At Least the Son-in-law's a Winner

Granger Machinery holds regional exclusive parts franchises for two farm machinery manufacturers. They stock after-market truck engine and tractor parts for other manufacturers on a non-exclusive basis. With the purchase of a related wholesale business in southern Indiana, the company has sixty employees.

Until four years ago, Frank Granger couldn’t foresee the company’s future, or his own and his son’s financial security.

Eddie, 39, has worked at Granger Machinery for nine years, primarily taking telephone orders. He spent his twenties as an itinerant sailboat crewman and competitive windsurfer. He’s a likeable young man with learning disabilities that make him shun any kind of training that involves books and numbers. Even simple order taking suffers from his errors. As Frank grew increasingly critical, Eddie became increasingly defensive.

Eddie views his father’s unwillingness to hand over the company to him as a “letting go” problem. On the contrary, Frank is more than ready to turn the company over—to his competent son-in-law—only hesitating out of concern for Eddie’s feelings and livelihood.

Eddie’s older sister and her husband, Mark, moved from Chicago down to Danville four years ago, so that Mark could come on board as General Manager. Well qualified, Mark has done a great job.

Eddie talks as if he and Mark will run the company more or less as equals once his father retires. “If he wants to be President, I’ll be General Manager, I don’t care. Or we could take turns, him five years and then me for the next five or whatever. I heard about a family business where they do like that.” It seems an astonishingly naïve outlook—no reference to skills, work history, or leadership. Eddie’s unrealistic vision of the future is about to be dashed by Mark’s and Frank’s plans.

Mark and Diane approached Frank diplomatically about purchasing a majority of the stock. Frank promised to get advice about how to transfer control to Mark within an estate plan that includes Eddie and another, oldest daughter not involved in the business.

Diane says her brother “really wants to stay in the family business, answering the phone ‘Granger Machinery, Ed Granger here.’ ” She and Mark both feel it will be possible to keep Ed as an employee, compensated appropriately for his sales performance, after Dad leaves.

The senior Grangers pick me up at my motel and we drive over the Indiana border to the Beef House restaurant for dinner. They’ve mentioned that it’s just off I-74, so I’m surprised when instead of driving south toward that east-west highway, Frank heads his white Lincoln north to the edge of town and then off onto a little farm road. We drive between eight-foot-high corn and low soybean plants, the latter dark green, sharply illuminated by the setting sun behind us. Ahead, incandescent pink clouds spread across the horizon. We pass a tractor towing some sort of menacing implement. Frank and the farmer wave at one another.

Peg Granger is a retired English teacher. Well informed about business and legal matters, she participates in all financial and estate planning meetings. She and Frank own 100% of the business. They reckon it’s worth about $2.5M today, which constitutes 80% of their net worth. At 67, he wants to retire within two years, if possible.

How can the Grangers treat their three children equally in their estate plan, while ensuring that Mark and Diane get at least a controlling share of the business and that Eddie can stay in the company without hampering Mark?

copyright reserved 2006, Kaye Family Business Associates, Inc.