(Three generations of Gilbanes (left to right), William Gilbane, Jr (4th generation), Thomas Gilbane (3rd generation) and William Gilbane III (5th generation) enjoy a groundbreaking ceremony in the 1980s. William Gilbane, Jr is now President of Gilbane Building and his son William III is a vice president in the company’s New York office.)
October 23, 2012 2:00 am EST – GILBANE INC. (PrivCo Private Company Ticker: GILBNP) – the quiet, multi-billion dollar a year construction giant – both privately-held and family-owned by the Gilbane Family since shortly after the Civil War - has written a model recipe for harmony, successful performance, and continuity spanning over 139 years and 5 generations of family leadership.
As family-owned private businesses face greater, more complex challenges in governance with each successive generation – further complicated when annual revenues cross the billion-dollar mark - Gilbane Inc. seems to have found the balance between family ownership, management and strong corporate governance through an independent Board.
For readers unfamiliar with the Gilbane name, (outside of associations with Brown University – many Brown buildings bear the Gilbane family name due to generations of generous contributions to Brown) the company is headquartered in Rhode Island, and is a multi-billion dollar generating, privately-held and family owned construction company behind landmark projects such as the Smithsonian National Air and Space Museum, the Vietnam Veterans Memorial, the Lake Placid Winter Olympics facilities, and more recently the September 11th Memorial, to name just a few. Now in its fifth generation of ownership and leadership, Gilbane Inc. has found the link between ownership, family and commitment to a business that founders Thomas and William Gilbane started in 1873. In 2011, Gilbane Inc.’s annual revenues were a stunning $2.9 billion.
PrivCo Founder and CEO Sam Hamadeh remarked today in a statement: "The Gilbane are similar in many ways to that other great Irish-American family success story - the Kennedys - except the Gilbanes' family business is construction instead of politics. And construction is probably the grittier business of the two. But what is clear in studying Gilbane Inc.’s financials is that both families clearly believe in working tirelessly, despite clearly not needing to financially."
In an exclusive interview with PrivCo this month, Paul J. Choquette Jr. (a Gilbane family member), the recent former CEO and Chairman of Gilbane Building Company and current Vice Chairman of Gilbane Inc., candidly discusses with PrivCo the complexity and satisfaction in evolving a family business over five generations.
Gilbane’s “Three Pillars of Success”
Change is a natural process in the life cycle of a company. Ownership, structure, management, and governance are all critical components that are invariably influenced as relationships and businesses grow. However, Gilbane has crafted an approach that has successfully enabled them to keep the family in the business for all these years. According to Choquette, the reason that the Gilbanes have been able to enjoy continued success for so many generations is due to their “three pillars of success”: Legacy, Progressive Thinking and Stewardship.
- “Most important of these is family legacy. This goes back to the founding brothers, and even more so to the two brothers who ran the company post World War II... the legacy of those two brothers working together as a family enterprise is the legacy that we want to continue for all members of the family”, Choquette told PrivCo.
Choquette stresses the importance of the family legacy and values that have become the mission statement of Gilbane, Inc.
- “In the early days of the business, our cousins came together and developed a mission statement, using the values that were important to us. Overtime, this mission statement reminded everyone of our vision, our values. The management of the Gilbane family legacy is of utmost importance”
Commitment To Excellence – “ To Stand Still Is To Die”
In addition to the preservation of the family legacy, Choquette was clear to emphasize that progressive thinking and a commitment to excellence is just as important.
- Gilbane’s Choquette says: “From the get-go we have a commitment to being a leading-edge company; we are family owned with a progressive management system outlook. We have a commitment to our customers.”
Choquette stresses the seriousness of this commitment by describing the use of experts and consultants, in addition to family members, in business decisions:
- “We have always used consultants to help us with some complex questions. For example, in 2004 we invited John Davis – Harvard Business School professor of Family Businesses – to help us evaluate our business practices. He is among a half-dozen gurus on family businesses in the country. We consult with others because we don’t have all the answers, so we reach outside of the family to find good answers to keep this alive and vital moving forward. It’s all a part of getting away from complacency – the biggest risk of the family business."
Choquette adds that this management outlook is a major difference between Gilbane Inc. and other family businesses.
- “Other family businesses get complacent, settle back, and have no commitment to growth; our commitment is a part of our DNA. Our motto is ‘to stand still is to die’.”
The first two pillars of the Gilbanes’ success lay down the blueprint of a family business committed to excellence, but beyond this, the Gilbanes reveal another remarkable trait - the mental attitude of ‘Stewardship’ amongst stockholders - their third pillar of success.
- “Our stockholders view themselves as ‘Stewards’, not investors,” Choquette told PrivCo, “we can’t be sloppy, because it’s our family business. We’ve got to produce results, so our overarching philosophy is ‘Stewardship’.”
Choquette uses himself an example of this ‘Stewardship’, that although he is no longer the CEO (currently the Vice Chairman), he still actively maintains the business through mentoring other family members:
- “We do a lot of mentoring in our family. Two weeks ago I met Bill [William Gilbane III, Vice President of New York Office] in New York and asked him about what he was working on, how the new office was. For the family members in the next generation that are interested in assuming leadership positions, we need to see on a quarterly basis how they are doing. We also use third parties to test their development and leadership skills – we are not just sitting around and telling each other how great our sons and daughters are – this is so that they develop relationships skills and are tested.”
The Three Rings of Family Enterprise - Gilbane’s Answer to Family Complexity, a Major Factor in Downfall of Family Businesses
One of the key elements that beset the continuity of family businesses is the increasing family complexity that arises as the business moves from one generation to the next. The progressive dilution of shareholdings, difference in personal goals, and the loss of family cohesion all contribute to this. One of the ways that the Gilbanes' address this fundamental issue is through the formalization of their family relationships through the creation of their “3 Rings” of family enterprise: Family, Ownership, and Management.
- “There are 3 Rings of the family enterprise: Family, Ownership, and Management. You can be in 1 or all 3, but you need to understand your particular role at any point in time. We try to make sure that the 3 Rings are consistent and that the family members appreciate their roles,” Choquette says.
Choquette further discusses the Family component.
- “To be a shareholder of Gilbane you have to be a lineal descendant of Thomas, William or Virginia Gilbane (my mother). In 2004, after we brought Professor John Davis on as a consultant, we established the Family Council and Family Assembly. These are elected bodies of family members that take part of the decision making process of the enterprise.”
The benefits of this electoral process is twofold: not only does this allow for a fair representation of interested family members in the family business, it more importantly acts as a mechanism of simplification of the Gilbane family ownership structure overtime, reducing the asymmetric altruism that resides in many stagnating family businesses.
Another way that the Gilbanes' address this issue of family complexity is through their payment of dividends and having an option for family members to redeem their shares. With no equity market for minority family shareholders who are not involved with the family business to cash out, the availability of dividends and an ability to cash out on shares is an important issue of debate for family enterprises.
- “We pay dividends, and we have a redemption program for family members to redeem their shares if there is a need for cash,” Choquette remarks. “Not all family business do, and can do that. Family businesses need to be sensitive to this process if a vast majority of family members are not working in the business”.
Choquette points to this as a counter to the shareholder restrictions that other family businesses employ.
- “Some sharing through the dividends needs to be considered. Unlike in other family owned businesses where people that are not working in the business have their shares locked in, our redemption program is fair, and valued by a Harvard Business School professor – this needs to be thought about for other families.”
“Earned, Now Owed” - A Meritocracy Based Family Business
In the selection of talent for the governance of the family business, the Gilbanes show the benefits of a meritocracy based approach. First, despite the focus on family legacy as a core principle of the Gilbane family business, Choquette emphasizes that the flexibility in allowing outsiders to participate in the family business is key to creating the diversity of opinion that has let the company evolve and grow over time.
- “We have four Vice Presidents that are not a part of the family. They were the ones presenting our growth plan this year, going forward to 2017. You can be a ‘Smith’, not just a ‘Gilbane’ in our company. Also, our compensation committee is run by people from outside the family. This makes sure the compensation practices are appropriate and no favoritism is prevalent. You might see our practices in a public company, but we get the spirit and the values of a family business.”
This openness to outsiders even extends into the selection of the company’s Board of Directors.
- “I want to stress that we have a true board of directors,” Choquette emphasized to PrivCo, unlike many family-owned companies per PrivCo research of family-owned companies. “Many family businesses have a board of advisors that project their view. Our board is a true board – the majority of board members comes from outside the family, and it is required by our constitution that this is so.”
In addition to an openness to outsiders, Choquette discusses the high expectations and extended recruiting and evaluation process for family members who want to work in the family business - all part of their meritocracy-based approach:
- “Family members that come into the business are required to work somewhere else for three years. This way they prove themselves somewhere else. This is different from other places where someone can just drift into the family business – our approach lets our family members prove themselves before they can move forward with Gilbane, Inc.”
- Choquette explains the merits of this approach, “it is important for an individual to land in a place where they can demonstrate themselves – this lets them build confidence. Family members that come into the business’s leadership positions need to know that they are earned, not owed. ‘Family member’ is not an automatic sign that they will become part of management. They need to demonstrate interest and results before they move up. I myself was a lawyer, and worked my way into the family business.”
Choquette adds further that this three year “apprenticeship” program allows for more diversity of experience in the family business as well:
- “My daughter has a legal background coming into Gilbane, and currently works in that department. A lot of people can do more than just construction. We have a big insurance program, big real estate company – we are very diversified now, and this contributes to stability. Going back to ‘stand still or die’ – there is a constant need to reinvent yourself.”
Adding to this stability is the Gilbanes’ handling of spouses - instead of excluding them, they utilize their talents in developing the company.
- “Spouses’ involvement is important. We involve spouses big time in the activities; they are present in the stock meetings, serve on the family counsel. We understand how important it is for spouses to be informed – they are successful in their own fields; again our enterprise is inclusive.”
“Love Of The Business” - The Future of the Gilbane Legacy
Perhaps a byproduct of the Gilbanes’ meritocracy and commitment to legacy and excellence, there is a definite passion for the business amongst the family members working in it.
- “We have to love the business, if you don’t love it, there are other ways to make money that are less stressful. We don’t have a patented widget and all that kinds of stuff. Those of us here do love the business. Our business can get you great personal satisfaction, changing people’s lives. We just built a research facility for Kaiser, they are making drugs for people’s needs. Satisfaction comes out of building that facility. What we do helps people and helps companies progress.”
As for the future of the family enterprise, Choquette shows that they might need to look outside the family for leadership for a period of time, to bridge gaps in generations.
- “There is a gap between my two cousins (who work in principal business) and the next oldest of the fifth generation. It will be likely that we will have a possible non-family member serve as CEO, and that’s not a problem – we want success, although we hope that it’s family members that lead, that doesn’t have to be the case.”
However, Choquette’s confidence in the survival of the family legacy is strong. He reflects fondly upon an iconic photograph of Thomas and William Gilbane from a Brown’s trustees meeting.
- “They [Thomas and William Gilbane] didn’t know that the picture was taken, just a younger brother having his arms over the older brother’s shoulders. That picture just says a million words. Take that sense of partnership and apply to what it represents: to our family members, to our customers, to our suppliers, to our subcontractors; it’s powerful. That picture goes back 20-25 years, but it has the same powerful impact today like it did 25 years ago.”
Just like the message preserved in the photograph, the Gilbane family legacy looks to be secure into the future. With their special combination of family values, progressive thinking, and constant stewardship, the Gilbanes have created a family business that evolves, instead of stagnating. “We don’t want to die, we want to grow; not only for my generation but my son’s generation and every generation after that. We are looking down the road.”
With the sixth generation of Gilbane family members now rising up the leadership ranks at billion-dollar Gilbane Inc. – such as Billy Gilbane III, Vice President of the New York Office, the Gilbane family legacy is likely secure for as far as the eye can see.
Founders: Thomas and William Gilbane
Year Founded: 1873
Revenue (2011): $2.9 billion
Notable Projects: Vietnam Veterans War Memorial, National World War II Memorial, National Air And Space Museaum, U.S. Capitol Visitor's Center, XIII Winter Olympics, September 11th Memorial
Ownership: 100% Family Owned
Update: 10/25/2012 - Gilbane has confirmed that the revenues stated in this article were based off of revenues that were not updated on their website. Gilbane has provided PrivCo with accurate 2011 Revenue numbers of $2.9 billion.