I worked with a family a few years ago who had decided they wanted to do an analysis of the dividend policy. The family had had some significant conflict in the past and were making great strides in addressing some of the pinch points in their policies and practices. They had already, through the use of task forces, doing a review and light revision of the share transfer restriction agreement and the stock redemption policy. Reviewing the dividend policy seemed like a logical next step.
The dividend policy task force addressed the historical reasons for having dividends, then conducted an analysis of future projections of dividends as compared to company growth. They also surveyed best practices, looking at what other comparable family companies have done. The question they were trying to answer was whether or not the dividend policy was at an appropriate level to recognize and reward the family for their reinvestment in the business, without stifling the growth of the company by taking out too much capital. The most brilliant study they did was to also discuss and try to measure the other returns that the family experienced by being part of a family-owned business.
Especially if there is interpersonal conflict, the passion that a family has for the business, along with an adequate dividend policy, can buy the family time to resolve the family conflict. Without this, family unrest and conflict can overpower the desire to remain family-owned.
The returns that family experiences are threefold:
Financial – through dividend policies and other perks
Family – close personal relationships, or at least good working relationships with extended family members
Business – connection with the business, pride in products, pride in good employee relationships, taking care of the employees and their community
If a family only has financial returns, it isn’t really enough to keep the family reinvesting in the business. Especially if there is family conflict, staying in the business without a financial return and pride in family ownership of the company can feel like an exercise in masochistic behavior. In that same light, having family emotional and business emotional returns without financial, may also not feel like “enough”. However, if a family has a successful track record in at least two of the three areas, it will buy the family time to address whatever is lacking in the third.
In this family’s example, measuring business returns made the family council realize something. They had spent untold hours trying to appease a small minority of individuals, rather than focusing on the majority of the family who was happy with the direction of the family council, was passionate about the business and experienced an overall positive experience in the three domains.
It can feel quite natural to try to make everyone happy, but actually measuring overall happiness in terms of the three areas of returns can make a substantial difference in a family’s approach to solving a problem. Measuring more than just financial returns allows the family council to focus on the happy majority while still trying to address the challenges that the minority experience.
