This past July my dear friend and mentor, E. Deane Kanaly, passed away at the age of 76. Deane, who founded Kanaly Trust Company in Houston more than 30 years ago, was truly a pioneer in the financial services business. One very important thing to Deane was proper planning—being prepared for whatever life brings. He emphasized planning for his clients as well as for his company. Deane and his sons Steve, Jeff and Drew planned for the success of Kanaly Trust Company to endure beyond its founder. It was a challenging process that took well over ten years.
Along with his wife, Ginger, the company that bears Deane’s family name and employs his three sons was the love of his life. I joined the firm as a financial planner in 1988 and quickly grew to admire the family’s great ability and love for client service. I had the opportunity to work closely with the Kanaly family, learning from them through the years.
Deane’s entrepreneurial management style, which had helped the company prosper in the crucial first decade, at times seemed out of sync as the business matured. In 1994, when investigating the possibility of becoming an ISO 9000 company, Kanaly Trust Company commissioned a study by Rice University. From this study, we learned that ISO 9000 was not a possibility and, further, that a more flat organizational structure would be key to our future success. It also became apparent that a plan for the company’s transition was vital. Deane was about to turn 65.
So began our succession plan journey as a family and a company. From our planning work for clients, we know that transitioning a family business from any owner or founder—particularly a founder with a strong entrepreneurial spirit like Deane had—is a challenge. For our company, it was a long, winding road with many hills and valleys. Deane was reluctant to let go of the day-to-day operations, which in turn caused his sons to feel hesitant to assume these duties. As time went on, his confidence in his successors grew stronger. With the help of outside professionals, his sons and competent non-family leaders, Deane slowly relinquished those duties as part of the succession plan, beginning with those areas he did not see as his core competency.
We also determined that it was important for the company to ultimately appoint a non-family CEO who could bring an outsider’s perspective to the family, and develop a good business relationship with Deane. This CEO needed to be a competent professional who could remove the emotional issues Deane faced in handing over the day-to-day operations of the business to his sons.
Gene Schwinger joined us as our company’s first non-family COO. Schwinger did a great job creating the role as called for in our succession plan. When he retired in 2000, we hired from outside the firm—a couple of times, in fact—but our efforts were met with mixed results. To the Kanaly family’s credit, we stuck with the plan, and in June 2002 I was elected as the first president and COO from within the organization, another example of evolution for the company.
In the beginning, an executive committee (consisting of family members and the COO) was formed to share the CEO responsibilities. This committee was led by Drew Kanaly and essentially served as a liaison between management and Deane. This was key in transitioning Deane’s day-to-day involvement in the organization. In essence, a day-to-day manager of operations under the title of president and COO was coupled with a committee on long-range directional thought and execution. This worked well for many years. However, by the fall of 2005, the strategic decision-making requirements at Kanaly were becoming difficult to spread among five people and needed to be consolidated under one leader. The Kanalys chose me for that role. In November 2005, I was promoted from president and COO to Kanaly Trust Company’s CEO.
During my tenure at Kanaly, I had earned the family’s confidence and was mentored by Deane and the other board members. Deane’s wisdom, business acumen and unwavering guidance during my 18-plus years with the firm were a testament to his and his family’s commitment to growing leaders and ensuring business succession planning—not just for clients, but for our firm itself.
Additionally, since 1994 the family has worked with family business consultant Sam Lane, Ph.D., of Fort Worth to develop a succession strategy and manage the family and non-family issues affected by succession planning. It was Lane who guided the family in undergoing this process and moving toward the goal they had established more than ten years earlier. He advised them to allow me to make the strategic decisions and report to the board. Everyone agreed it was time; once my CEO appointment had been approved, the board dissolved the executive committee.
Growing with the company
During my tenure at Kanaly, I have grown along with the company. Importantly, I think I understand the business, the company and the Kanaly family. Over the years that followed the Rice study, members of the family talked a great deal about opportunities for growth—how, even if your name wasn’t Kanaly, you could help lead this firm. I knew that my leadership abilities were being nurtured here. I wholeheartedly embraced “The Kanaly Way”—the firm’s commitment to placing clients first through pure objectivity with no conflicts of interest—and hoped to someday play a larger role in the firm. Deane’s sons told me that leadership by a non-family member requires a cultural fit and skill set for family businesses. Prior non-family leaders who failed lacked some or both of these key components.
Another crucial piece in our succession plan was the implementation of a family hiring policy to guide the family and company in the career growth of future Kanaly family members. At Kanaly, all family members who wish to become a part of the organization must pay their dues and learn the business from the ground up. In fact, Kanaly grandchildren graduating from college are ineligible for immediate employment at the firm. They must work at least four years elsewhere and receive at least one promotion before applying for a job in the family business. Steve, Jeff and Drew Kanaly all worked with their father immediately following college graduation and wish they had had the experience of seeing how other companies operate.
The Kanaly family did not waver from their commitment to place a non-family member in the CEO spot. It took them more than ten years to find the person to whom the position would be offered. Until that person was found, all executive decisions were made jointly by members of the executive committee and operational details and tactics fell to the president. Executive committee members had to gradually accept some hard truths about the organization in order to fully commit to a non-family leader:
• Kanaly is a professional organization with “partners,” similar to a law firm’s structure. It is not a hierarchical manufacturing organization or typical trust company that needs management layers.
• Intellectual ownership must be diffused. Senior leaders at Kanaly are accomplished professionals who can and do take ownership of their client relations and results. Family members needn’t be closely involved with every client account, although they are always available for participation if necessary.
• A Kanaly family member can, but does not need to, manage the company. Recognizing and accepting the strengths and weaknesses of each family member—and then playing to those strengths—was and remains a critical component of moving forward as a well-managed firm.
• A dual-access career track has been developed for professionals hired at Kanaly. An employee may find that he or she is better suited to the professional management functions of the company, or to client service. Groups and teams have been established to provide leadership in both regards. Managers at Kanaly are encouraged to recognize an employee’s interests and skill sets and then help to mentor and guide them down the appropriate career path.
Working with a consultant
Once you’ve made the decision to allow non-family members to lead, how do you let go? The company began in 1994 with the previously mentioned organizational study, conducted by Harry Wilkinson, a professor of management at Rice University. This study helped to transform Kanaly Trust Company from a traditional hierarchy and single-point management to a shared professional leadership model with a flat organizational structure. Kanaly’s next step was to hire Sam Lane, who specializes in helping family-owned companies resolve business and personal issues.
Lane was initially brought in as an objective source to discuss succession planning and how best to transfer responsibilities from one generation to another. This is a service that Kanaly performs very well for its clients but needed assistance to self-administer. Lane was instrumental in helping the three brothers to build a stronger sibling-business partner relationship and to focus on how to best lead the organization.
In the past, the Kanalys, like many family firms, faced challenges in communication and separating personal issues from business issues. Another key concern during the planning process was Deane’s impending retirement, which needed to be addressed but was causing the usual amount of discomfort for him and the family. He had dedicated more than 50 years of his professional life to helping people achieve and maintain wealth and financial independence. It was not easy for Deane to separate management responsibilities from shareholder goals.
Lane also guided Kanaly Trust Company to better handle its employee retention issues. The company has seen several key employees leave, often taking valued clients with them. Lane helped us see that, in order to grow and retain good employees, we needed to empower senior managers. He recommended the creation of a “partner” group of senior employees who are called upon to discuss initiatives and offer input and advice at an annual strategic planning retreat. The partner group continues to meet as a strategic body; Drew Kanaly serves as the group’s board/family representative, reporting developments to the board and managing family and group expectations.
Lane has become a trusted adviser and has helped me talk through leadership issues. He regularly reminds me that the key to my growth as a leader at Kanaly is my ability to work well with the family. I feel I have built a strong relationship with every member of the family and am proud that I have earned their trust, proved my competency, and both communicated and demonstrated leadership.
As I reflect back with Steve, Jeff and Drew, we can now see how important Wilkinson and Lane were to creating and implementing a successful succession plan. They advised us of eventualities wisely, and everything went according to their predictions. Over the years and under the consultants’ guidance, Deane’s sons acquired the skills that they believe enabled them to meet the eventual outcome. Their reluctance to lead the company in years past can be attributed to family dynamics along with a lack of experience and/or a full skill set, which takes time to accumulate. Our family business consultants were able to fill gaps for us and train non-family leaders as well as family members. They were a major key to the success of the business.
Leadership as a process
Prior to my promotion to COO in 2002, three other non–family members had held the COO position. The family knew early on that it would take a long time to find a COO who could be groomed for the CEO position. What we learned, and were told to expect, is that it takes several COOs before one makes a good fit. An outsider doesn’t always know the organization and what it should be doing; yet an insider is not always the best choice when a different perspective is needed. Choosing the right candidate is a process, and the company must allow time to get it right.
Other lessons learned from my colleagues and mentors over the years include how to run a 100-person company, handle personnel situations and determine the right structure for the firm. The first three years of my time as COO brought one of the worst business periods in professional money management and financial planning in 40 years, from an economic growth and an employee retention perspective. We experienced leadership transition owing to the unexpected departures of key personnel. This experience helped the Kanaly family become more determined than ever to name non-family members to leadership roles. In contrast, 2006 was the most profitable year in the company’s history.
Culturally, we seek leaders who fit the organizational philosophy and can be the keepers of culture because they understand and practice our commitment to “The Kanaly Way.” Financial professionals who might direct the company away from this objective advisory philosophy will never have a future with our firm.
Today, Steve, Jeff and Drew continue their work in client service. All serve on the Kanaly Trust Company board of directors and oversee the strategic direction of the company. They are the ultimate keepers of The Kanaly Way, and will ensure continuity of the company’s founding vision.
Upon Deane’s death, the company’s succession plan called for a new chairman to be elected by the board. I am proud to announce that during our regular quarterly board meeting on October 25, the succession plan unfolded and Deane’s company was passed to the next generation. Deane’s youngest son, Drew Kanaly, was unanimously elected chairman of the board after serving very successfully as acting chairman following Deane’s passing. Deane’s second son, Jeff Kanaly, was elected chairman of The Kanaly Company, which is the holding company for Kanaly Trust Company.
Leadership lessons
I learned many important lessons from several trusted mentors along the road to the CEO’s office. My greatest teacher, of course, was Deane Kanaly. He was a master at developing and managing client relationships, and had so many years of experience balancing these with managing the company. I was able to develop a strong business relationship with him, which allowed for diffusion of family dynamic complications in making business decisions and allowing the company to move forward as planned. This was all done with the ongoing advice and support of Lane and Wilkinson.
Steve, Jeff and Drew Kanaly, along with former COO and current board member Gene Schwinger, also offered me their full support. Here are some key lessons I’ve learned from my colleagues over the years:
• The business world is bigger than just your view of it.
• Think and plan broadly for the company, but do little things for employees.
• Understand the dynamics of working with different people. One size does not fit all; multiple paths can lead to the same solid result.
• A black-and-white world is all right for client affairs and business decisions but not for personnel issues. Flexibility is important.
• Think about who your audience is before you communicate. Most times the audience is as important as the message.
• Family business decisions are not always A to B solutions; sometimes family members make decisions for their own reasons. Learn to live with it.
• Respect and understand the family’s ownership rights and privileges.
• Develop the ability to manage up, not down, in a non-hierarchical company, and set a cultural expectation for all to do so.
• Prepare ahead of time; never walk into a meeting empty-handed. Get clear on expectations, and put meeting notes in writing.
• Do not hesitate to secure counsel from accomplished outside professionals who are experienced in helping family businesses to succeed.
Finally, and most importantly in this role, my wife, Heidi, helped me understand the importance of image and perception in leadership. Her father was a CEO at a multinational bank, and with this perspective, she has been able to guide me in understanding that to be a leader you must be seen as a leader through your communication style, professional appearance and demeanor, and everyday actions.
My career path at Kanaly Trust Company demonstrates that a family business need not always be run by a family member. In fact some of the best-known family businesses in the country, such as Ford and Motorola, have experienced success under non-family leadership. Family firms that are honest and objective in examining all possible successors are likely to end up with an optimal solution not only for the company, but also for all individuals involved.
David Doll is president and CEO of Kanaly Trust Company in Houston (www.kanaly.com).