Stock Wars: What's Behind the Feud at Campbell

By Peter Davis

The public seems to have an insatiable appetite for drama in the family lives of the rich and powerful. Perhaps as we read about the latest family feud among the privileged few, it gives us a feeling (F. Scott Fitzgerald notwithstanding) that they are just like the rest of us.

One of the big family dramas of the last few months has been the breakdown of unity in the Dorrance family. The Dorrances, as surely everybody knows by now, have a controlling interest in the Campbell Soup Company. With the death last year of their patriarch and the longtime Campbell chairman, John T. Dorrance Jr., several family members have declared their intention of selling their stock, which would threaten overall family control. The dissidents, who reportedly own 17.4 percent of the stock, are calling for the sale of the company. Other family members, who are said to control 31 percent, want Campbell to remain independent. A third family group, which reportedly holds fewer than 10 percent of the shares, has said it would not oppose a sale of the company.

Campbell's earnings have been substandard for many years, yet the company sells some of the best- known brand name products in the world. It is, therefore, a highly desirable takeover target for a large company with deep pockets that may feel it can do a better job of exploiting Campbell's consumer franchise. To attempt to reverse Campbell's fortunes, the company has recruited a new CEO, David W. Johnson, who most recently performed similar services for another family-controlled firm, Gerber Products Co. One of the dissidents on the board, Dorrance Hamilton, joined in the unanimous endorsement of Johnson. But afterward the faction that wants to sell indicated that they had not changed their minds.

The consequences of a loss of family control could be dramatic. Chances are that Campbell would be sold to a larger company; the major food companies in Europe have been mentioned as potential acquirers. The threat to existing interests, especially those of management, is substantial, and under similar circumstances in other family-owned firms, managements have put together leveraged buyouts.

Resistance to the sale has been led by Robert Vlasic, Campbell's new chairman, who has assumed the role of a Richelieu. Like the Cardinal, Vlasic, whose pickle company was acquired by Campbell, has moved to fill a power vacuum. He has become the champion of family cohesion and Campbell's independence. But some family members are likely to suspect his motives; his behavior will be carefully scrutinized. Long term, keeping the company in family hands depends upon the emergence of family leadership.

There are a few things to learn from the Dorrance experience. The first is that a crisis was predictable and as inevitable as any human event can be. It became a crisis because of a failure to anticipate and deal with changing times. After Jack Dorrance's death, issues that could not be raised in the family during his lifetime were suddenly put on the table. The key relationships are now between members of the third generation; cousins are not usually as close as brothers and sisters, and their interests are naturally diverging. With the passage of time there has been less and less family involvement in the management of the business, many Dorrance family members found that their stock in Campbell had become a good investment. Not only has the Dorrance family kept out of management, they have been very accommodating to the professional managers they have hired to run the company. For many years Campbell has performed poorly, yet shareholder pressure to increase profitability has only been effective under the threat of a breakup of the business.

So for family "investors," economic arguments for ownership are wearing thin. Furthermore, the emotional force equating stock ownership with family belonging and loyalty has weakened over the years. It has become possible for a number of the Dorrances to see that there is life after Campbell. When an extended patriarchal rule suppresses adaptation to changing family needs, substandard economic performance will inevitably erode family solidarity.

This experience of loss of family unity in the third generation is by no means uncommon; it may be the norm. There is going to be some splintering and separation as a matter of course, because there is simply too much diversity of interest to keep it all together. Individual family members frequently have a psychological need to declare their independence and move out of the shadow of the family business that has dominated their lives for so long. Many of these individuals are alienated because no one ever listened to their opinions. Others may have a need to sell their stock to increase personal liquidity. Estate tax payments may accelerate some individuals' need for cash, while others may want to diversify their holdings to reduce personal risk.

Families trying to perpetuate their businesses often make the mistake of resisting the inevitable forces of separation. Instead of planning to deal with them, they try to suppress them. If a family member's desire to leave is resisted and controlled through psychological and emotional pressure, there will usually be an explosive breakup, resulting at best in the alienation of a branch of the family and at worst in the disintegration of the whole family.

The principle that works best is that of free association. Family members, once they reach a certain maturity, are free to remain as owners or not. Individual commitment of a family member to the family business comes from choice. If there are concerns about outsiders buying stock from family members, because questions arise about control or the business remaining private, buy-sell agreements have to be developed. Family members who are committed to keeping the business in the family should be mindful that financial reserves need to build up within the family to finance the departure of those who want to leave. It may be necessary to maintain reserves in the business so that equity can be retired without overextending the company. Easing an exit acts as a safety valve and helps keep family relationships healthy and productive.

But it is also important for those who want to see a continuation of family involvement to develop an environment in which family members want to stay involved. Commitment can be enhanced by keeping shareholders informed, giving them opportunities to participate in management and in policy-making. In too many large family businesses, the family is frozen out of management and board participation because of concerns about maintaining professional standards and control. The price for this is that the family business loses its family spirit and becomes increasingly vulnerable to a family bail-out. If managers and key family shareholders don't make an extra effort to insure that all the family members feel part of things, and are excited by family ownership in a venture they feel affection for, they run the risk of facing a forced sale or a hostile takeover down the line.

Eventually, the time will come for the family to sell: Estate taxes alone will insure that outcome. In the interim, while the passion to keep a business in the family is still there, how can families like the Dorrances better manage the challenge of diversity? First, they need leaders who can rework and restate the family's commitment to ownership. Second, the family needs to set goals establishing the level of ownership it wants to maintain. Third, the family needs to develop a pool of capital to buy up the stock of those members wishing to sell out. Fourth, the family needs to develop an affirmative action campaign to enhance its involvement so that family ownership once again becomes a matter of pride and excitement Maintaining family ownership isn't easy. It takes a lot of work to sustain the necessary consensus. Once the consensus disappears and the champions of family involvement are gone, it takes courage to face up to the need to divest and have the family move on.

Peter Davis, chairman of the Family Business advisory board, is director and founder of the Division of Family Business Studies at the Wharton School, University of Pennsylvania, where he and his staff educate and advise family firms on critical issues.

 

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April 1990

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