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Rollercoaster ride to reach an ideal governance system

Bill Gordon was chairman of William Grant & Sons' family council for five years

The Scotch whisky firm William Grant and Sons is a beacon of good practice in family governance. But this was a hard-won system that has evolved since 1998. Bill Gordon gives some inspiring insights into a bumpy journey that ended in a stable destination

William Grant and Sons Ltd is one of the few remaining independent Scotch whisky companies. These days our products extend beyond the finest Scotch to include an equally fine range of gin, vodka, and dark rum. The business was founded in Dufftown, one of the key whisky distilling location in Speyside by my great, great grandfather William Grant, who I'm sure would be delighted and proud to know that his legacy is still 100% owned by his family, five generations on.

He decided at the tender age of 55 after working hard to put his five sons through school, college and university that it was payback time, and time for him to fulfil his dream of creating the finest dram in the valley. So from day one this was a family business, with William Grant, his wife, sons and daughter all working together to build the Glenfiddich distillery in 1885 with the help of the local stonemason.

The pride, passion and commitment of both family and non-family personnel that are the soul of all family enterprises, combined with good education and a strong work ethic has seen the business through five generations of innovation, growth and development. Today our core whisky brands Glenfiddich, Grants Family Reserve, Balvenie and Clan McGregor are either leaders or front-runners in their product categories. Our gin, vodka and rum brands are doing well too.

This had been no easy task as the business is a niche player with a limited range of superior quality products competing against much larger multinationals with all the advantages of scale, including wholly owned or controlled global routes to market. Ask my father Sandy, who lived and loved the business for more than 40 years until he retired as chairman in 1994, what were the key drivers of growth, and sustainability.
 
Why do you need to know all this? Simply to help explain the weight of responsibility that we in the current generation feel about carrying forward the commercial and familial goals of William Grant safely through to our children.

Transitions and tensions
With each transition period in the business, the tensions and pressures on every part of the family business system have tested and will continue to test the strength of the family to manage and implement their ownership responsibilities professionally.

It was during one of these periods in the 1990s when the control and running of the business increasingly put in the hands of my generation (the fifth) who quite rightly drew on their skills and commercial acumen to sharpen up performance and grow the business, making their own stamp on the legacy.

The business was developing a sharper performance culture based on the need to grow and become more competitive. The role and capability of the family members involved in the business compared with outside non-family personnel came under the spotlight. In addition, questions were also asked about the effectiveness of the business governance with an imbalance of family and non-family board members.
 
Tensions built up, particularly at board level where some hard choices and decisions were made, sadly at the cost of family unity, causing some deep scars that to this day have not fully healed. These decisions had to be made in the interests of the business, and triggered a need for the family to change the way they manage themselves and their expectations as part of the William Grant legacy.

Until this point there was a high level of family involvement in the business throughout the generations with the last period of growth from the 1950-1990s being steered by my father, his brother and two cousins.

Formalising family governance
In a more complex mix of cousins, and the next generation coming of age we realised the ownership responsibilities of the family and their relationship with the business had to be managed more formally.

In 1998 when the family tensions were stifling the business and the family of the necessary drive and energy to move forward, we bit the bullet and enlisted the support of John Davis from the Owner Managed Business Institute to help us stabilise the tensions and lay down foundations for a much improved system of family governance based on a formal family council.

I am immensely proud of the company and more so of the family and non-family legends from each generation, including my own, who have contributed so much to the company. However, I chose to pursue a career in marketing in the media sector, which turned out to be a major asset when I was asked to chair our family council. Looking back, the absence of baggage or preconceived views about the family was a real benefit to being seen as impartial and objective. At the same time, I was fortunate to have the full support from the family as well as expert outside guidance and teaching from John, which should not be underestimated.

Structured for success
We created a group of ten family members, drawn from each family owner branch with the numbers from each branch broadly representing their shareholding in the business. We have a healthy balance of wisdom and maturity from the older generation and the energy and drive of our current generation around the table. Our mandate is to discuss, agree and make recommendations to the supervisory board on the issues covered, not hard and fast demands, creating a parallel ­family and business governance structure.
 
The issues we address are primarily owner- and family-related, aiming to develop a more enlightened ownership awareness and culture as well as managing the family issues away from the business boardroom. We all have a strong sense of connection with the business at a more strategic rather than operational level through formal systems of communication and interaction with the chairman and with the board.
 
The recommendations from each meeting are shared by our family council chairman and the business board chairman who is tasked with communicating these to the board and feeding back their views and input through the same channel. The board is also made aware of our meeting agendas and asked to add imminent issues, which it would like us to discuss.
 
We also have formal presentations from the business at board level to update us on strategic progress and challenges and improve our knowledge of the business, enabling more informed discussion.

We meet three times a year as a family council and once a year as family assembly, which includes all shareholders before the AGM. We have also built in a vibrant social theme, with family dinners before or after each of these meetings. Our decision-making process is consensus driven with a 'one person, one vote' around the table to encourage a more open outlook and avoid steamrolling.

The best way to describe the living energy of highs, lows, challenges and successes in shaping, managing and leading the family council that emerged from our work with John is to give some insights gained since we really got going in 1999.

The early years
The first few meetings were emotionally charged, and in hindsight, cathartic. It was a painful part of the early process, which we had to go through to stabilise the dynamic, and begin to shape a clearer collective vision. The issues at this stage focused on the family need to change the way they engaged with the business and laying more formal foundations for the approach to this and other aspects of ownership in the future.

We began this process by creating a statement of shared values and our vision for the future as expressed by the family which we took to the business, inviting their thoughts and input and culminating with the first formal family business vision and values at William Grant & Sons.

What we learned from this is that there are too many assumptions and interpretations about what the family feel and a more formal discussion and expression is an essential cornerstone for both the family and the business vision and values.

We went on to create our charter or constitution, which is our set of living guidelines governing our responsibilities to the family and to the business as owners and our wider charitable support.
 
During this period, we also took on board the need to move away from preconceived ideas about who we were and our individual attributes within the bank of family personnel assets. We engaged the Executive Partnership company to work with the business human resources team to carry out formal profiling and capability assessments of the family council. This was the first time we had ever ­formally assessed the family asset using more objective tools and was a unique experience for all of us – from my uncle at 74 to my cousin at 36.
 
It was a powerful turning point for a number of reasons. First, we all wished we had done this much earlier in our lives, way before we made serious career decisions. We also got to know each other from a much more enlightened perspective, recognising our strengths as well as respecting our weaknesses. The dynamic changed significantly for the better, which presented another set of challenges.

On the back of this, we also engaged the support of the Change Partnership to help me develop my leadership and chairman skills, which was a fantastic opportunity for me, and I hope delivered value to the family council.

All of this sounds as if we were seriously sick – far from it. By now we had overcome our initial tensions and embraced the opportunity to develop and become a more enlightened group of owners; we also began to appreciate ourselves as a family more meaningfully.

Having got our act together we turned our attention to the business, in particular the business governance. We agreed to appoint a non-family CEO to succeed my cousin. We also appointed two further external non-executives to strengthen the board. This could not have been achieved if we had not by now proved to the business that the presence of the family council significantly strengthened the overall business governance.

After a period of facing intense challenges and a real up and down rollercoaster ride, we went into calmer territory – for a while. Let me say that the calmer spells bring more challenges in terms of keeping enthusiasm and commitment alive.

The solution was to create working groups tasked with monitoring and improving the policies we had agreed, as well as shaping up new initiatives such as the development of our next generation awareness and capability. This worked really well, not just to keep the family council alive and really kicking but to engender a culture of more proactive, enlightened ownership.

But it wasn't long before tensions started brewing at board level. It was down to a difference in expectations and leadership styles between our largest shareholder, a very astute business head with a lifetime in the business, and our new CEO who came from a non-whisky background.

To cut a long story short, we watched a breakdown in relations and intervened to give our support to the CEO, but had to concede to a majority shareholder vote for the CEO and our current chairman to step down. The process was against the family council wishes, but was inevitable. This was a major body blow to the family and all the hard work we had done as well as our credibility with the business.
 
We had two choices: throw in the towel or regroup and create a force of long-term family unity and purpose, which was more powerful than the individual forces at play. We regrouped, gathered strength, and held this up as a mirror to the disgruntled shareholders, which was really tough, relying on instinct and what we felt was the right thing to do. By showing our resilience and exerting our family pressure to be accountable we reached an agreement. We gave total support to my uncle to become chairman and agreed expectations in terms of business performance, business governance and longer-term succession, under his leadership.

Two years on and all credit to my uncle for doing a great job. The business has out-performed expectations and the governance has been strengthened at both strategic and operational management levels. It is hard to swallow your pride but I think we have all had to do this over the past two years and learned a lot from it. I cannot deny that it was a less than happy time, but would add that if you really believe in what you stand for then it is better to stick around and fight from your corner – even against huge odds – and be a part of the future than to pack your bags and leave.

Ironically, this upheaval also strengthened the family council and enhanced our credibility in the business for sticking in there, not giving up when the going gets tough, and above all making sure that through thick and thin, the will, the capability and sense of direction are what hold the family and business systems together.

My sister Sally took over the reins as chairman last year, and I am greatly enjoying being more vocal as part of the posse than managing the meetings. She is doing a great job and has welcomed our new CEO aboard who we are confident will continue the good work done by our previous CEO and with a change of style.

Interestingly, he mentioned that he was impressed that the family had set up a parallel governance structure when he was considering taking the post. I got a buzz out of this, feeling we had come through our first five years strong, alive, intact and totally committed to our family council.

I hope William Grant and all those who have supported us are proud of our achievements. It is not perfect, but I firmly believe that things would be a good deal worse without our parallel governance system. Above all, we now know each other much better, not just through spending more time together round the table, but making time to do more socially as a group, which is too good to put a value on. Here's to Sally and the next five years.

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