Investor Alert

April 26, 2010, 1:58 p.m. EDT

Keeping It in 'Jack's' Family

By David Kesmodel

In an effort to ensure that it remains independent and under family control, liquor maker Brown-Forman (NYS:BF.A) Corp. is pushing to get family shareholders more involved in the company.

Governance experts call the initiative by the Louisville, Ky., maker of Jack Daniel's whiskey a model for other family-controlled companies trying to avoid the discord that has hobbled some firms.

Last year, Brown-Forman hired its first director of family-shareholder relations to assume responsibilities usually handled part time by other executives. He travels to meet with family members, helps recruit family interns and coordinates educational seminars. Earlier, Brown-Forman created a family-shareholders panel with 11 relatives and hired a consultant to advise it on relations with the Browns, who hold roughly two-thirds of the voting stock.

For the Browns, it is a chance to better understand and guide the company responsible for their wealth and legacy. For the company and Chief Executive Paul Varga , who isn't a member of the Brown family, a unified, supportive family-shareholder base provides stability during a difficult economy. "It provides a long horizon and the ability to get through the bumpy rides," Mr. Varga says.

The effort is among the strongest in a growing number of family-controlled companies trying to better educate and unify family shareholders, said Ernesto J. Poza , a professor at the Thunderbird School of Global Management in Arizona and a consultant to family-run businesses. Agribusiness giant Cargill Inc., for instance, began a leadership academy two years ago to train younger members of the controlling Cargill and MacMillan families. At Estee Lauder (NYS:EL) Cos., family members have formalized principles to guide their involvement in the business.

Brown-Forman's push began in 2007, when Mr. Varga, who had been CEO since 2005, became chairman. The board then named Garvin Brown IV "presiding chairman," with the job of leading board meetings. Mr. Brown, 40, is also a senior vice president at Brown-Forman. The two said they realized many younger family members had little exposure to the company and agreed Brown-Forman needed to take a proactive approach to bring them into the fold.

They hired Lloyd E. Shefsky , a professor at Northwestern University's Kellogg School of Management and founder of its Center for Family Enterprises, for advice. Mr. Shefsky noticed that, while Brown-Forman had for nearly 140 years been led mostly by family members, a gap existed in the fifth generation. The company employed six members of the generation at the time, but none was in a senior role or regarded as a CEO candidate.

The fourth generation, which included two brothers who were back-to-back CEOs from 1975 to 2005, "didn't spend a lot of time thinking about" grooming successors, Mr. Shefsky said.

Complicating matters, Brown-Forman had grown in a few decades from a relatively small U.S.-focused company to a big global player, led by the Jack Daniel's brand. The family, too, had expanded. Today, there are 117 living descendants of the founder and 38 widows or spouses, the company says.

In initial meetings, Mr. Shefsky tried to gauge family members' commitment to the business. He says he found many family members wanted to stay involved in the business so it could be passed on to their children. At one point, he brought up the Bancrofts, the family that for years controlled Dow Jones & Co., publisher of The Wall Street Journal. By the time News Corp. bid for Dow Jones in 2007, few Bancrofts were active in the business and many family members had little interaction with each other.

"I used Dow Jones as an example of what can happen when a family is not cohesive," Mr. Shefsky said.

Mr. Shefsky encouraged the Brown family to establish the committee of family shareholders and management. The panel, with 11 family members and some nonrelatives, including Mr. Varga, meets six times a year to discuss business issues facing Brown-Forman and has tackled projects like drafting a family constitution that outlines the family's principles and how it should interact with the company.

Kaumil Gajrawala , an analyst with UBS, said Brown-Forman may be stepping up its family outreach to lessen the chance that another company could make a successful takeover bid. "A lot of global spirits guys would be very interested in the Jack Daniel's brand," he said.

Mr. Varga says he wasn't trying to fend off a takeover but likes the stability that a supportive shareholder base provides. He said the company and the family are committed to keeping Brown-Forman independent and under family control.

To be sure, the family could change its mind if presented with a lucrative takeover offer. Potential suitors could include spirits giants Diageo (NYS:DEO) PLC, Pernod Ricard (PAR:FR:RI) SA or Bacardi Ltd. Bacardi declined to comment, while Pernod Ricard and Diageo couldn't be reached to comment.

Brown-Forman's efforts have re-engaged some family members who had drifted from the company. Stuart Brown Sr., a 45-year-old great-great-grandson of Brown-Forman's founder, once dreamed of running the company and worked in its Jack Daniel's division as a brand manager from 1995 to 1998. But he decided that day-to-day corporate life didn't suit him and left to run a bookstore in Telluride, Colo.

In 2007, he accepted an invitation from Mr. Varga and Garvin Brown IV to join the family-shareholders panel. This summer, his 18-year-old son and four other family members will serve as company interns.

Stuart Brown Sr. says he will make sure that sixth-generation family members receive the mentoring he wishes he had gotten when he began working at Brown-Forman.

"The next generation will have a good opportunity to be very successful," he says.

Write to David Kesmodel at david.kesmodel@wsj.com

Link to MarketWatch's Slice.