Dividend Policy in Perspective

Dividends Play an Important Role in Rewarding Shareholders, but Must be Viewed in the Broader
Context of the Varying Liquidity Needs of Shareholders and their Vision of the Company’s Future.

by François M. de Visscher

For many family firms, the lack of a dividend policy is a serious omission at best, and a recipe for a shareholder-relations disaster-or a family feud-at worst. At the same time, a dividend policy formulated without consideration of other liquidity options, and outside the context of the company’s overall capital needs, is also a serious mistake. There are many ways to slake the thirst of shareholders, particularly inactive shareholders, for liquidity. Dividends are but one.

Lack of liquidity is one of the most common sources of discontent voiced by the shareholders of family firms. As the family and the business grow, the disparity in the financial and economic goals of shareholders increases. The shareholders active in management want the business to grow and the stock to appreciate. They prefer to see “excess” cash reinvested in the business, rather than frittered away on dividends. But the inactive shareholders tend to see their equity as an investment on which they are entitled to a return comparable with other investments. Oftentimes they view the business more as a cash cow than a long-term family enterprise, especially if they do not have other sources of income. More…

Managing Complex Family Relationships in the Family Business

 UMassRelated Matters Newsletter
Summer 1995

John F. Baugh Center for Entrepreneurship
Institute for Family Business
Baylor University

For Nancy Upton, the key to success in wrestling with the issues that arise in a family business is simple: set up formal mechanisms to grapple with the issues, and get as much as possible written down.

Upton, Director of the John F. Baugh Center for Entrepreneurship and the Institute for Family Business, both at Baylor University, spoke to the Family Business Center May 12, under the elegant crystal chandeliers and stained glass windows of the Yankee Pedlar Opera House.

Families and businesses, she points out, often have conflicting sets of needs and values. Yet, in a family business, the two areas overlap. Formalizing the corporate culture reduces the tension inherent in that overlap. More…