When Brown-Forman stockholders gathered in July at the whiskey giant’s Georgian Revival headquarters west of downtown, the outcome of a crucial vote — re-electing 12 directors to the governing board — was anything but a surprise.
This has been the founding Brown family’s company for nearly 150 years. Six of the directors were Browns, including board Chairman George Garvin Brown IV — a great-great grandson of the founder — and the rest were unquestionably family loyalists.
Stockholders outside the family knew what Brown-Forman has disclosed for years in an annual statement soliciting their votes: 13 individual Browns and family groups hold 67% of all the voting shares in “a variety of family trusts and entities, with multiple family members often sharing voting control and investment power.”
Much less has been known about the scope of those entities, leaving more than 5,600 other stockholders in the dark about exactly how the Browns divvy up nearly $6 billion in shares among a core group of relatives.
But now, documents filed by the Browns with the Securities and Exchange Commission detail how complex their ownership has grown since the pharmaceuticals salesman George Garvin Brown founded the company in 1870. They shed light on how the Browns have deployed extensive trust accounts, business partnerships, and other legal vehicles to pass down Brown-Forman stock through six generations. That’s an exceptional legacy in American business: Just 12% of family-owned companies survive into the third generation, and a slim 3% survive to the fourth and beyond.
The documents also point to a network of boutique consulting firms and other white-shoe professionals advising the city’s wealthiest families on everything from investments to taxes and charitable giving, hiring housekeepers and gardeners — even organizing vacation travel and family gatherings. Paid tens of thousands of dollars a year in fees, the firms are the backbone of a larger, multibillion-dollar economy serving the area’s uber-rich.
The Brown foundation, which has given $72 million to the school over the past six decades, sent the broadside in a letter from Chairman and CEO R. Alex Rankin and President Mason Rummel, according to The Courier-Journal.
They expressed concern that “expenditures may have been made that were not exclusively for the charitable and educational purposes of the university,” or were not consistent with UofL rules barring donors, members or trustees from personally profiting from the UofL foundation, according to the CJ’s Andrew Wolfson.
Established in 1943, the Brown is second only to UofL’s among the city’s biggest philanthropic foundations based on asset size; UofL’s has about $820 million. That gives the Brown and Rankin extra clout, and could spur other big donors to also threaten funding cutoffs. Rankin is well-connected in the city’s power structure, sitting on the boards of Churchill Downs and Glenview Trust Co., where fellow directors have very strong UofL connections.
In their letter, Rankin and Rummel also said the Brown foundation is troubled the university hasn’t honored open- records requests from the chairman of the university’s board of trustees, Larry Benz, concerning UofL foundation accounting records, the CJ says.
Brown-Forman chief executive Paul Varga‘s fiscal 2016 pay was down from $11 million the year before and $12.3 million two years prior, the company disclosed in its annual shareholders proxy report.
Compensation for the other four highest-paid executives was mixed vs. the year before, according to the report, which the Louisville whiskey distilling giant filed with the Securities and Exchange Commission late this afternoon.
The figures appear on Page 40, and cover the year ended April 30. In addition to Varga, they include CFO Jane Morreau; Mark McCallum, president of the marquee Jack Daniel’s brand; Jill Jones, executive vice president over North America and Latin America regions, and General Counsel Matthew Hamel.
Chairman George Garvin Brown IV got paid non-equity incentive compensation of $531,787 plus a small salary of $38,750. (“Non-equity incentive compensation” sounds like a cash bonus, but for some reason, Brown-Forman doesn’t use that term.)
In fiscal 2015, Brown’s non-equity incentive pay was much less: $281,845, according to last year’s proxy report. But that year he was still working as an executive vice president in addition to his chairman’s duties. For his EVP work, he was paid $320,427. He left that job a year ago today.
The company also said it incurred $18,359 for certain expenses associated with Brown’s living abroad, and other employee benefits provided to him. The proxy report doesn’t say where Brown, 47, was living at the time. (London, it appears, based on this Globe and Mail story last year.)
The Browns are firmly in charge
The Brown family controls Brown-Forman through their enormous stock portfolio, preserved through multiple generations — at least four — that followed George Garvin Brown, a pharmaceuticals salesman who started the company in Louisville in 1870. At current market prices, the family’s holdings are worth at least $6 billion — but in reality, much more.
The holdings are divided between the company’s two classes of stock: “A” shares, which carry voting rights, and non-voting “B” shares. Both classes trade on public markets, although for different prices. The family owns at least 67% of the A shares, according to the proxy report.
Chairman Brown and his brother, Campbell Brown — who’s also a senior executive at the company — hold one of the family’s single-biggest stakes: 6.8 million class A shares, through an entity called the G. Garvin Brown III Family Group. At today’s closing price of $105.48, those shares are worth $718 million.
Campbell, 48, has been president and managing director of Old Forester, the company’s founding bourbon brand, since 2015.
Keeping business in the family
Another big stockholder is Laura Lee Brown, who with her husband Steve Wilson, founded the trendy 21c Museum Hotel chain in Louisville. She owns 2.2 million class A shares outright, worth $233 million at current prices.
In the proxy report, Brown-Forman said it did business with the couple, as it has in previous years. It includes developing historic Whiskey Row on Main Street into a complex of new lofts, retail and restaurant space to be called 111 Whiskey Row. The company paid $900,000 to a company controlled by the couple: Brown Wilson Development, according to the proxy report.
Brown-Forman also paid the couple $267,395 for rooms, meals and other entertainment at their 21c hotel and its Proof on Main restaurant. It also paid them another $250,440 for leases on parking spaces in a garage they own adjoining Brown-Forman’s downtown offices.
Unraveling founding family’s wealth
Valuing the Brown family’s total stock holdings is difficult. Individual members own shares outright. They also have partial, beneficial ownership through family partnerships and legal entities. Because they overlap with other family members, it’s hard to assign a value to them.
However, counting each share just once among family members owning more than 5% of all outstanding shares, their combined total is about 57 million, worth $6 billion. But that only covers shares held by the single-biggest owners who, under Securities and Exchange Commission rules, are required to disclose holdings exceeding 5%. There may be other Browns sitting on multimillion-dollar positions, undisclosed because they don’t meet the 5% threshold.
And that’s only counting the class A shares. The Browns own several million non-voting B shares, too. Determining exactly how many is tricky, but tables and footnotes in the proxy report offer clues.
For example, Garvin Brown IV and his brother Campbell together own 1.3 million Class B shares outright; at today’s closing price of $97.90, they’re worth another $125 million. Adding that to their A shares, the brothers own $843 million in stock.
Sandra Frazier, who just cycled off the board of directors, owns 373,376 B shares plus 1.4 million A shares. They’re worth a total $185 million. Frazier, 44, is CEO of Tandem Public Relations in Louisville, which she founded in 2005. She’s also a member of the board of directors at Glenview Trust Co., a boutique wealth management company that serves 500 of the richest families in the area.
Her first cousin, Laura Frazier, joined the Brown-Forman board when Sandra left. Laura owns 239,829 B shares and 225,433 A shares. Combined, they’re worth $47.3 million. In addition to being a director, Laura, 58, owns Bittners, the high end furniture and decorating company in NuLu.
Discretion is everything in the wealth management world. That’s why the court challenge around the Glenview Trust Co.‘s launch 15 years ago grabbed such unwelcome headlines — before it got settled, of course, for $525,000. That controversial start apparently didn’t dent eventual success at the firm, which is akin to a large family office. Its motto: “enriching life.”
Today, Glenview — named for the posh community where the company is located east of Louisville — says it’s the commonwealth’s biggest independent trust company, working exclusively for individual investors. Glenview now represents more than 500 wealthy families, with a combined $6.5 billion in assets.
Its pitch: “Glenview Trust is a local, closely-held company with employee ownership, our professionals act and think differently. We are not accountable to a headquarters in a distant city, which allows us to effectively and efficiently accommodate our clients’ unique situations.”
Glenview has 40 employees, including nine attorneys. How much does it earn servicing those 500-plus families? That’s hard to estimate without knowing the firm’s fee schedule. Industrywide, fees vary widely, often stair-stepping down as account values rise. But applying a relatively low 0.5%, that would generate $33 million a year.
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