Disengaging 5 | Ghost
Disengaging 5 | Ghost
The Cannon Springs Farm board meeting just ended, and I don’t even know what to say.
First of all, it’s never been much of an event—more an annual meeting than a board meeting. All the shareholders are directors—Jacob and me, and Joyce and her four kids. We don’t have much of an agenda, and in the past, we’ve approved the minutes from the last year, gone over the financials, and then mostly traded gossip about which growers are having problems, who is planting what, and what the big wineries are saying. Then, we have a glass of wine and go out to dinner. Frankly, we wouldn’t even have minutes if my nephew, Matthew, hadn’t taken up the responsibility after my mom, Florence, passed. Mostly a non-event. I didn’t really prepare for it, just grabbed Jacob and drove over to the main house at Clear Lake.
So, Matthew had just started reading the minutes, which included a brief description of Cannon Springs Farm’s 2015 financials. It was a good year for Cannon Springs—prices were pretty high and CSF had better yields than many of its neighbors, which translated into a great harvest. As Matthew read, Joyce’s face got redder and redder. Suddenly, she slammed her pen down, shoved her chair back, and announced, “There it is. Proof. You’re taking us down. Taking advantage. Same as you’ve always done. You are screwing us, Peter. And YOU, Jacob. It’s NOT FAIR.”
Sara and Henry, who only come home for board meetings, looked a little panicked, and tried to defuse things by saying something calming, but Joyce just kept going.
“Cannon Bridge is putting us out of business.”
“Your fancy little stone winery. Your pretty little fields. Your imported crystal tasting glasses. Pretty this. Fancy that. Well, Dad said that he built the winery TO HELP CANNON SPRINGS—he talked about “vertical integration,” or some other crap idea he picked up at the Growers’ Association meetings. Cannon Bridge would buy Cannon Springs’ grapes, so we’d make more and more money. Every “hand-chiseled” stone and “hand-hewn” beam that went into the winery, he took out a bigger mortgage on the Cannon Springs properties. The money from the grapes would more than pay for the mortgages, he said. Well, it isn’t, because you aren’t buying the grapes. Cannon Bridge is screwing us.”
Matthew, steady like his dad, put his hand on her shoulder and said, “Mom…c’mon,” but she slapped it away.
“Leave me alone! Pete Sr. set this up, and you two are ruining us! Dad pretty much gave you the winery, Peter, so what do you care if Cannon Springs goes down in flames?!? ”
At this point, Jacob took offense to his aunt’s accusations and before I could stop him, began to yell back. “You’re so full of it, Joyce! You wouldn’t be in this position if you all planted the right grapes and knew how to take care of a field. All my friends say that Potter Valley used to be so great, but you guys let it slip. Crown gall? What are you, amateurs?”
Aghast, Matthew sputtered, “Jacob, you don’t know what you’re talking about.”
Joyce swiveled toward Jacob, incensed.
“You think you know something because you got a pretty little sheet of paper from some school? You won’t know a damn thing about grapes until you get out in the fields and work—like the rest of us.”
Jacob’s fists clenched and he started to stand up, but Grace managed to coax him back down into his chair. “Hey, Jacob, be cool,” she whispered, as she watched her mother’s face. Grace knows what happens when Joyce loses it. Despite his newfound silence, Jacob continued to smolder.
As Joyce launched into the next stage of her tirade, I did my best to calm things down. I praised Joyce’s management, even as I acknowledged the challenges Cannon Springs Farm is facing. I reminded everyone that we all are in this together. I pointed out that the crown gall at Potter Valley isn’t Matthew’s fault, and that he’s taking all the right steps to deal with it. I gently reminded Joyce that we all agreed, after assessing the brand and trajectory of Cannon Bridge Winery, that Cannon Bridge would be better off not making a Moscato, despite the Cannon Springs production. Matthew, sensing that his mom was settling down, helped me turn the conversation to a discussion about the mortgages on the land and the options for refinancing them. Grace jumped in with a summary of two very positive conversations she’d had with potential grape buyers. I spoke about the possibilities for making a Moscato in the next year or so.
In every way we could, we said it would be all right. And Joyce calmed down.
Quick as we could, we finished our business and adjourned the meeting. I poured us all a glass of wine and we went to sit on the porch in the thin, but surprisingly warm, winter light. Talk turned to who was growing what this year, which winemakers were thinking of moving, and even how drones are starting to change the business.
But, I’m worried. This isn’t over.
The value of the land keeps rising and the value of the grapes we grow on it can’t keep up. Pete Sr. didn’t anticipate this. We keep refinancing, but it’s like kicking the can down the road. Cannon Bridge Winery is looking like a better business bet than Cannon Springs Farm, which strains my relationship with Joyce and the rest of our family even more. Maybe we should consider selling land to pay off the debt. But, then what would we do? Pete Sr. would roll in his grave. We are farmers.
It’s like the ghost of Pete Sr. won’t leave us. We’re stuck in the past, living out his decisions on ownership, debt, and investment. And for all his good intentions, it’s killing us—both as a business and as a family.
Maybe I’ll call that attorney in San Francisco I spoke to who comes from a family business, herself—Amanda Owen Cooper. I doubt she’s ever seen a family like us, but who knows? It’s worth a shot.
Family Business Governance Analysis:
- The Cannons’ board meeting may sound familiar to some listeners—including Joyce’s blow up, which we’ll get to in a moment. This is very much the form of meeting that lots of early-stage family businesses start with. Every owner is a director, there isn’t much of an agenda, and it’s often mostly an excuse for a family gathering. So many family members work in the business that they don’t see much need for formality. However, Cannon Springs Farm has outgrown its system of governance, and it isn’t serving the family or the business well, as we can see from the fact that nothing whatsoever gets accomplished.
- The group that makes up the Cannon Springs Farm board is comprised of all the owners of the business, with no independent directors. There isn’t really a formal agenda—this seems to be a meeting that is called because it’s required by the company’s bylaws, not because the Cannons want to review performance, develop policy, or consider strategies. (And, we should recognize that this meeting probably doesn’t even meet the requirements set forth in the bylaws, either for a shareholders meeting or a board meeting, because it lacks notice, proper formalities, and a whole host of other features of good meetings.) It’s my sense that the Cannons are so close to their businesses that they don’t see much reason to think strategically together about their purpose, their vision for the future, their strategy, or their performance. It’s also probably the case that Pete Sr. ran meetings this way, and so his children, Joyce and Peter are just trying to follow in his footsteps, without stopping to consider whether there is a better way.
- This is one of the reasons we titled this episode “Ghost.” Governance driven by “the way we do things around here” is incredibly common in family businesses, especially when a powerful controlling owner has been at the helm. We call this “Natural Governance,” and it serves business owning families very well, especially in the early years. But as the family, the ownership, and the business itself get more complex, Natural Governance doesn’t work as well. At this point, family businesses find that they need more formal governance, with more transparent practices, protocols and policies.
- As I mentioned a moment ago, it’s hard to tell whether this is an owners meeting or a board meeting. I suspect that the Cannons haven’t made that distinction. But now that only 3 out of the 7 owners work in the business—Joyce, Grace, and Matthew—it might be advantageous for them to develop an owners council separate from the board. Then, they can focus owners council meetings on purpose and vision, as well as education about the business, and they can focus board meetings on strategy and performance.
- Creating effective forums is an important step in developing more formal governance practices. (For more on this topic, check out “Why You Need an Owners Council.”) Given all the changes that Cannon Springs Farm is facing—rising land values; lower revenues; and changing customers, both in terms of their immediate customers (wineries and brokers), and their end customers (wine drinkers)—they may also want to consider bringing independent directors who have applicable experience onto their board. Other growers have certainly faced these same problems, and the Cannons might be surprised by how many leaders of family-owned growers could be interested in serving on the Cannon Springs board to share their experience and expertise.
- We can see family dynamics play out in this episode, too, in the form of a villain-victim-rescuer triangle. Joyce sees herself—and, by extension, Cannon Springs Farm—as a victim, and she sees Cannon Bridge Winery as the villain, based on the idea that Cannon Bridge was built using cash that Pete Sr. raised from mortgages on Cannon Springs land. Joyce is taking a business problem personally. It is as if she is really railing at her father’s ghost, rather than speaking to the board.
- Rather than lay out the cash flow issues the farm is facing in a systematic manner so that the group can consider them dispassionately, she blows up. Her children who aren’t in the business—Sara and Henry—immediately try to calm her down—they try to become rescuers. Jacob, in essence taking the bait, throws it back at Joyce, claiming that Cannon Springs Farm is a victim only of its own ineptitude. Peter wades into the mess and tries to rescue Joyce and, by extension, Jacob, but his tactics—trying to defuse the situation by placating Joyce and ending the meeting as quickly as possible—pretty much ensure that this explosion will happen again in the future. Peter is the peacekeeper in this group, but it isn’t getting him, or anyone else, very far.
- What might Peter have done instead? Peter might have chosen not to be a rescuer, but simply an adult—a director of a business with issues that merit discussion. He might have acknowledged Joyce’s anger but not tried to resolve it by making her feel better about the farm. Instead, he might have steered the conversation towards appropriate board actions. He might have suggested that they as a board look more closely into Cannon Springs Farm’s cash flow and its financial ties to Cannon Bridge Winery and talk about options.
- But so long as Peter stays in the villain-victim-rescuer triangle, trying to keep Joyce calm at the expense of dealing with the problem at hand, Joyce will stay there too, because it’s easier for her to play the victim than to deal with the very substantial business issues that Cannon Springs Farm is facing. It seems that the underlying problem here will continue to fester.
- One last word about Jacob. We can be sure that his cousins and his aunt will deem his response “inappropriate” and look for ways to label him the villain in the system. Doing so may make them feel a little bit better and will certainly tend to bind them together in an “us” vs. “him” sort of way. I mentioned this in the last Disengaging analysis, but we all need to recognize that as obnoxious as Jacob sometimes is, he’s more of a canary in the coal mine than he is the evil villain. He speaks the truth, though with gross exaggeration and no small amount of self-aggrandizement. Watch Jacob, because his comments will tend to go to the heart of issues that the family has been dancing around for years.
And finally, our ghost. Pete Sr. created the culture of Cannon Springs Farm, as well as its business practices. Joyce would probably have an easier time if her father were present and she could speak (or yell) directly to him. It is as if she believes that her father’s decisions control forever, and she is powerless to make changes. She’s not fighting with Peter—who has never argued for the current setup, at least not that we’ve seen. She’s fighting with a ghost. Until Joyce recognizes that she (along with her fellow owners) has both the power and the responsibility to make changes in the system, her anger will get her nowhere and Cannon Springs Farm will continue to flounder.