Swapping Desks: Pioneering Business Succession Via Employee Ownership

By Robert McMaster

Rob McMaster poured his heart and soul into his father's business for 38 years, but at 54 was concerned that he lacked a successor. Intent on early succession planning, Rob established a formal Employee Share Ownership Plan to transfer ownership of his company to his employees. Then the unthinkable happened: Rob was struck with severe and debilitating health challenges just as the economy faltered and manufacturing industries were struggling.

When his fledgling employee ownership plan failed, Rob had no option but to liquidate the business. To his horror, he found that his company, turning over $5 million pa with $2.5 million in assets and 43 highly skilled staff, was valued by the open market at…NOTHING! Refusing to give up, Rob undertook a nine-year journey that changed the lives of all involved in the business.

The resulting employee-owned cooperative business structure has been hailed as a "proof of concept" and offers others a business succession model that could make a significant difference in the lives of company owners and their employees. Rob's ground-breaking experience has the potential to change the future direction of succession planning for individuals and businesses in Western Sydney and across Australia.

• Language: English
• Publisher: BookBaby
• Release date: Mar 31, 2020
• ISBN: 9781925952483

Book preview

BIRTH OF A BUSINESS

1. Family Roots

We treated C-Mac like a baby even before its gestation back in the early Sixties. However, the impending birth was more akin to a prolonged pregnancy. Before she was married my mother, Margaret played tennis at Strathfield with friends including members of the Kennard family. She asked her boyfriend, who was doing a sheet metal apprenticeship and would later become my father, if he would like some pocket money making roof racks for a subcontractor who on-sold the racks to Kennards. Cliff started production in his spare time and in 1954 Margaret and Cliff married. Cliff’s reputation soon filtered through to the local rev head community, so he branched out into stainless steel exhausts and manifolds for hot rods, all manufactured in his home garage. While Cliff had always wanted his own business, he wasn’t prepared to go full-time and take on the financial responsibility until he had finished paying off his first family home. To accelerate his repayments, he drove hire cars in the evenings transporting disabled children. However, the toll on his back, lifting and loading his passengers, was so severe that he was eventually forced to qu it.

1962 Cliff was 31 when he finally extinguished the debt on his Carlingford home, located in the western suburbs of Sydney, prompting him to quit his job as Sheetmetal Foreman at Dickson and Johnson. Borrowing a fistful of dollars, with his family home as security, he formed C&M McMaster Pty Ltd in partnership with his wife. Margaret was never destined to be the traditional silent business partner like so many wives of that era; women who simply stayed at home oblivious to the cut and thrust of the commercial world. Interested in every facet of the fledgling business, she was a partner in the real sense of the word. It was not uncommon for her to be seen swinging on the manual sheet metal bender during the day, then dashing off to mother her four boys when they arrived home from school.

The new business rented a factory at Gladesville, a rat hole by modern standards complete with a dirt floor. Lacking even the most basic amenities, even communications were a challenge. In those early years Margaret would answer customer enquiries on her home phone at Carlingford, and then drive 20 minutes (11 kilometres) to the Gladesville factory to deliver the messages to Cliff. I vividly remember the excitement of going into the factory on Saturdays to help Dad, willingly tackling all sorts of onerous odd jobs which included sweeping the dirt floors. The pocket money I earned financed the purchase of my first pushbike. I was only 10, but already Dad was sowing the seeds of a work ethic that would ultimately save the business half a century later!

As Cliff and Margaret diligently applied themselves to their new enterprise, establishing a reputation for quality and customer service, it flourished. In 1965 they moved to a larger rented factory in Ryde where they expanded their product range to include stainless steel sinks, drainers, and custom electrical cabinets, as well as general sheet metal jobbing. In 1970 they purchased their own factory at Girraween, and in 1976 they registered C-Mac Sheetmetal.

At home, Dad, Mum and we four boys would regularly gather around the old dining table to ‘talk business’. Although I didn’t witness the day-to-day struggles at C-Mac in those early years, I did feel a valuable sense of inclusion as Cliff and Margaret related their daily challenges; chasing sales, hiring the right people, assessing equipment, battling the bank, updating galloping technologies, and sheer hard work. We’d discuss opportunities, analyse problems, brainstorm crazy ideas and consider alternatives. Most decisions were taken by consensus. We flipped through design books to settle on our logo and font, which ended up resembling a piece of perforated rolled metal. When a ute purchase was imminent, we readily agreed on yellow because that same year school children had been encouraged to wear yellow raincoats so they could be seen in poor weather conditions. Perhaps subconsciously we defaulted to ‘safety’, which later became a prime consideration in our workplace. Yellow and blue also happened to be the colours of our local rugby league club, the Parramatta Eels, so the decision was a no brainer; yellow and blue became our company colours.

I was dragged from ‘dining table management’ to the reality of the business in 1979, 17 years after C-Mac was born when I received an urgent invitation from my father to join the business as a fitter and machinist. At the time, I was employed elsewhere as a production engineer. He explained with some excitement that he had been to Rydalmere where he had visited a company intending to buy their lathe, but instead, had ended up buying their entire business. He had immediately hired a new manager to run that business, but after a few hours surveying the chaos, his man had tossed in the towel and left. Dad was desperate; I was unable to say no, plus I couldn’t resist the challenge of a messy engineering workshop with machinery and tools hidden under piles of swarf (metal shavings).

A significant milestone occurred when Cliff retired in 1992, coinciding with the death of his third son in a motor accident. My brother Terry was just 32 when he was taken from us, leaving a massive hole in our hearts as well as a vacancy in the business; he had been responsible for C-Mac accounts. Haunted by Terry’s absence in the office, Margaret retired from her role of office administrator shortly afterwards. Then my youngest brother Graham, a qualified tradesman who managed our sheet metal workshop, decided he needed a change of scenery and left for a metal-work teaching position in Corrective Services. The sudden exodus of these four pioneers left me the sole remaining McMaster at C-Mac..

As the 36-year-old eldest son, a toolmaker by trade, I had been managing the engineering workshop overseeing 17 staff. Suddenly I was thrust into the role of General Manager, completely ill-equipped and unprepared; I didn’t know the difference between a debtor and creditor! (coincidentally a similar position my successor found himself in). At that time there was 44 staff consisting of sheet metal workers, fitter and machinists, gear cutters, toolmakers, welder fabricators, cleaners, drivers and general labourers. A healthy manufacturing culture existed at C-Mac, a legacy left by my parents, where many of the staff were long term employees, and few of the employees belonged to a union. At that time the company operated within three major divisions:

•  C-Mac Sheet metal

•  C-Mac Engineering and Gear cutting (an acquisition)

•  Parramatta Tank Works (an acquisition)

Most of the work was jobbing where metal fabrications and components were made to order for a wide range of businesses mostly located in western Sydney. The exception was the water tanks division where tanks were standard, but each made to the customers’ requirements and delivered into the Sydney region and rural NSW. This division mainly dealt with the general public. As the employees and staff were highly skilled, mostly long-term tradesmen, the day-to-day operations continued seamlessly which made my subsequent transition to leadership much easier.

C-Mac’s development has been continually enhanced by a positive attitude to the rapidly changing business environment, with management particularly keen to keep abreast of advancing technologies that could impact its operations. Ultimately this resulted in investments in an effective computer network, CNC manufacturing equipment, and competent accounting and CRM software systems. Most importantly, new marketing strategies and initiatives were developed with all staff involved, starting with a two-day retreat at a conference centre in the Blue Mountains facilitated by an external business strategy consultant.

Many businesses similar to C-Mac closed their doors in 2015 with industry experts declaring if you don’t change and adapt you will fall by the wayside. We didn’t need prompting. We had already been tracking the rapid evolution of online marketing techniques and were convinced that this was the way of the future. By 2018 C-Mac’s web presence and inbound marketing strategies were attracting over 10,000 website hits per month generating 3 new customers every week! There’s no doubt that our internet marketing contributed significantly to C-Mac’s survival post GFC when many others went under.

Further information about C-Mac’s history is publically available¹.

2. Party Time!

The 5th November 2016 represented a significant milestone in C-Mac’s history; we had reached our FIFTIETH birthday!

In the intervening years, the business had progressed from a gleam in the eyes of the founders to a fully-fledged warrior; a little battle-scarred, but supported by a great bunch of soldiers who had fought in the trenches and were standing tall. It was time, 82-year-old Margaret McMaster said, to celebrate. As sole remaining Director of C-Mac Industries, she wanted all the families of C-Mac employees, past and present, to celebrate the momentous occasion.

By noon on that auspicious day of celebration C-Mac’s front lawn had been converted from a dull and boring industrial estate to a panorama that screamed ‘party time!’ A sizeable temporary shelter was crammed with tables, cutlery, flowers and decorations. The street filled with family cars disgorging husbands, wives, boyfriends, girlfriends and excited kids, replacing the usual semi-trailers, delivery trucks and forklifts. Kids couldn’t get rid of their shoes quickly enough, eager to leap about screaming as they pummelled the car-themed inflatable jumping castle sitting on the driveway. In front of the engineering and gear cutting factory, the tradesmen and apprentices were bashing each other with inflatable joisting rams. Sweating fathers were pushing their children in billy-cart races down the 50-metre long concrete driveway. The Big Boys’ action was in full swing down behind the engineering workshop in the rear carpark where frustrations and excess energy were dissipated with the help of large sledgehammers being applied to an unfortunate car. No, it wasn’t a C-Mac Ute, rather a bomb that had been driven in the previous day from the motor wreckers next door. (It took months to clean up all the pieces!)

The factories inside were spotless and devoid of clutter, with the walkways taped off so the employees could show their kids their working environment and boast about ‘what I do at work’. (Why show children around? Over the years when we interviewed apprentices, we found that most of them had no idea what their parents did for a job.) We had apprentices operating a CNC plasma cutter and a CNC folding machine, creating metal mementoes that everyone could take home as souvenirs of the day. With no neighbours to worry about noise, the band pumped out music. The lead singer was a C-Mac equipment supplier who was mates with many of the staff.

It was a proud moment for all concerned when the McMaster family, business associates, former and present staff and their families and kids, gathered together to listen to the speeches and enjoy the shared memories. There weren’t too many dry eyes by the time the reminiscing finished, and the massive cake was finally cut.

The only sad note was the absence of C-Mac founder Cliff McMaster who had passed away 9 years earlier. After kick-starting C-Mac in 1962 in his home garage, he had retired at the age of 60 years, subsequently enjoying 16 years of retirement at his home on Lake Macquarie. He loved nothing more than sailing his 40-foot catamaran up and down the east coast of Australia. However, he was not forgotten on the Big Day.

What was it like working for Cliff?

The following account of his passing was recorded at the time by a friend and employee, revealing how Cliff’s character had generated so much respect; after all, it was he who had established the work ethic and ethos which came to symbolise C-Mac:

"On the 29th of July 2008 I received a phone call from Margaret McMaster. She asked me if I was somewhere quiet so that she could speak to me. I got up from my desk and went to the Board room, shut the door and picked up the phone. Her voice was trembling and short of breath as she asked if I would do her a favour.

Has Cliffy passed? I asked, and her reply was no, but he has lapsed into a coma, and it will not be long. She said Shayne, would you write a poem for Cliff and read it, if you can, at his funeral?

I was so proud to think that she thought enough of me to even ask.

I told her that I would try to write something about Cliff that might describe the man I knew, and read it if I could.

Ode to Cliff McMaster

She called to say it won’t be long before her one true love was gone,

She asked if I would like to say some things of Cliff for you today.

Cliff loved many things in life but nothing as he loved his wife,

I can’t remember ever, where I did not see them as a pair

Together through the good times together through the bad,

Together they were happy, and at times together sad.

He loved his sons all four of them, I know they gave him pride

I know he loved their children, and I know he loved each bride.

I know he loved his sailing and his travels through this land

And all the while, his special girl would hold him by the hand.

I know he missed his Terry, I know that broke his heart

And I know that now forevermore they’ll never be apart.

A father reunited with his loving son

Together they will sail away until the others come.

A leader by example, a family man by choice

A mentor and a teacher, a man of gentle voice

A man of many talents, a man who travelled far

A man who liked a challenge, a man who raised the bar

For thirty years I knew him as my employer and a friend

Always asking of my darling wife by conversations end

He never walked on by me he’d always stop to chat

He’d ask me what I thought of this or what I thought of that

I feel so glad for knowing him I’ll miss him this I know

I hope that in my daily life, some small part of him I’ll show

So let us not forget him or the things that he has shown us

For to be like Cliff McMaster, I think would surely be a bonus.

God Bless you, Cliffy."

Left to Right - Four Generations of McMasters

Sharnez McMaster, Stuart McMaster holding Liam, Sue McMaster, Margaret McMaster (Director), Robert McMaster (General Manager), Elizabeth McMaster, Graham McMaster, Alison Davie, Marnie McMaster, Glen McMaster holding Elke, Karen McMaster, Matt Davie holding Ivy.

BABY BOOMER RETIREMENT

One of the critical issues for Australian manufacturing is that we are moving into a significant demographic change where business owners, especially baby-boomers, are transitioning into retirement. Baby Boomers in 2019 were on average 69 years of age. Approx. 60% of all businesses are still being managed or owned by baby boomers. Many own small enterprises and want to exit their business to realise their asse ts for retirement.

For retiring owners, the shift into retirement is complicated by personal aspirations intertwined with issues of leadership succession, business development, business continuity, ownership and wealth transfer, organisational governance and family harmony. I fell squarely into this category, at a stage in life where I wanted and needed to retire.

Some of the issues I encountered include:

1.    Many business owners’ main retirement asset is their commercial property, not the business itself. To retire, we need to liquidate our property asset or receive a rental income.

2.    Few investors want to buy manufacturing businesses, which generally have small or poor profitability even though the company may have provided a good living for the baby boomer’s family and staff. It can be challenging to sell the company for a realistic value.

3.    Closure of a business may be costly due to long service leave and redundancy entitlements because of staff loyalty and long term employment. This can mean existing owners, even after selling off the business assets, may have to raise further funds to pay out staff entitlements.

4.    Auction sales only realise a fraction of equipment asset values (1/10th is a rule of thumb).

5.    Small business owners generally want to be socially responsible and look after their staff, acknowledging their loyal service.

6.    Owners initially think only of selling or closing down and tend to leave the problematic retirement decision to the point when they actually want to retire. Unfortunately, it takes time to transfer ownership to management or employees, and this option is often left too late to implement.

7.    Owners have a responsibly to their families. To maximise value from the business, they may sometimes act in ways that do not benefit the employees.

8.    Retiring owners no longer want the responsibilities and liabilities of running or worrying about the business. Health and enthusiasm deteriorate, and it is hard to remain committed.

9.    The volume of businesses coming onto the Australian market is forecast to grow, significantly affecting supply & demand; thereby affecting business pricing that is already low due to the economic slowdown in manufacturing.

Transfer of company ownership to employees can be affected by the transfer of shares to the employees or by establishing a new corporate entity known as an employee-owned worker cooperative. For the reasons outlined above and many more mentioned later in this book, transfers to employee ownership is not common practice in Australia, unlike the UK, Europe and USA, where the practice has been widespread for many years.

Australian legal and governance environments have created many hurdles and disincentives, resulting in business owners missing out on the benefits that could accrue from widespread employee ownership. Overseas countries have addressed these barriers with specific policies. Later chapters contain suggestions on solutions suitable for implementation in Australia.

The following public statements by credible authorities support the difficult circumstances facing many small businesses:

"More than 80% of Australian small and medium business owners aged over fifty-five are trapped in their businesses – struggling to work out how to escape and at the same time extract their wealth from the companies they have worked so hard to create.

What does ‘succession planning’ mean when, for example, business owners in the manufacturing sector find themselves looking for a way to exit the business, but the markets for their products & services are disappearing offshore?

One in five or 21.0% of all Australian businesses either broke even or made a loss in 2015-16.

Manufacturing industry declined across all key data items, with EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) down 3.4% in 2016-17"

Australian Bureau of Statistics

1.1 million businesses didn’t make a profit last year.

Speaker at a Bankstown Chambers of Commerce event, 2018

What was I to do given that I wanted to retire in my early sixties? I certainly lacked a clearly defined exit strategy!

3. An Unexpected Succession Incentive

Not long after I embarked on my own succession journey, I suffered a crisis that highlighted the dire need for early planning.

I was reasonably fit health-wise. For the previous decade, I had been swimming 30 laps of an Olympic pool twice a week, followed by a fitness class another day of the week. I would pack my breakfast and lunch the night before my working day, rising in the morning at 5:20am. On the way to work, I would go via the local gym and pool, exercise and have breakfast around the pool with fellow gym junkies, arriving at work by 8:15am.

Coming up to Christmas 2010, I caught the flu, and after battling along for a while, I squeezed in a visit to the doctor. Armed with antibiotic pills, I ploughed on. Then just two weeks before Christmas I suddenly couldn’t swim a length of the pool; I was too puffed out! I couldn’t understand it; why? The holiday break was fast approaching, offering an opportunity for a good rest, so I just soldiered on. I made it to the holiday period and travelled up to Toronto near Newcastle, NSW for a couple of weeks of planned R&R. However, my health was not improving, so I took myself off to a local doctor. He told me it was only a virus and to just toughen up and get over it.

During this break, my wife and I decided to visit some lifetime friends who were camping at Nelson Bay. We were sitting under a shade awning in their caravan park having a cuppa when my long-time friend, a doctor, commented that I wasn’t looking my usual self. There, on the spot, she gave me a free check-up! Instead of taking a walk along the beach as planned, she told me that was out of the question; you’re off to the hospital. Damn! Obeying her orders, I attended John Hunter Hospital, where I was subjected to a battery of tests that indicated my heart was out of rhythm. Due to the holiday season, all the doctors were on leave, so they agreed to discharge me if I went straight to Hawkesbury Hospital; close to home and more convenient for all concerned.

I spent the next ten days in hospital in intensive care, getting a good rest, but not in the manner I had anticipated.

That was the start of many ongoing tests and specialist visits over the following five years. I became well acquainted with my cardiologist, respiratory specialist and of course, my local doctor. The specialists determined that my heart initially went out of rhythm at the pool when I was struggling to swim those 50 metres. They also indicated I may not have survived if I wasn’t as fit as I was. Apparently, my very rare condition had been brought on by influenza. During my convalescence, I had the privilege of addressing many student doctors about my abnormal cardio rhythm as well as a lung condition (sarcoidosis) that was also discovered during investigations.

At work, I had to drop back to three short 6 hour days each week. It was ironic that C-Mac staff knew I had no family successor, so my illness became a major crisis in everyone’s eyes. I’m worried; the company is in limbo was a common concern expressed by employees who were perhaps in fear for their jobs. For all concerned, it emphasised the importance of having an effective succession plan in place. Fortunately, I was still around, so the staff stepped up and ran the company with only minor oversight and mentoring from myself.

Not only had my illness raised the importance of the succession issue, but my extended family was also highly concerned for my ongoing health. This was something that couldn’t be ignored, emphasising the need for prompt action. One positive outcome was that I had been forced to reduce my working hours, virtually forcing me into semi-retirement, thereby allowing me to concentrate on the succession process.

About two years later, in July 2012, another health scare again emphasised the importance of the issue and accelerated the momentum. While sitting at the Board Room table with Manufacturing Manager Steve Grlyak, we were interviewing a sales representative when my heart decided to stop for about 30 seconds. I was frozen in time, unable to speak or move, although I could clearly hear what others were saying. I didn’t think much about it at the time as it was fairly usual for me to be light-headed when I stood up due to my very low blood pressure. I thought the others hadn’t noticed, although Steve later commented: I thought you were a bit strange.

Being the typical gung-ho male I drove home after work, some 48 kilometres, but when I sat down, it happened again. I mentioned it to my wife Liz, who insisted that I call the doctor. He instructed me to immediately go straight into hospital, again! Reluctantly I agreed. It was pouring rain, and the Hawkesbury River was expected to flood that night, so I didn’t want to be isolated from medical help unable to get to the hospital. Better safe than sorry!

My condition warranted priority through triage and into a hospital bed. I had just been wired up when I felt it coming on again; alarms went off, and the crash cart arrived with a flurry. The same thing happened several more times in the next 20 minutes, so I became the centre of attention. Major heart problems were outside the scope of Hawkesbury Hospital, so I was bundled into an ambulance in the pouring rain and raced off to Penrith Hospital with Liz following in her car. The very next morning saw me in surgery receiving a German-made pacemaker implant. I was fascinated by the fantastic technology; its tiny size and battery life. In my early days, I had worked at Telectronics as a production engineer, a manufacturer of medical equipment where I investigated faults and repaired Australian-made pacemakers.

This whole medical emergency didn’t cost me a cent and led me to marvel at the blessing represented by the amazing healthcare system in Australia. It’s a shame I can’t pay a similar compliment to the government for their encouragement of employee-owned businesses in manufacturing!

Having gone through this arduous life-threatening journey, which gave me the scare of my life, I had cause to re-evaluate yet again the important things in my life? What should I do next?

I wasn’t scared of dying due to my firm belief in God and what Jesus Christ had done for me; how He had come back to life promising eternal