Building a Structure for Family Governance in Advance of a Generational Shift

I am the third-generation leader of Burger Specialty Foods, with origins going back over 95 years. I wrote an article for Tugboat Institute®’s Evergreen Journal in 2019, where I shared initiatives that our Family Council had undertaken since it was established in the early 1990’s. Our renewed effort to strengthen family/owner governance structures is based on the understanding that, in a multi-generational family business with an ever-expanding family like ours, policies and guidelines need to be carefully thought through and established – not once, but periodically in order to keep them relevant over time. At the time, my objectives were to preserve family harmony, provide a meaningful way for future family members who did not work in the business to become involved, and ensure that a structure was in place that would be effective and efficient in governing all areas of family involvement. Now, four years later, as I plan to pass the CEO torch in a little over a year, my objectives remain the same, but our focus has shifted.

For background, in 2019 the Family Council launched the Family Board consisting of six non-working family members representing each major family branch because the Family Council, representing all direct descendants, their spouses, and children over the age of 14 (totaling 45 people at last count), had gotten too big to be an effective decision-making body. The Family Board has accomplished a lot. It serves as a great forum to inform and educate. They updated our family entry guidelines, are currently working on family exit guidelines, and will be working on a Family Purpose Statement with the help of Peter Boumgarden, a professor at the WashU Olin School of Business. They also organize and set the agenda for the annual Family Council meeting, our biggest, collective family celebration each year. In the future, the Family Board may assemble a Family Constitution to keep track of our governing documents.

Today, Burger Specialty Foods is owned by 18 G2 and G3 family members. The second generation are all retired and most are in their 80’s while many in the third generation, like me, are approaching retirement age. Six members of the fourth generation out of 18 are working in the business. We are blessed with a family that is burgeoning and thriving, so we need to continue planning for all facets of management and owner transition. My successor has been named, and I feel great about that, but owner transition is also critical, and we need to develop a plan.

Determining the rules for G3 ownership eligibility was a lengthy, and quite frankly, grueling family negotiation in the late 1980’s, but we hammered out an agreement, lived by it, and benefitted from decades of tranquility as a result. Now we need to make sure the next owner transition can prove the test of time. It’s a different dynamic today because the size of the family has grown exponentially, which has changed our perspective on some of the guidelines we established for previous generations, such as allowing married-ins to own stock. In order to minimize owner complexity, at least to some extent, the Stockholders voted to limit ownership to the lineal descendants of the first generation beginning in the fourth generation.

In addition, the Stockholders established an Owner Council, composed of six G3 owners, one from each family branch, to grapple with how to transition voting control past the third generation. Our Stock Restriction Agreement allows non-voting shares, representing 80% of the issued stock, to transfer unobstructed to the lineal descendants of the owner. The agreement stipulates that the Company has the right to purchase the remaining 20% of voting shares any time they are offered. The Owner Council mandate is to develop a plan for the transfer of voting control to the next generation and report back to the Stockholders. Should working family retain 100% control? Should the non-working group have the option to own a minority block of voting shares? If so, how much? This is a work-in-process.

I am fortunate that the Management Team is very capable of running the business and that has allowed me to focus on building rigor around our Board of Directors, Family Board, and our newly formed Owner Council. It’s best to develop policies proactively rather than waiting until you have a problem to solve “with a name on it.” It’s important to make sure you get the right decision-makers in the right room, to borrow from Josh Baron’s Four-Room Model.

I’ve heard that family governance in a multi-generational family business is the last of the major governance structures to emerge. That may be true, but as we continue the shift from G3 to G4 and beyond, we recognize that no matter when you start the process, your governance structures and the policies and guidelines they create will need to be revisited and revised at least every generation to make sure it still works for the present and future family, not the one you see in the rear-view mirror. The value in creating and codifying a Family Purpose Statement, as well as in clarifying policies and guidelines, serves as a road map for the future and will help ensure that the spirit and wishes of the family shape the decisions made by the owners, board, and management team.