Governance and Legacy at K&S LLC

In part two of our profile of K&S LLC, the Cedar Rapids, Iowa-based family office of the John and Dyan Smith family, the principals discuss one way to approach the key issues of family office services, governance and succession.

John Smith is chairman of the board of CRST, The Transportation Solution, Inc., the family’s main operating business. Amy Lynch, CEO of K&S, joined the organization from Deloitte in 2015. She is also chief of staff for Hillcrest Holdings, Inc., the holding company that owns K&S, CRST and several other businesses the family owns. They discuss the family office’s governance and operations:

Family Office Services
Amy Lynch: The family has a commitment to continue to invest together. This happens in two main ways: First, they use Hillcrest capital to buy another business, expand a current business, or buy real estate that they lease to a trucking company. Simultaneously, shareholders receive a minimum dividend from the company. As shareholder wealth builds outside of Hillcrest, they can have K&S manage their money at the household level. Centralization and privacy are the two main benefits of the family office – at K&S, they are dealing just with the chief investment officer, me, and a few other members of our small team. They all know it’s the same small group of people working to advance the family’s interests with the input of various advisors.

Image by Cassidy Reed

The family office files all the tax returns for the family. (Before the business became a C Corp., every shareholder was filing taxes in almost every state.) We coordinate all their estate planning and execute all stock transfers and investment planning. We also handle trust management, and we manage all the personal insurance accounts for the family.

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We do very little in the way of personal services – no bill paying, no travel planning. And the family still does their own personal real estate investing. However, the company real estate is owned by the family personally and leased to the corporation, so any buying, selling, or leasing is done by us. If the trucking company says, ‘We need a place in the Southeast and this is the location we want,’ my team does the due diligence, buys the property, sets the rent, executes the leases, etc.

Governance and decision making
Lynch: The board of Hillcrest is the family: John and Dyan and their three children. Legally, K&S is a subsidiary of the holding company. But we don’t operate as an embedded family office.

There is a separate board, with non-family members, for the trucking company. I organize and lead all the family/Hillcrest board meetings they have – there are now three formal, structured board meetings for Hillcrest every year. I do a lot of work on governance, tax planning and estate planning for the shareholders.

When a family member has an investment idea, they bring it to one of the meetings that happen three times a year. They could approve it at that meeting, and then the family office is in charge of executing, unless it is a full-blown acquisition of a business directly by Hillcrest — in that case, it’s led by either the Smiths’ son or son-in-law, who are the managing directors of Hillcrest. If the family decides they are not interested in pursuing an investment together, one of them may come back to me and say they will invest personally.

Image by Cassidy Reed

Half of each meeting is a Hillcrest board meeting, and half is a family council meeting. I lead both. The board meeting is formal. The family meeting is less formal, and is the forum in which we talk about things like household decisions or how we educate our next generation. There is much more family conversation. We open each family meeting with the K&S mission statement, which is family oriented. For each issue, we have to clarify: Is it business and only business, in which case we use a shareholder lens to make decisions? Or is it a family conversation?

That’s the crux of my role: to help them make decisions about how they build and protect wealth as a family. I make sure we’re presenting information to the shareholder group from different perspectives that allows them to make the decision.

Succession planning
John Smith: I have said my leadership is going to end in six years, when I turn 80. For the CRST board, my kids know that if they want to, they’re going to be on the board. We have a family constitution, and it says if you’re going to work for the organization, you have to get an appropriate education – it’s to make sure the direct descendants are qualified.

One of the things we have talked about is as the family expands, how are we going to educate them? Right now, I’ve only got two grandkids, and they’re 7 and 4, so we haven’t had to do anything yet. But pretty soon, we’ve got to be thinking about how we’re going to educate the next generation.

Regarding the staff in the family office, we do not have any formal succession plans right now due to their ages, though we do have employees who could work into the CEO role.

About the Author

Margaret Steen

Margaret Steen is the editor of FO Pro, The Family Office Professional. Based in Silicon Valley, she has written for Family Business Magazine for more than 15 years.


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