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Selling out to an employee: an insider experience

From left, Malcolm McLaren, Chuck Ko, Doug McLaren and Jim McLaren, of Allied Shipbuilders


Walking alongside huge tugboats hoisted up in dry dock around Allied Shipbuilders Ltd.'s five-acre North Vancouver site, Malcolm McLaren takes swift but noticeably small steps. Wearing a bright yellow hard hat, the company's former president explains that, when he's writing or typing, he sometimes can't get his fingers to move.

Mr. McLaren, 58, was diagnosed with Parkinson's disease seven years ago. At that moment, he knew he'd have to get out of the family business his father started in 1948 and that he and his two brothers, Jim and Douglas, took over.

"In a public company, this would be simple: Someone would have taken me out," says Mr. McLaren, whose grandfather started a shipyard in Scotland in the 1920s and later helped lay the foundation for shipbuilding in Canada. "In this case I had to fire myself. I know what the role of president is, and I knew I had to fire myself for the good of the company."

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Once Mr. McLaren was given a medical reason for his gait being off and his feet seeming "floppy," he told his brother Jim, 66, who'd been putting in 70-hour-plus work weeks at Allied for more than 40 years.

"There wasn't much of a conversation; a few days after my diagnosis, I told Jim, 'This is my condition, so I've got to go,' " Mr. McLaren recalls. "He said 'Well, I'm tired, so I've got to go, too.' It was as simple as that. So we started looking around to see what we needed to do to get ourselves out of there.'"

That started the ball rolling for the company's recently announced change of ownership, with the two brothers selling their majority stake to Chuck Ko, the company's vice-president of operations, who had been with Allied for more than three decades. The third brother, Douglas, 62, meanwhile, retains part-ownership and is still involved as the company's electrical superintendent.

The transition turned ownership of Allied over to someone without the McLaren name for the first time in 64 years.

For owners of long-standing family businesses, the decision to move on might be clear, but the path to getting there is often less so. Those considering such a transition could learn a thing or two from the McLarens' experience, according to business experts.

Three other McLarens continue to work at the veteran shipbuilding and repair company, the sons of two of the brothers. One operates a forklift, another is an electrician, and a third helps to handle finances and operations. However, none was in a position to take over the entire company, Mr. McLaren says.

Mr. McLaren began to sort through the company's options with the help of members of TEC Canada, a leadership-development organization for senior business people.

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"There's something about sitting around with 12 business owners or presidents who've known you for some time, and getting their input based on what they've seen over the years," Mr. McLaren says. "That was invaluable to me, getting that feedback."

One option was to hire a large accounting firm or independent company to sell the business for the brothers. But they decided against it.

"They all have a formula and it involves them charging quite a bit for their special services," Mr. McLaren says, adding that there's not always a buyer for every business. "I think every business owner likes to think someone wants to buy his business. But that's not always the case."

There were expressions of interest from outsiders, Mr. McLaren says, but their offers weren't worth pursuing.

"I did have some talks with different people and considered different offers, some of which depended on future earnings: 'I'll give you a little now, but I'll take the place and if it makes money in the future and if I make a lot of money, then you'll get paid out.' 'Well, that's very nice for you, but what's in it for me?'

Another option "was to stay owners and let somebody else run the place, but you've still got to be involved," Mr. McLaren says.

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That, too, didn't appeal to him. "We could sit back and watch others do it, but that doesn't really make sense. I'm sure there's competent outside management out there, but you need hands-on middle management who know what's going on."

It was crucial for the McLarens to hand over the company, which has 120 employees and has built everything from ice breakers to ferries, to someone who knew exactly what's involved in shipbuilding and repair. Allied is likely to get spinoff work from the $8-billion shipbuilding program the federal government recently awarded in British Columbia.

"There's the cult of the professional-manager principle in large bureaucracies, the naive assumption that if you have management skills, business is business: you look after the money and it works. It may apply for certain ventures, but I haven't seen it work for shipbuilding," Mr. McLaren says. "If you don't have the technical, in-depth knowledge to handle the day-to-day activities, you won't get far enough to worry about other aspects that professionals have to worry about."

Given that requirement, and the fact that the offers coming in "didn't really make sense," it was a welcome turn of events when Mr. Ko turned to Mr. McLaren and said: "Why not sell it to me?"

That was in 2010, and negotiations began soon after. Having worked for Allied Shipbuilders for 31 years, Mr. Ko, 50, is often referred to as "the fourth McLaren."

"Chuck is a key man, and he's family," Mr. McLaren says. "I just said, 'Hey, that's a good idea.'"

Mr. Ko says the move is a natural progression for himself personally and for the company. "I've been taking on more responsibility over the years," says the engineer, dressed in coveralls and a hard hat, seemingly as impassioned about his work now as he was when he first started.

"Every day is different," he says. "It's fascinating watching things get built, from the paper all the way down to the launch. I love watching the work all the way through. There's a lot of ingenuity involved; it's not just pushing paper. I wouldn't know what to do if I wasn't here."

It took up until just a few weeks ago for the company to change hands, with the parties going over the details of the transition, having agreements looked at by lawyers and accountants. Neither Mr. Ko nor Mr. McLaren would divulge how much the majority shares sold for nor how the deal was financed when it went through, with the transition taking place at the start of February.

But business experts say they've handled things well.

Lloyd Steier, a professor of strategic management and organization at the University of Alberta's School of Business, says that if keeping the business in the family wasn't possible, this was Allied Shipbuilders' next best option.

"As a family decision, moving forward for wealth creation and firm survival, it's critical that the firm has the best management in place that it can have, and sometimes best management might come from outside the family," he says.

"Most family firms don't pass on from generation to generation indefinitely," he adds.

Ian Macnaughton, a Vancouver-based executive coach, organizational consultant and adviser to family businesses, also describes the majority sale to Mr. Ko as a best-case scenario.

"Family businesses generally have more soul than others," Mr. Macnaughton says. "The problem usually when they sell is they sell to complete strangers or break it up and sell it in pieces. Then they bring in their team and knock out key people and re-engineer the business to make more profit. They scare the hell out of all the employees and motivation goes down, gossip goes up, everybody's anxious.

"But how good can this get? [Mr.]Ko's been there for 31 years, he's VP, he knows the business, and he's been involved in everything. It's just kind of seamless."

If Mr. Ko's presidency marks the end of an era, Mr. McLaren is more pragmatic than sentimental about it. To him, a surname is just a surname.

"Lots of people have been working here for 20, 30, 40 years," Mr. McLaren says. "It's not just the McLarens. It's the pipefitters and the electricians and the steel workers who make the place run just as much as we do."

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