Distilled Over Generations

Corporate governance is a little different in publicly listed, family-owned companies. Brown-Forman’s mix of several generations in a distilled-spirits business makes an interesting cocktail for GC Matt Hamel

According to Technomic, a food and beverage consumption research organization, American whiskey is among “the most vibrant spirits categories right now.” It’s favored by millennials (aged 21-34), who are a target market for drink companies.

That’s good news for Brown-Forman Corporation, a 145-year-old company that produces the iconic Jack Daniel’s, the best-selling American whiskey in the world. Brown-Forman has distilled the spirit since acquiring it in 1956, but the company was founded in 1870 on the strength of the revered Old Forester brand. Such is the legacy, and long-game approach, of this company.

Just as it takes years for whiskey to age according to exacting methods, Brown-Forman refines itself over time. At the center of the modern Brown-Forman is the fifth generation of the Brown family, several of whom are active in the publicly traded company’s governance structure. That a family can remain a driving force of a company this old is remarkable, but it’s no accident. Matt Hamel, the firm’s executive vice president, general counsel, and secretary, says it is a result of a multigenerational strategy.

“[Leadership] is extremely thoughtful about succession planning,” says Hamel, pointing out that five fifth-generation Browns sit on the company’s 13-member board of directors. “They say, ‘good governance is your best cousin.’”

Hamel is clear this is not a family enterprise that rewards lucky scions with cushy positions. The company strongly encourages hands-on involvement by descendants of founder George Garvin Brown, whose sealed glass bottles were innovative in 1870, when whiskey was sold in barrels. To get even an entry-level job today, the Brown family requires that a family member have a bachelor’s and second degree, plus three years of experience at another company. Eleven family members currently work at Brown-Forman, which has 4,400 employees and sells in 160 countries.

“[Leadership] is extremely thoughtful about succession planning.”

For Hamel, this scenario offers both challenges and advantages. “Governance rules are designed to ensure the interests of management are aligned with shareholders,” he says. “Misalignment leads to agency costs,” such as nonstrategic pet projects or unreasonable perks. “Family control reduces agency costs because major shareholders sit on the board. Independent directors can turn to their left and right, look those shareholders in the eye, and ask them what they think.”

At the same time, Hamel says, the multigenerational time horizon of the controlling Brown family means they have a rare patience. “It takes at least four years to make a bottle of whiskey,” he says, “and, in some cases, much longer. Family members tend to have a long-term perspective.”

Family engagement goes beyond the board and employment ranks. A committee composed of representatives of the more than 100 family members and senior management meets four to five times each year to discuss the industry, as well as company performance, risk factors, and executive compensation matters, among other relevant issues. “This is about the intersection of family and company,” says Hamel. “It also has the effect of averting apprehension about self-dealing and favoritism by providing the family with transparency into how management decisions get made.” He adds that the meetings provide a training ground for family members considering applying for a board position.

These special circumstances are rare at other publicly listed, family-controlled companies, so Hamel thought it might be a good idea to gather other top lawyers in analogous companies to discuss common issues. He contacted general counsel at 130 such firms five years ago. Now, about 50 attorneys share thoughts and ideas periodically by e-mail, and semiannual meetings bring approximately 30 of them together in-person.

They have much to talk about, including governance issues, the treatment of family employees, rules on charitable donations, application of the Hart-Scott-Rodino rules to controlling family shareholders, the role of independent directors on a controlled board, and issues that arise from dual class stock.

Despite the long-standing nature of this company and its industry, Brown-Forman has to adapt to changing markets: millennials have become a more diverse and larger cohort than baby boomers. New ways of managing and conducting business are crucial. For example, embracing diversity a decade ago has played into Brown-Forman’s success in the current popularity of American whiskeys.

“Fifty years ago, this was about white, Southern men selling whiskey to white, Southern men,” notes Hamel. “We are now all over the world and have learned to hire from a much bigger pool of talent, both out there and here, at our head office. But we also look beyond demographics. We need different points of view: people from different geographic regions and socioeconomic groups. When we take a wide range of views into account, we get much better ideas and solutions.”

That includes the perspectives of nondrinkers, for whom an affinity group was formed at Brown-Forman and found its executive sponsor in Hamel. “As with our LGBT group, [being a nondrinker] is a personal characteristic that isn’t visible, and, in fact, there was an element of closetedness among our nondrinkers. The perception was that it might hurt your career. But our CEO has made clear that overconsumption would be much more damaging to your career than nonconsumption.”

Indeed, there are myriad laws and regulations that impact the company and its industry. For a company with this history—including the 13-year Prohibition era, when it was restricted to the “medicinal” market—Brown-Forman has proven to be a preferred employer that is also an integral part of the social fabric of Louisville, Kentucky, where it is based.

“Family control creates a very strong, positive business culture,” Hamel says. “The average 14-year tenure of employees shows that people love to work here. We have fun doing what we do.”