Families in the Boardroom: Under the Influence

As the Hewletts, Packards and Fords are demonstrating, founding families often retain a surprising amount of influence on quoted companies.

The conflict has turned decidedly nasty. Walter Hewlett, son of one of the founders of Hewlett-Packard (HP) and a member of the company’s board, missed a board meeting in July that discussed a proposed merger with Compaq Computer. Why was he not there? Because, reported CNET News, an online service, on November 12th, he was playing with the Bohemian Club symphony orchestra. The club’s members, says the story, are “rich businessmen, politicians and some influential artists”. Implication: spoilt rich kid swans off while his family firm debates its future.

And then causes trouble when the firm decides to head in a direction he dislikes. Mr Hewlett recently announced, to the consternation of HP executives, that Compaq was the wrong partner for HP. “With this transaction,” he complained, “we get what we don’t want, and we jeopardise the things we already have.” The Hewlett family and its charitable foundation, jointly controlling 5.2% of HP’s shares, will vote against the merger. So, probably, will David Packard, the only son of HP’s other founder. He chairs the Packard Humanities Institute, which holds a 1.3% stake. And so perhaps may the David and Lucile Packard Foundation, chaired by another relative, Susan Packard Orr, which controls 10.4% of the company’s shares.

Among the ranks of large quoted companies are a surprising number in which, as at HP, the founder’s descendants still have an important voice. When a family floats a firm, it usually retains a substantial holding. Think of Wal-Mart, where Rob and John Walton (sons of Sam Walton, the firm’s legendary founder) are on the board, which Rob Walton chairs; or Motorola, where Chris Galvin is chief executive of the company his grandfather founded 73 years ago; or Nordstrom, where the family controls 24% of the shares; or Coca-Cola, where the Woodruff family still exerts huge influence.

New versions of such firms will spring from some of the businesses founded in the past few decades, says Amar Bhidé, author of “The Origin and Evolution of New Businesses”, as shares in companies such as Dell Computer, Microsoft, Berkshire Hathaway and Home Depot pass on to family trusts or the next generation. All told, reckons Joe Astrachan of the Family Enterprise Centre at the Coles College of Business, part of Kennesaw State University in Georgia, families wield influence at between 35% and 45% of America’s 500 largest listed companies, depending on how “influence” is defined.

Most of the time, such descendant-shareholders keep their heads down. They pop up, says Andrew Keyt, who runs the Family Business Centre at Loyola University in Chicago, mainly when senior management messes up, or if it fails to uphold the family’s values — as William Clay Ford has done at Ford Motor Company. In October the great-grandson of Henry Ford sacked Jacques Nasser, the chief executive, and took charge himself.

The Ford family controls 40% of the company’s voting rights, and has had a history of trouble with the “hired help”. The relationship seems to work best with Brits: Alex (now Lord) Trotman, a Scot, retained the family’s confidence; Sir Nick Scheele, the new chief operating officer, is thick with Mr Ford; so is David Thursfield, chairman of Ford of Europe and maybe the company’s next chief executive.

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