a variety of reasons — to support their families, employ people, contribute to the economy and provide new solutions to customers.

Basic fiscal responsibility, and ensuring that your company is profitable, need to be your top goals as a CEO, he notes, since you won't be able to accomplish any of your other goals if your business is not successful.

Part of fiscal responsibility means assuring that family members, who may be accustomed to high salaries, are being paid appropriately. Before taking over, Kaneff suggested, an incoming leader should assure that family members' compensation is fair, based on their performance and the industry market rates for their roles.

In keeping with his dedication to financial responsibility and consistency, Kaneff has incorporated transparency into Arkay's culture, sharing crucial financial data with his management team on a regular basis, including budgets and each executive's area of responsibility.

Be Willing To Change Course

Kaneff believes new leaders should be willing to follow their instincts and take the company in new directions. In his case, he moved Arkay production to Virginia from Long Island to save substantially on costs without outsourcing or relocating offshore, as many other manufacturers did.

He encouraged young CEOs to stay strong in their convictions and not be afraid to go against trends if needed. "Don't be scared. If you fail, you fail," he said.

Prepare the Next Generation

It's never too soon to start preparing the next generation to take over the family business, and it's up to the current leadership to create the culture that reflects the family's values and business purpose.

Kaneff's book advises families to start the transition process at least five to 10 years before the new leader takes control. The plans should detail the company's destination, its transition timetable and its navigator. He also recommends that the older generation focus on objectively choosing the best fit as successor, even if it's someone outside the family.

Grooming successors should start even earlier.

“I like to use the word modeling," said Kaneff, who brings box samples home to his sons, and opened savings accounts for them when they were young, teaching them the five things they can do with money : make it, spend it, invest it, save it, and give it away.

His sons have worked in the factory and will move to the front office as they head off to business school. Kaneff treats them as partners, sharing company developments with them, even recently paying Josh to attend a board meeting.

"I think it was a big statement," he said of the stock gifts. "They show me their report card and at the end of the month I show them Arkay's report card in the form of debts, expenses, receivables, payables, and profit and loss statements," Kaneff said.

“I am grateful for how they ground me, how they help me understand what is important. Every day they teach me patience, helping me maintain the gift of balance I talked about in my book," he said of his sons. "I learn these lessons from them – and I hope they learn these lessons from me: That family businesses can thrive through multiple generations, that it's worth the struggle, that our legacy is something to be proud of and to celebrate.

"I say to my sons: 'When you're ready, you can be the 4th generation of Arkay Packaging – and I am here for you every step of the way!'"

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This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.