E. Ritter & Co. began as a farm established by Ernest Ritter in 1886. For the next century, Ritter and his descendants expanded the operation and lived near the company headquarters in Marked Tree, Ark. But by the time the fourth generation had taken ownership of the business, the family was spread around the country. When the fifth generation came of age, no one stepped forward to work in the business. Many family members in their 20s and 30s still owned stock, but they had little idea of the company’s history and purpose.
The lack of interest on the part of young family members troubled Dan Hatzenbuehler, 61, the CEO. Hatzenbuehler was committed to maintaining the company as a family business for generations to come. But to ensure that the family remained united and the business prospered, he decided that the company would need to make changes. Hatzenbuehler set out to establish a family council, a group that would advise the company’s board and make it easier for all members to have a say in company policy. He also moved to expand the board, bringing in independent members who could help the company compete in changing markets.
The company’s efforts to reinvigorate itself are bearing fruit, Hatzenbuehler says. “Young people are starting to realize that this company is not only a valuable investment, but it is also a family gem that should be preserved,” he observes.
Agribusiness and rural communications
The recent restructuring of the Ritter family’s business is the latest chapter in the company’s long history of growth. Ernest Ritter was a classic entrepreneur who constantly sought ways to expand. He started a series of businesses, including a store, a telephone company and a cotton gin. At one point, the company operated car dealerships, a utility and a farm implement company. In recent decades, the family narrowed its focus to two divisions. The agriculture unit operates 20,000 acres in Arkansas, and the communications business owns rural telephone companies as well as cable TV systems and a high-speed data network. Today the company generates $200 million in annual sales and has 350 employees. Most of the businesses are concentrated in the northeastern corner of Arkansas.
Today there are 45 family shareholders. One is Hatzenbuehler’s wife, Robin, a fourth-generation member of the Ritter family. From 1975 to 1998 Hatzenbuehler was an attorney who worked on mergers and acquisitions. In 1998, he quit his law firm and became vice chairman of Ritter. In 2001, he became Ritter’s chairman and CEO. Before joining the company, he had served on its board for 20 years.
During his many years associated with the company, Hatzenbuehler noticed that although many members of the Ritter clan enjoyed close ties with their relatives, few attended annual meetings or expressed an interest in the business. “For a long time we thought that the lack of concern was a good thing,” says Hatzenbuehler. “The company didn’t face any big issues, so shareholders did not feel the need to participate.”
Over the past decade, the CEO began to worry that the lack of concern spelled trouble. If the members of the fifth generation did not feel connected to the company, it could soon cease to be a family business. Hatzenbuehler began encouraging fourth-generation members to bring their children to the annual meeting. “I started twisting some arms and telling my wife’s siblings that their children ought to come to the meeting,” he says.
Seventeen shareholders attended the 2005 meeting. Young people were encouraged to quiz company executives and learn about the business. “The young people asked fantastic questions,” Hatzenbuehler recalls. “You could see light bulbs starting to go off as kids realized why their parents and grandparents had valued the company.”
Concurrent changes
At the same time that the company was grappling with ideas about how to engage young people, the executives also became concerned that the board’s structure no longer suited the growing company. In 2005, Ritter acquired cable TV systems, but no one on the board had experience with the new technology. The agricultural business was also becoming more complicated. Events in China influenced commodity prices in Arkansas, but the directors were not experts in international commodity markets. “The board simply didn’t have the talent to act as a sounding board for management,” says Hatzenbuehler.
In 2007, Hatzenbuehler and others from the company attended a seminar run by Jack Moore for the National Association of Corporate Directors. Moore had been a director of his family’s paint company, Benjamin Moore & Co., which was sold to Berkshire Hathaway in 2000. Moore urged the delegation from Ritter to take several steps. First, he suggested, the board should be restructured to include more independent directors. In addition, the company needed to establish a family council, a body that could enable young people to have input into the business.
In August 2007, the Ritter board appointed a committee to investigate the idea of forming a family council. The committee included some family members who were not on the board. The group hired a consultant and began work in October 2007. The committee proposed forming a council, and shareholders accepted the idea in August 2008.
Building the family council
The council’s task is to educate family members about the company and help the clan develop unified views about the business. The council can consider such issues as how much leverage the company should take and the size of dividends. The council then communicates its views to the board, which makes the ultimate decisions. Besides helping to oversee the business, the council has an important social function; it plans events and organizes ways for family members to meet each other and stay connected.
The council now has seven members; elections are held to fill the seats. Founder Ernest Ritter had three children who each went on to establish branches of the family. Each of the clan’s three branches elects one council member. The other four seats are filled by at-large representatives who are elected by all the shareholders.
The second president of the council is Ronda Ritter Ray, 54. She grew up near the company headquarters and knew many employees. As a teenager, Ray worked as a telephone operator for the company. After marrying, she moved to Alabama. These days she worries that family members have lost touch with each other. To increase communications, the council has called family meetings and started operating a website. Ray says the council’s initial efforts have been successful. In some cases, family members have met relatives they never knew. “People in the different family branches are talking to each other,” Ray says. After surveying family members, the council developed a statement of the owners’ mission and values.
A sea change for the board
During the time when the family council began operating, Hatzenbuehler and other executives conferred with Jack Moore about restructuring the board. Moore advised them that to survive in a time of increasing global competition, it was particularly important to include outside experts on the board. “When you have third-generation owners who don’t understand the business,” Moore notes, “then you need people on the board with business savvy.”
For decades the board consisted of two outside directors and six family members. Two board members represented each of the three family branches. Working with Moore, Ritter executives developed a plan to revise the structure. The board would be expanded from eight to nine members, but only four directors would be family members. The other five would be independent directors with substantial business experience.
Some family members found the new plan unsettling, says Hatzenbuehler. “We had some third-generation family members who were afraid that they would lose control of the company,” he says. “We had to explain that the family shareholders would maintain control because they would vote for board members.”
Implementing the changes proved to be painful for some shareholders. In 2009, two family members had to resign their board seats to make room for outsiders. “We had two people who had long associations with the company, and it was difficult for them to step off the board,” says Hatzenbuehler.
To ease the transition, the company created the position of director emeritus. Family members who took the new title could attend board meetings for five years. A director emeritus could talk at meetings, but could not vote. The former directors could also serve on the new family council and seek to advise the board.
The new independent directors include a veteran executive of Time Warner who has spent years in cable television. Another new member is a family business consultant who has advised family farms on generational transition. To help with Ritter’s agriculture business, the company recruited a director who is CEO of a commodity research firm that advises farmers on the best crops to grow.
Succession strategy
The board members have proved invaluable as the company embarks on developing long-term strategic plans, says fourth-generation family member Ritter Arnold, 56, president of the agriculture division. “We needed someone who could bring perspective on where agriculture is headed in the next ten or 20 years,” says Arnold.
The new board’s most pressing task was to find a successor for Hatzenbuehler, who planned to retire in a few years. The CEO had always been a family member, but there were no candidates for the job within the family. “It was an emotional event for the family when we decided to look for an outsider,” says Hatzenbuehler. “But people realized that it was in the interest of the family to bring in the best person.”
The board formed a search committee that included two family members and two independent directors. Working with a leadership development consultant, the committee interviewed Ritter executives and many family members. The goal was to find out what kind of CEO the family wanted. The committee hired an executive search firm and began interviewing candidates.
From the beginning, the committee recognized that it would be hard to find a perfect candidate. Besides understanding family businesses, the ideal person would have experience in both agriculture and communications, two industries that are not closely related. “We realized that the most realistic plan was to search for a good, solid businessperson,” says John Vines, an independent director who served as chairman of the search committee. “We would be unlikely to find someone with direct experience in both our businesses.”
The top candidate, Chip Dickinson, had been president of Anderson-Tully Worldwide, a leading timber owner and producer of hardwood products based in Vicksburg, Miss. The company was privately owned by a family until 2005, when the business was acquired by a private equity group.
After selecting Dickinson, the committee held a social event, enabling family and board members to meet him. “The family members who were present at the meeting were very excited about the candidate and thought that he would be a good fit for the culture of the company,” says Vines.
The board voted to hire Dickinson, who is joining the company as COO. He will serve in that position for 12 to 24 months. During that time, Hatzenbuehler will gradually transfer the CEO’s responsibilities to Dickinson. After that, Dickinson will be responsible for day-to-day management of the company. At that point, Hatzenbuehler will serve as chairman. “As the new CEO takes over,” Hatzenbuehler says, “I will be free to spend my time making sure that we get the fifth generation fully engaged in the business.”
Dickinson says that before the private equity group acquired Anderson-Tully, part of his job was to deal with family owners, including members of the fourth and fifth generations. “One of the attractive things about working in a family business was that I got to know a high percentage of the shareholders personally,” he says. Dickinson notes that the family council at Ritter is already playing a constructive role in the company. “It seems like a good vehicle for educating the family about the business and educating the managers about the objectives of the family,” he observes.
One of Hatzenbuehler’s current goals is to establish a leadership academy that will train fifth-generation members who can eventually serve as board members or employees. The academy will educate its students in the family’s history and culture as well as the businesses. By preparing a new generation to take over leadership, the Ritter descendants can ensure that the company will survive and prosper as a family-owned business.
Stan Luxenberg is a business writer based in New York.
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