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…

Using Life Insurance to Fund a Business Buy-Sell Arrangement

Cornell University

Using Life Insurance to Fund a
Business Buy-Sell Arrangement

by Loren W. Tauer
Department of Agricultural, Resource,
and Managerial Economics Cornell University

Many successful businesses, including farms, are closely held, with only a few owners.What happens to these businesses if one of the principal owners dies?Do they continue?Often the remaining owners can manage the business quite successfully.Their problem is the financial ability to buy the deceased owner’s share of the business from the estate or heirs.A solution might be a buy-sell arrangement funded with life insurance. More…