Some Public Companies Remain 'Family' Affair

by Gwen Moritz  on Monday, Jul. 7, 2003 12:00 am  

Many of the largest publicly traded companies headquartered in Arkansas — including Wal-Mart Stores Inc. of Bentonville, the world's largest company — are still "family" businesses in a very real sense: Members of the founding families are still in control.

In some cases, particularly Dillard's Inc. of Little Rock and Tyson Foods Inc. of Springdale, the level of control that family members exert is far out of proportion to the amount of stock they actually own, thanks to a controversial system of "dual-class" shares.

The wealthiest family in the world, the widow and four children of Wal-Mart Stores Inc. founder Sam Walton, share own

ership of more than 38 percent of the outstanding shares of the world's largest company.

Walton took his chain of discount stores public in October 1970, just 17 months after William Dillard took his chain of department stores public; unlike Dillard, however, Walton didn't create a separate class of "B" stock, a system that already was falling out of favor on Wall Street.

One of Wal-ton's sons, S. Robson Walton, serves as chairman of the board of directors, and his brother, John T. Walton, is a member of the board. However, Wal-Mart has employed a nonrelated CEO, first David Glass and now Lee Scott, since Sam Walton died in 1992.

The heirs of Charles H. Murphy Jr. control 25 percent of Murphy Oil Corp. of El Dorado and a slightly larger interest in its publicly traded spinoff, Deltic Timber Corp., also of El Dorado.

Murphy's younger son, R. Madison Murphy, is chairman of the board. Until this year, his older son, Michael W. Murphy, was a director. One of Charles Murphy's nephews, Claiborne Deming, is president and chief executive officer, while another nephew and niece, William C. Nolan Jr. and Caroline G. Theus, are also on the board of directors.

Nolan is chairman of the board of Deltic Timber, and Madison Murphy serves as a director. Another cousin, the Rev. Christoph Keller III, serves on the board, as does R. Hunter Pierson Jr., the husband of yet another Murphy cousin.

Deltic Timber's most recent proxy statement, issued in March, said the Murphy family members who control 26 percent of the company stock "cover four generations and number in excess of a hundred individuals."

Deltic has had a nonrelated chief executive, Ron Pearce, since it was spun off by Murphy Oil at the end of 1996. Pearce announced earlier this year that he will retire Aug. 1.

His successor as president and CEO is Ray C. Dillon, an executive vice president of Gaylord Container Corp. of Deerfield, Ill., before its acquisition by Temple-Inland Inc. of Austin, Texas.

Alltel Corp. of Little Rock was built on the foundation of Allied Telephone Co., which the late Hugh Randolph Wilbourn Jr. and his brother-in-law, Charles Miller, bought from financier Jack Stephens in 1947.

Wilbourn's son-in-law, Joe Ford, led the company through a series of mergers and acquisitions in the 1980s and '90s that allowed the small local phone company to become a national player in the tele-communications industry.

When Ford retired last summer, his son, Scott, became his hand-picked successor, so the family's continuing influence on Alltel is undeniable.

But unlike the Walton and Murphy families, the Fords actually own only a very small fraction — less than 1 percent, as of the March proxy — of the outstanding shares in Alltel.

Curiously, Tyson family members also own less than 1 percent of the outstanding shares of Tyson Foods — less than 1 percent of the widely traded "class A" shares, that is.

Chairman Emeritus Don Tyson, who expanded the company his father founded into the largest poultry producer in the country, and Tyson LP, control 99.96 percent of the "class B" shares, which are valued at the same market price as the A shares but get 10 votes per share instead of one.

Tyson LP controlling members are Don Tyson and his brother's widow, Barbara A. Tyson. Don Tyson's adult children, including current Tyson Foods Chairman and CEO John Tyson, and a handful of unrelated individuals have small interests.

Considered together, Tyson family members own about 30 percent of the combined stock classes but have 80 percent of the voting power. And that's just the kind of setup that makes stock-buyers uncomfortable — especially the institutional investors who drive demand for a particular stock, said Becca Garner, president of Garner Asset Management Co. of Fayetteville.

"It keeps the stock depressed, and the stock will stay depressed as long as those [B] shares exist, because Wall Street doesn't like it," Garner said.

And depressed is certainly a word that is applicable to Tyson stock.

Although it has bounced back somewhat from its 52-week lows in March, it is still trading below its Jan. 1 opening price and at half the price it commanded four years ago. As the company's Jan. 2 proxy admitted, Tyson's stock has not compared favorably with either the S&P 500 Index or the S&P's Packaged Foods and Meats Index.

Garner speculated that the stock's lethargy was in part because of the problems Tyson Foods had experienced digesting its 2001 acquisition of red-meat giant IBP Inc. But it may also be a lack of faith in Chairman John Tyson, who also became CEO in the spring of 2000 upon the surprise retirement of Wayne Britt, who is not a family member.

"Personally, I think Johnny Tyson is doing a good job. He's surprised me. But Wall Street just thinks he's Don's son," Garner said.

Dillard's Inc.'s stock also has underperformed when compared with others in its industry. The only time in the past three years when the stock has enjoyed upward motion was immediately — literally within minutes — after the death of founder William T. Dillard was announced on Feb. 8, 2001.

But investors who speculated that the surviving family would then sell the business Dillard founded in 1938 have surely lost hope by now: Shares that were trading at $30 in June 2002 are now back in the $13 range.

The Dillard family controls 2.9 percent of the class A shares outstanding and 99.4 percent of the B shares, for a total ownership stake of 7.4 percent. Unlike the Tyson arrangement, Dillard's class B shares get the same single vote as A shares — with one dramatic difference: B shareholders get to elect eight directors while A shareholders only get to elect four.

William Dillard II, who succeeded his father as CEO in 1998; his brothers, President Alex Dillard and Vice President Mike Dillard; and their sister, Executive Vice President Drue Corbusier are four of the eight directors who specifically represent the interests of class B shareholders.

This impenetrable control of the board was the reason Business Week last year included the Dillard's Inc. board of directors on its list of the worst boards in the country.

"No nominating committee — allowing the CEO to hand-pick directors. With two-thirds of the board elected by holders of privately held Class B shares, Dillard's is exempt from NYSE governance rules," the magazine complained.

Tyson Foods' board appeared on the same list because only five of its 15 members were truly independent of the company.

Companies with super-voting, dual-class stock arrangements typically trade at a discount simply because investors may worry that decisions are being made in the best interest of the controlling family rather than for rank-and-file shareholders.

For instance, Garner said, the controlling family may decide to reduce the dividend or forego a dividend altogether if it suits their tax-planning purposes.

"If Mom and Pop own shares," Garner said, "it's always in their best interest to get a dividend."

And the opposite may be true as well: The controlling family may choose to pay a sizable dividend even when earnings are low or it would be better for the company's long-term health to reinvest earnings in company operations or research and development of new products.

Tyson and Dillard's have both tended to pay relatively modest dividends when compared with some publicly traded companies, but they have been on the increase as is typical with maturing companies.



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