A family war that involved external and internal factors
The story of how the Bancrofts lost Dow Jones reminds us of the dangers of holding family shareholders as prisoners.
I recently read War at the Wall Street Journal, by Sarah Ellison (Houghton Mifflin Harcourt, 2010), a wonderful tale of modern family warfare. It’s an easy-to-read, gripping story about a very large family that couldn’t get its act together. Rupert Murdoch wanted to own Dow Jones, publisher of the Wall Street Journal. Dow Jones’ owners and executives didn’t want him to have control.
Most people read this as another Wall Street hostile takeover of a corporation. It occurred during a time of national financial crisis, coinciding with huge technology threats to Dow Jones’ future.
The largely fourth- and fifth-generation descendants of Clarence Barron, the patriarch of the Bancroft family, who had purchased Dow Jones in 1902, found that the very carefully developed and managed network of trusts and mechanisms they had set up to ensure perpetuation of their control did not hold up.
• None of the family branches had a strong leader.
• Attempts to develop a united family strategy proved fruitless.
• Serious dissension with non-family company executives erupted.
• Several non-family outside directors opposed the family’s desires.
• There were battles with both family advisers and company advisers.
• Intergenerational battles within the family added complications.
• Views among trustees of the various trusts conflicted.
Of vital importance: Freeing the prisoners
Families and businesses accumulate prisoners. A lot of this begins with a familiar parental mantra—all children should be treated equally—that is translated into equal ownership shares in the family business.
The kids move on in age, maturity, interests and abilities. They marry, relocate, develop relationships of various types with siblings or cousins, and sometimes divorce and remarry or otherwise accumulate extended family members. Meanwhile, in many cases, there is no provision that permits them to turn the shares into capital for other uses. They are trapped. The shares were intended as a loving gift to them and as motivation for the family to stay close. But many of the variables listed above produce resentful prisoners.
Ellison, a veteran reporter (including time at the Journal), summed up what happened at Dow Jones: Barron’s continuity arrangements for the Journal “ensured later generations of the Bancroft family were bonded together, however reluctantly or tentatively. Without it, the Boston-based clan would feel like just another rich family, a status the elders in the clan were reluctant to embrace. As the generations progressed, their relationships grew ever more tenuous. Murdoch’s money would allow them to be rid of one another.” The released prisoners were Barron’s great-great-grandchildren.
Trust funds can be gilded cages
Our society has had huge benefits bestowed by well-crafted and well-administered trusts. Problems occur when they incorporate limits that constrain adjustment to changed circumstances. Usually the well-intentioned aim is to protect a business or institution or its interests or heirs from risks, or to minimize taxes.
Barron’s trusts could not control his granddaughters’ progeny: One had two children; another seven. After another generation, some family members held large amounts of company stock; many did not. Some were pleased with the trustees who handled their affairs; others were resentful. Trustees’ views of their responsibilities to the family varied. Some trustees had been in position for decades. It’s not surprising that younger ones didn’t always share their views.
Forces beyond family control
Before her death in 1982, Jessie Cox, Barron’s iron-willed, colorful granddaughter, decreed the family would “leave the business to the professionals.” Family control was via the board. Directors included family members, their attorneys and trustees. That protection from Wall Street raiders had allowed the management to take the long view after World War II.
When Dow Jones went public, it adopted the model of other families. Two classes of stock guaranteed absolute family control. At its 1982 centennial, the firm was the highest-profit, fastest-growing company in its industry. With an outside board, a NYSE stock listing, and firm family support, the firm was fully “in the hands of the professionals.” Family control enabled management to fend off unwanted suitors.
Years passed, competition in-creased, the Internet enabled new competition and the family aged and grew. The board worked with family advisers, providing sufficient dividends to tamp down dissatisfaction. Gradually, profits fell, the stock price fell and competition grew. One report had the dividends at 50% of profits. The management complacency was stirring internal revolts. When Rupert Murdoch first talked with the staff after his takeover, he said, “In the last five years, circulation has dropped 25%. We have to make some changes.” The family’s protection had become a curse.
What’s in all this for us?
A book like this can be a wonderful tool for opening up discussions of subjects often avoided, especially between generations. Invite family members who signal some interest to read the book; then follow up with those who actually do read it. It’ll be a lively discussion about a good book. It will likely create some discomfort among older participants. (“I had no idea you felt that way!” “Well, you never asked me before.”)
Those of us with strong attachments to family businesses and their great value to the community always feel a twinge at the departure of one that did so well for so many for so long. But the workings of the economy are beyond our control. Knowing when it is time to go, and letting go with fairness and grace, are not easy.
At the family level, many prefer to work at being part of a family and business that contributes positively to many constituencies. They’re seeking not to be “just another rich family.” They’re proud of all the jobs they’ve created, and of their work with other firms and institutions to develop and maintain their community’s special characteristics and culture. If the situation finally does require them to surrender their position, they, and many others, regret that it became necessary.
The Bancrofts’ consolation prize was that their $35 shares sold for $60. I suspect most of them decided they could live with that.
James E. Barrett (firstname.lastname@example.org) heads the family business practice of Cresheim Inc. in Philadelphia.