After four generations, a family business reaches a crossroads

For as long as many people in Milaca, Minn. -- population 2,104 -- can remember, Burton P. "Pete" Allen has been a fixture in his glass-walled office in the lobby of First National Bank. It's an office that was occupied by his father and his grandfather before him.

Since the early 1900s, when J.A. Allen bought the bank, now with $132 million in assets, the Allens have been at the center of Milaca life. Customers think nothing of ambling into Pete's office to chat about their new tractors or a frigid day of ice fishing on nearby Lake Mille Lacs. Allen has chaired Milaca's Chamber of Commerce, the Lion's Club, the United Way, and the city planning commission. His wife of 45 years, Thora -- named Miss Milaca in 1954 -- grew up over the hardware store across the street from the two-story Colonial-style brick bank.

If it all sounds a bit like Frank Capra's It's a Wonderful Life, well, it's pretty close. But whether the Allen family's place in Milaca life and lore will continue has been far from clear. Pete Allen is now the 76-year-old chairman of First National's board. In 1997 he turned over the bank's presidency to Don Fox, the first nonfamily member to hold that post since the Allens took over. Although the Allens have four children -- Eric, 42; Andrew, 39; Kirby, 37; and Matthew, 30 -- only Kirby lives in Milaca. He works at the bank as a loan officer.

Not surprisingly, succession has been very much on Pete and Thora Allen's mind. Which of their children, if any, would take over the 44-employee bank? Would the other brothers accept that decision? What if some, or all, of their sons wanted to sell? The Allens broached the topic with their children a decade ago, but that conversation ended quickly. "It ruffled a few feathers," Pete recalls. "Nobody was emotionally ready or mature enough to go through with it, so we let it drop."

The Allens knew they had to start talking again, but they weren't quite sure how. Finally, in 2000, their tax and estates attorney, Mark W. Greiner of Fredrikson & Byron in Minneapolis, urged them to consult Glenn Ayres, a lawyer and president of the Family Firm Institute in Boston. Ayres counsels privately held businesses on succession planning.

It's a type of help many family businesses need. Even among close-knit relatives with the best intentions, succession can be a radioactive issue. Tough subjects abound: death, money, personalities, simmering grudges, shifting alliances. Business owners increasingly are turning to psychologists, social workers, and counselors for guidance, often after years of fruitless discussion and destructive battles. Says Cary Tutelman, a small business counselor in Minneapolis: "It's about people's personal lives and their business lives. That about wraps it up. What else is there?"

The Allens had had trouble addressing the difficult questions on their own. "We have not been a family that has communicated well," says Pete. "And I am part of that problem. I don't think I have been a very good mentor to my sons." So late in 2000 they began a multiyear process to decide what would happen to First National.

After their initial conversation with Ayres, Pete and Thora Allen made a crucial decision. They hoped their sons would keep the bank in the family, but they wanted them to come to a decision about the future together. Says Thora: "We told our sons this is something that you guys have to decide: what will make you happy, what will make your lives good. You have to want to do something like this."

Ayres spoke to each family member, and to Fox and several other bank employees, before the four brothers gathered for several intensive workshops. It didn't take long for Ayres to discover that the brothers weren't close. "They didn't dislike each other, they just didn't know each other very well," he says. The Allens lived scattered around the country and had very different lifestyles and interests. Oldest son Eric is a television producer living in the Hollywood Hills. Matthew is an outdoorsman and college student in Littleton, Colo. Andrew, a computer graphics consultant in Brooklyn Park, a suburb of Minneapolis, is a self-described introvert who wrote his will standing in line waiting to buy a Lord of the Rings DVD; and Kirby, a loan officer at the bank, spends his spare time hunting, fishing, and restoring classic cars. Because the sons were divided by age, interests, and geography, Ayres hired Iris Cornelius, a psychologist in St. Paul, to join him in working with the family. They scheduled the first workshop for February, 2002.

The Allen brothers were a bit on edge as they checked into a hotel near the Denver airport for their first meeting. "There was a little anxiety," recalls Eric. "It seemed close to family therapy, and we had once seen a counselor because we were all having a little problem growing up. It was a really bad experience."

The sons agreed to keep their conversations private, even from their parents. Ayres and Cornelius gave the brothers personality and aptitude tests such as Meyers-Briggs and the Campbell Interest Skill Survey. "In every family there are certain patterns and dynamics. We needed to understand who the boys are as individuals and who they are as a group," says Cornelius.

Before they could discuss the bank, the brothers needed to learn how to communicate. "The first meetings were more about teaching us how to speak the same language," says Andrew. "If you click into the way you've always communicated, you just hear things that are not necessarily there. And you have to have a referee. When someone says something and you say, 'What the hell did you mean by that?' the referee can remind you to listen to what he actually said, not what you think he said."

The brothers discovered that despite their varied interests, they had plenty in common. "We realized that even though we have different lives in different cities, we did end up really sharing lot of the same values that came from our parents," says Eric -- namely loyalty, consistency, financial responsibility, and fairness.

As the weekend drew to a close, the brothers submitted questions to be sent to their parents. They asked Pete and Thora about their vision for the bank's future, why they thought the bank had been consistently profitable, and what advice Pete had received from his own father when he took over. Their homework: for each brother to call all three of the others at least once before they met again in March. Eric, who now has his brothers on speed dial, says that small lesson had the lasting effect of drawing them closer.

When Pete and Thora's responses were read aloud at the second workshop in Minneapolis in March, they reinforced the values that the brothers had been raised with. The brothers had known, for instance, that their parents were committed to Milaca, but the letters reminded them how frequently their father had put the bond he had with friends and neighbors above their financial circumstances when approving loans. "Giving out loans is how people make their dreams come true," says Andrew. "That had been drilled into us."

The consultants then introduced the brothers to the critical distinction between ownership and management. Up to that point, the brothers felt that they were choosing between selling and doing things as their father and grandfather had done. "The idea that you can be an owner and not a manager, but still care about what is going on there, was something new for us," says Eric.

The discussions drilled down to the nitty-gritty issues of owning a bank. The brothers started thinking about how each other's abilities and skills meshed with those needed to manage the business. Andrew and Kirby, who had served on First National's board for several years, had a good perspective on the culture of the bank. Andrew had a strong understanding of accounting and economics, and Kirby, who also was well versed in banking, can be outgoing and suited to maintaining the family's social presence in Milaca. They agreed that Matt, too, had an easygoing way with people and was highly intuitive. Eric, a talented communicator, would be adept at marketing and public relations.

Just down Sunset Boulevard from where movie stars were arriving for the Mar. 24 Oscars ceremony, the Allen sons were gathering in a far less glamorous conference room. Ayres and Cornelius felt that the brothers were ready to confront the big question: Should they sell the bank?

It was crucial that all the brothers fully understood the implications of the choice they were making. If they sold the bank, they would walk away with several million dollars -- no strings attached. "We said this is what you can walk away with: money in your pocket. No ties, no responsibilities, just money," says Ayres.

Not surprisingly, those discussions had some uncomfortable moments. "There were a few times when we would have to stop everything and Iris would go and walk around the block with Matt or whomever," says Eric. "But it was nothing like 'I hate you.' It was more that one person needed a bit of TLC. It just became part of the process."

The brothers were warming to the notion of ownership. But the going got tough as the consultants walked them through some difficult hypothetical situations. What if one brother needed to liquidate his stake because of a divorce or business failure? What if Andrew had a chance to buy an art studio and wanted to sell his stock? "All the meetings were tough because they forced us to think about things we weren't accustomed to thinking about, but the meeting in L.A. was particularly tough," says Andrew. "It was refreshing and scary at the same time."

After two days of intense conversation, the brothers made a decision. Hard as the process had been, their choice now came easily: They would keep the bank. "We all looked at each other and realized that we didn't want to lose the bank," says Andrew. "It is part of the family."

They spent the next six months hammering out the details of their arrangement. None leaked a word to their parents. Finally, in October, 2002, they were ready to announce their decision.

The night before they were to see their parents, the brothers worked past midnight on their presentation. The next morning they dressed to the nines. Even Matt, typically clad in jeans and flannel shirts, donned a suit he had bought for the occasion. Each son took a turn speaking. Matt detailed the process they had been through and outlined the values they would work to uphold, notably maintaining continuity and community leadership. Kirby explained their commitment to staying informed and attending board meetings, along with their goals of electing competent directors, developing a code of conduct, and forming the Allen Family Council, which would include their parents and meet several times a year to discuss bank operations. Andrew elaborated on their specific roles as owners, noting that in the future, the bank would be run more like a typical company, with the managers responsible to the board, which, in turn, would be accountable to the owners. Eric concluded the presentation by reading the vision statement they had drafted.

Their parents' reaction was stunned silence followed by a round of applause. "It was a very polished presentation," says Pete. "And it was an understanding that they had arrived at together. They had never had any understandings together before in their life, so it was real progress that way." The brothers later made similar presentations to the bank's board of directors and employees.

The family council has since convened several times a year. The brothers have continued to meet with the consultants, as well as with Greiner, to hammer out the details of their agreement. They've turned to experts for guidance about regulatory and other bank issues.

At the council's most recent meeting in February, it approved the submission of the principal shareholders' (now including the entire Allen family) holding company application to the Federal Reserve. For now, Andrew and Kirby will sit on the board. Don Fox will continue as president through 2007, in accordance with a promise he'd made to Pete when he first came on board. Kirby remains a loan officer and is getting more involved with the community. He's president of the Milaca Junior Association of Commerce and is helping organize the town's Fourth of July festivities.

At dinner not long ago at Pete and Thora's home overlooking the Rum River, Pete turned to Andrew and asked: "Are you sure that you guys didn't do this because you thought [it] was what I wanted you to do?" Andrew didn't hesitate. "We looked into each other's eyes and came to the conclusion that this was important to us and important to our family. And it was very important that Milaca still have this pillar of the community."

His father slowly nodded. And his mother looked very, very proud.

By Gay Jervey

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