Is there an answer to the question of succession for private metal trading companies? Or is corporate euthanasia the only alternative?
In public companies wastage and replacement is routine. Pension fund managers mutter about need for change, pressure builds, the board is persuaded to accept a clean-sweep, and the Young Turks oust the old Caliph. Rapid-fire change at PLCs – perhaps not too helpful for long term planning - is at least useful when it comes to the musical chairs at the top.
Private family businesses have it harder. It can go one of two ways - either a healthy disinterest from the next generation, or an unhealthy interest (accounted for by the honey-pot). Sometimes a youngest son, or son-in-law at worst, is found and jet-skied in to take on the family interests. In Japan, if a son or son-in-law is not available, it has been known for family companies to ‘adopt a son in law’ in order that the business remains ‘in the family’. The Japanese actually even have a name for this called ‘Mukoyoshi’ and it is a centuries-old practice.
In one company I know, that had enjoyed uninterrupted enlightened family members running the company for over 160 years, change was forced when the firm ran out of family members. When the owner reached his late 70s, it was duly handed over, on a platinum-coated plate, to the son-in-law. In this particular case the son-in-law had skills developed in the corporate world that could be put to good use. Restructuring that was resisted under the family is now moving ahead fast, silos are being burnt down, innovations are encouraged. The company's longevity and deep pockets mean it has every chance of success. Let's see.
One problem is that inheriting a business is nowhere near as much fun as starting one. The dilemma of inheritance, of fitting into dead men’s shoes, is neither tasteful nor easy; and rarely works. It can have personal consequences for the dutiful inheritor and can be quite literally fatal. A friend of my father who had been in an internment camp with him in Australia during the Second World War met an Australian girl and wanted to settle down. But inexorably the family drew him back to post-war Austria where he became a second-rate clothing manufacturer and then a salesman for the company that eventually took over the brand due to his mismanagement. My grandfather, a gifted lawyer, was dragged away from his law books to read chemistry so that he could take over the family varnishing business in the late 1930s. He believed that the Nazis would need varnish. They did; but they didn’t need him and he died in Auschwitz.
A company, it seems to me, often has the life cycle of a person - buccaneering in youth, consolidating in middle age, wilting in dotage. The dotage years are worst for the younger employees, waiting for the old to fall off their perches. A number of cases in our industry abound where the owner has struggled with the idea of what to do about the future because so much of a metals trading business depends on the owner.
I worked mainly for private companies through the 37 years of my metals career and each of them had a succession issue of one kind or another. At one, my bosses put their faith in a young bright man who dazzled the old folk with ideas of how to do things differently. Once handed on, the new-hops lasted all but a year before taking the company - and some of its good name - down the plug-hole. In another, a former dock-worker, with a temper that could sometimes be heard on both sides of the Atlantic at once (without the use of a phone), appeared to have no plan at all; tripped up during the tin crisis, and was ultimately consumed by another enormous private entity. Another took a different route, appeared to muddle on for years making money, floated on AIM in order to pay off a few shareholders, and yet found no way of replicating in the young what the previous generation had achieved. Another private entity, rather well known in our world, saw an upstart take over and push out his former boss, while the ousted owner, like the oldest stag in the deer park, crawled off to die. The company marched on in its new path – for good or for bad.
Any owner of a private metals company will have to face the same decision – liquidation or succession. Sale, as we all know, is not an option in a trading business in which the owner is the main trader and wealth creator.
I decided about ten years ago that, out of the two propositions (should I survive to have the luxury of choice), liquidation carried so many tones of negativity that I couldn’t live with the idea of coming into the office for a decade purely to turn off the lights in slow motion. So I settled on what I thought might be the more positive attitude for succession. I have a daughter who is a social anthropologist with an interest in Japan. She didn’t have a life plan but was good at organizing things. She was the kind of girl who, as a teenager, had a spread sheet for her social engagements and did not understand when her fellow students appeared to drift from one unplanned event to another. This was a metal person in the making I thought – not Mensa (usually more bane than blessing), but plenty of life experience, fluent in several languages, outgoing and winning of personality, pragmatic, and knowledgeable enough of family history to understand that money is only a cigarette paper’s distance between survival and annihilation.
But the question I have asked myself all through the process is how selfish was my decision? It is all very well to hand on a successful business, but the most successful business, if not your own, brings scant satisfaction. Inheritance is such a boring thing; it is has all the pleasure of Hamlet’s ghost. In my daughter’s case, she has it even worse – because Hamlet’s ghost works in the same office.
But, as I survey the scene of the last couple of years, I have come to the conclusion there is a slim chance our entity could see out the old and see in the new. I noted that others in my category either imported the young in droves like new wallpaper but appeared not to have enough capacity to train them; or they employed the middle-aged with their high salary demands and bad habits. The longer, safer route to metal merchant reproduction, it seemed to me, would be to invest fully in the young – but, be warned, incubation takes about ten years and anything less will definitely be half-baked. Often, I observed, that the old fogeys brought in the young when they were already - yes - too old (late 20s rather than early 20s). I also noted that my fellow managers who needed to transfer knowledge appeared to feel over-suckled to the point that their teats hurt. And yet the teats needed to hurt for it to work. I have heard it said recently of the investment banks, once so keen on their commodities divisions, that they have applied something called ‘juniorization’ to their team – an interesting term which appears to mean cutting salaries at the top (all well and good) but replacing their functions with juniors with only the scantest training and experience and expected to learn on the job.
Paradoxically, though, my feeling is that, when coping with generational change, real juniorization is rather a good idea. It is absolutely right to go for the really young – but to do it right. By all means take on those without previous experience – but have the commitment to train them. Metal companies need to mimic the work done in football, where the big clubs establish an academy, work with their young players day in and day out, tell them everything they need to know, and then play them on the pitch. So, it should be, in the metal trade. Give the young responsibility, more than they can handle to begin with - but not too much - steer them into making businesses their own, direct them to problems they can resolve, products they can colonise, a customer or region that can become theirs - and develop from there.
One thing I am often asked is ‘What does it take to be a lifer in metals?’ and ‘What is the optimum suite of skills required to be a good metal trader?’ ‘True’, I say, ‘metallurgy might be useful, a smattering of chemistry and physics, a dose of economics and maths might be good’. ‘But’, I am forced to say, ‘I often find my numerate metal students make the biggest hashes because they are over-confident on arithmetic and under-stocked with common sense’. So I go on, ‘Luck is not a bad attribute; decisiveness, curiosity and openness of mind, some form of morality. High on the list in our line of work is person-ability, but then again it needs to be matched with attention to detail bordering on pedantry’. In my daughter’s case her interest in all things Japanese, continued study of the language and enjoyment of Japanese culture has created a bridge to that country that cannot be said to have existed before she joined. In that area, at least, I able to confirm that Hamlet’s ghost didn’t muscle in – he didn’t speak Japanese.
We are a small company with £8-10 mln turnover, 6 staff, £3 mln net worth. Four young people – all below 30 years old, two of whom already have 6 and 7 years respectively out of their ten years’ induction behind them. One day, not too far hence, they will share the travails of ownership themselves, and then plan for their succession.
But, without a plan, the case for taking the wheel-chair ride to Switzerland has never been greater.
This article was written by Anthony Lipmann. All views and opinions expressed are strictly his own.