Case Study

    Written by Laurie Foster, Senior Consultant / Partner at BCR In January of 2011, Ken Zelinsky President and Founder of Zelinsky Painting Company, was at a crossroads.  The Company’s operating performance was suffering from a lagging recovery from the economic downturn.  The Family Resort in California was struggling with Ken and the Painting Company subsidizing its operation.  Further, Ken and his adult children (Gen 2) were facing the reality of Ken’s retirement and the fact that Gen 2 would soon be assuming the assets and the liabilities of the Family properties and business.  The Zelinskys would have to develop a Zelinsky Family Estate Plan and a Zelinsky Painting Company Succession Plan upon Ken’s retirement.  The Zelinsky family was very close, however, the discussions of wealth transfer, business ownership and asset management were uncomfortable.  Ken wanted no fighting among his kids.  Above all else, he wanted to keep the peace in the family. Lari Zelinsky Bloom, Ken’s daughter, and her husband John moved to Honolulu in 2002 to help Ken wind down the Company.  The husband and wife team began learning the business and after a year they concluded that they would keep the Company running.  Ken, Lari and John agreed that Lari would run the business, John would lead sales and Ken would begin to transition out of the business. Steve Zelinsky, Ken’s oldest son, had his own small painting company in Sonora, California, but spent most of his time managing the Family’s Resort.  The Resort had been a struggling business for years, but because it was in the family for three generations, the Family continued to subsidize its operation. Matt Zelinsky, Ken’s youngest son, was a sheriff in Tuolumne County.  He helped at the Resort on weekends and holidays as much as he could.  He would retire in 5 years and needed to develop a retirement plan for himself and his family over and above the County pension he had earned. Given Ken’s priorities; Estate Plan, Succession Plan and maintaining Family Peace, BCR began its engagement with the Zelinskys with the development of the Zelinsky Family Constitution.  After several hours of discussion with Ken and later with Gen 2, the Family Constitution was finalized.  The Constitution set out the rules for the Family members in the Family businesses.  This included running Zelinsky Painting Company, running the Family Resort and management of various properties Ken and Gen 2 owned.  Rules included the Family’s basic philosophies about managing Zelinsky assets, how funds would be allocated among the family entities, how Gen 2 would be compensated for their respective responsibilities in the entities, and a Governance strategy and process for managing the assets.  While there was healthy debate among all, consensus was reached.  The Constitution would set the overall direction for the Family and the businesses going forward.  BCR and the Zelinskys then embarked on the development of the Zelinsky Family Estate Plan.  The Plan would be complex as it had to balance the needs of the business, the needs of Gen 2 individually and collectively, the performance of the entities (real estate, Family Resort, Zelinsky Painting Company) and Ken’s wishes to distribute assets evenly and fairly among Gen 2.  BCR spear headed a team of Family advisors, which included, the Zelinsky Painting’s CPA, an Estate lawyer, a business valuation expert, a wealth management team, an insurance broker and the Zelinsky Painting Company’s bankers.  The Family and the team developed various scenarios, studied the ramifications of each scenario, discussed and debated vigorously and over a one-year period agreed on an Estate plan and an implementation schedule.  Over the next year much was accomplished: Ken had a retirement plan in place Ownership was transferred from Ken to Gen 2 per the agreed upon percentages Real estate assets were allocated to Gen 2 per the agreed upon Plan Roles were established for each Gen 2 member regarding the management of the assets and compensation was defined Additionally a Family governance structure was implemented.   The Zelinsky Family Board would manage the overall direction of the Family assets and the implementation of the Estate Plan.  An outside Director was added to the Zelinsky Painting Board.  The Board would engage more rigorously than in the past in Strategic Planning and the implementation of the strategy by the Company Officers.  With the Estate Plan in place and an effective governance structure, Zelinsky Painting Succession became the priority.  Ken’s life revolved around the business.  Intellectually he was ready for succession but emotionally this process took time.  Transferring the title of President was easy, but the transfer of responsibilities and decision making was cloudy.  Lari respected her father and all that he had done to build this successful business, however she had a different management style.  She wanted to add new systems, processes, people and ideas to the organization.  Ken’s methods of running the Company had worked well for him for 35 years.  It was hard for him to let go of his way of doing things especially because Lari’s ideas were seemingly new and untested.  The staff was sometimes caught in the middle with the two of them sending mixed signals about the direction.  Over time however, Lari persisted on many of her new initiatives and Ken gained confidence in her judgement and ability to implement change.  Ken continued in a key role to lead the sales effort for a major division which he continues to advise today.  While Ken and Lari are still caught butting heads on occasion, they have managed to maintain a close relationship as parent/daughter and retiree/successor.  Regarding the Family Peace, it has not been a completely smooth road.  Issues of the “fairness” of the Estate Plan have emerged over the years among Gen 2.  A high level of trust among Family members, however, allows this conflict to be discussed constructively although it is a times uncomfortable for all.  Four years later, a compromise has been developed that all Gen 2 members have agreed upon.  Ken has at times been frustrated by