From time to time, Family Business Director will interview family business leaders or experienced advisors to get their perspective on important questions common to family businesses. In this first installment, we talk with Dan Hatzenbuehler, the retired Chairman and CEO of E. Ritter & Company. Dan offers great insight that we know our readers will profit from.
1. Give us a brief overview of your family and business.
E. Ritter & Co. (“ERC”) is a fifth-generation family business with approximately 50 family owners from the third through the fifth generations. The company has two primary business divisions: agribusiness and communications. On the ag side, the company owns a significant amount of farmland (growing cotton, soybeans, rice, corn, and wheat), a farms management operation, and a fairly new specialty crops operation raising flowers and fruits for sale to groceries. The communications division operates three rural telephone companies offering voice, video, and high-speed data. It is also developing a robust fiber network across northern Arkansas, selling wholesale and enterprise access and services, as well as sophisticated technology solutions to small and medium-sized businesses. It was started by my wife’s great grandfather in 1886 in Marked Tree, AR. The fourth and fifth generations currently hold leadership positions on the Board of Directors of ERC, and one fourth-generation family member is still employed in the area of community relations.
Today, senior management consists totally of non-family employees. Upon my retirement in 2015, the Board of Directors hired our first non-family CEO.
2. What roles in the family business have you fulfilled over your career?
I’m a married-in family member who joined ERC’s Board of Directors in 1979 and on which I served until 2016. I practiced law for about 25 years before joining ERC’s senior leadership team as Chairman of the Communications Division and Vice-Chair of the Board of ERC. A couple of years after joining, I was elected Chairman and CEO of ERC.
3. Does your family business have any independent (non-family) directors?
We first added an “independent” director to the board in the early 1980s. Several years later, we added a second. I would characterize these directors as “outside” directors, not “independent” directors because they were vastly outnumbered by the family directors and were selected because of personal relationships they had with one or more of the family directors. In 2008, we transitioned our governance system to one with a majority of independent directors chosen for their industry experience, relevant skill sets, and/or executive expertise.
The initial challenges of independent directors are convincing the family that they are not giving up “control” by inviting “strangers” into the board room, coupled with the need to successfully onboard the independent directors who are not familiar with the family and/or business cultures. The benefits far outweigh any discomfort with having non-family members on the board who don’t work in the family business. Independent board members bring varieties of experiences, perspectives and skill sets that family directors don’t have. Also, being independent, they aren’t impacted by the family “baggage” that can inhibit good decision making by the board of a family business.
4. Do you offer an ongoing share redemption program?
We have had a shareholder agreement that contains a share redemption program since 1990. The program offers shareholders the opportunity to redeem shares during their lifetimes at a price independently determined by a third-party valuation firm. It also has a mechanism which enables the estates of deceased shareholders to redeem shares to pay for estate/inheritance taxes attributable to the value of the ERC shares, not the entire value of the decedent’s estate.
Over the years, we’ve had relatively few family members take advantage of the redemption program, but there is tremendous value to the family owners in knowing the mechanism is available should they ever want or need to access it. The fact that the annual valuation is determined by an independent source and not by management also adds tremendous transparency and credibility to the program.
5. What is your best advice for other family business leaders?
A family business is a tremendous asset and needs to be treated as such. The “business of the family” is just as important as the “business of the business” and takes almost as much energy and attention from a family business leader. Just as good corporate governance is important to the operation of any business, good family governance is equally as important. There are tremendous resources available to family business leaders who are interested in learning more about the “business of the family” and I would encourage family business leaders to utilize those tools, structures, and opportunities for education in this area. The issues of a family business multiply as the family becomes multi-generational, thereby requiring more and more time and attention if both the family and the business are to be successful for the long term.