J. Perez Foods (A) Case Writeup Dear Jamie Jr, From my observations, there is a massive, overarching family-business conflict embroiling you and your siblings (mainly Mercedes) that has the potential to not only undermine the cordial familial relationships between your family members, but also has the potential to destroy your family’s reputation in the Dominican business world. As a consultant to the Perez Family whose purpose is to bring stability to the ownership group, I will address 3 main areas of contention that if mitigated, I believe have the potential to resolve the current situation.
My first area of contention is the outward personality and emotions you have displayed throughout the series of events. I understand that as a developing business leader, you were always challenged, overshadowed, and to an extent belittled by your father in terms of your abilities and ideas. The constant demeaning comments about the applicability of your “paper ideas” and his patriarchal agent leadership of the company probably caused you a long period of emotional discomfort and left a huge shadow of doubt in your mind about your own abilities.
His actions have fueled your inability to accept your own strengths and weaknesses and cause you to react defensively to anybody’s comments about you. Your lack of confidence in yourself prompts you to seek control of situations that may inherently be incontrollable. These are situations that you would be better off responding to and closely evaluating for both the company and your benefit. This clearly occurred when Mercedes and the other siblings voice their concerns on the direction you are leading the company and their request for secondary options should the value of dividends fall.
Instead of listening and interpreting your siblings questions as genuine concerns of the business’ and their own future well-being, you saw their questions as intrusions to your power and disregarded them as “meddlings” from inexperienced, unknowledgeable outsiders, when you should see how the negative prospects may alarm them after years of patriarchal oversight from your father. They are frightened. My first recommendation is for you to re-evaluate where you currently stands.
You have successfully led the growth of the family business to revenues of $74 million and you are a successful political figure as a Senator of the Dominican Republic. You should be able to derive enough confidence from your past experiences to assert a degree of empathy towards your siblings’ dependency on you and the business’ success and adopt a strategy of response to their questionings. Instead of accepting Mercedes’ resignation, you should really have taken the time to peel deeper into where her concerns stemmed.
This will help to relieve a lot of the tensions that overshadow most of your family meetings and aid in your internal processes of communication. An example of positive communication and collaboration can be seen in the Lauder family in which each member has a voice and each member’s ideas are dissected and absorbed into the aggregate whole, allowing them to implement new, innovative strategies while also maintaining an effect checks-and-balances system between the siblings.
On the other hand, Herbert Haft’s strategy of locking-out any ideas contrary to his own only forced the dissentions within the business to grow and eventually overwhelm them. I know that you probably felt unfairly attacked and disappointed in Mercedes’ lack of faith in you, but I think we should really go back to R. Williams quote “Trust is always earned, never given” to point out that the trust your father received, which you do not have right now, came from decades of actions and to replicate that you also need to take some steps to put yourself out there.
A second concept, in-line with your emotional appearance, which you may want to consider, is your physical appearance and arrangement. Although most of your siblings are content with the fact that as the person with the most at stake in the business and the person who works the most in the business, you should reap a greater benefit than the rest of them from the earnings, there is definitely a growing discontent with your excessively lavish lifestyle and the compensation arrangements for management, in conjunction with the recent significant decline in return on equity.
As the residual claimants to profits, equity holders are often at the mercy of the management and your siblings obviously feel that there is a misalignment of incentives between them and the management. This misalignment insinuation has also built up a resistance against their propensity to trust you. I think one solution you can take to mitigate this problem is to actively align the managers incentives though some type of options compensation.
Instead of your current system, you should bring in a reputable compensation consulting firm to devise the salaries of your management and give them the ability to use options or other methods to transparently tie the incentives together. You can also have your siblings establish a compensation committee, similar to steps taken in public corporations, to evaluate and vote on the compensation arrangements.
Although your siblings may not be well-versed in the business operations and you may find them almost “petty and imperturbable” in negotiations, it is good to keep in mind that this is merely one more step in the process of collaboration and a necessary concession you should make towards preserving the integrity of family relations. Moreover, as Warren Buffett once said, “if you can’t explain your compensation schemes to a 14 year old, there’s probably something fishy about it” and as the manager of the business you have a fiduciary responsibility for the well-being of shareholders.
By forming the compensation committee, you are also increasing the checks-and-balances aspect of your stockholders by separating the business from the family, in that the shareholders are represented directly by their concern for their wellness of their holdings and not just brought together as family members. More importantly, this is a step that will put your interests back into alignment and create the feeling that you are together in the same boat. Being in the same boat up a steep cliff and having at least a semblance of influence helps in restoring the trust amongst team members.
This also relates to the idea of empowerment in stewardship, which helps create not only a stronger bond but an allegiance to a common cause from all stakeholders. By following the aforementioned ideas of collaboration, you should be able to restore the trust between you and most of your siblings. I say this because in the end, their dissention and concern came not from a challenge to your authority but out of a genuine regard for their own well-being.
With the passage of your father, they lost their supporting figure that provided for and looked after their needs. Simply put, all you need to do to placate their discomforts is to transparently show them that you have the confidence and skills to successfully run the business and that you will do so with incentives closely aligned with theirs. In fact, most of your siblings would prefer to be taken care of by a prolific patriarch and not have to be concerned with the day-to-day operations of the family business.
By establishing an open dialogue to answer their fears and a compensation structure to alleviate their concerns about your motives, I believe they will be willing to support you in your position and give you the freedom to operate independently. However, you must also genuinely remember that as an overseer of their assets, you have the fiduciary duty to let them know of the current situations of the business. With the first two strategies and this genuine mindset, in time you should be able to build an imperturbable bond of trust between you and your siblings.
Regarding the situation with Mercedes, you should probably be more pragmatic in your approach and carry a degree of skepticism when evaluating her actions. If your analysis of her lack of experience and analytical abilities are true, then you should take her words with a grain of salt in terms of operational suggestions and reforms, but definitely still ponder the meaning of her interactions. You should recognize that her original motivations were pretty much identical to your other siblings in that she was merely frightened after the loss of your father and sought to secure her own future well-being.
In that case, you should definitely be open to her concerns just as with your other siblings and accept her role as a stakeholder to whom you have fiduciary duty. However, you should also be aware that her reactions might have also been amplified by her more business-savvy husband, who probably intends to use his wife’s naivete for his own monetary gain. We have seen this quite a few times in the large native business families such as the Canaan liquor conglomerate which was taken over by the in-laws of one of the family shareholders through a strategic fraud lawsuit and subsequent settlement.
In this case, you should probably open this issue transparently in your family meetings and devise a collaborative agreement as to the influence of in-laws in the business and possible Trust options for the next successive generation. But these issues should wait until you solve or at least begin to mitigate the existing malignant communication issues between you and all your siblings with the first two suggestions in this proposal.