THE VEGA FOOD COMPANY CASE 5

I.

BACKGROUND

Industrias La Vega was a Spanish meat-processing business that produced hams, sausages, and other delicacies for domestic and export markets. The company is owned by Valle family. Valle family was wealthy by the standards of the small town in which they had most of their production facilities. When Francisco Valle Sr. died in 1994, Francisco Valle Jr. had become president of the company. The business was demanding but Francisco Valle Jr. felt most challenged by the family conflicts. Family council meetings were held to address problems to resolve family conflicts, financial, management and organizational structure.

II. PROBLEM STATEMENT

This case details the history, organizational structure problem, reporting relations, institutions, formalities, infrequent distribution of dividends, and management issues of Industrias La Vega owned by Valle family. The central issue is this case is why is there such conflicting data on the books of account? And is there a need for a new dividend-distribution policy?

III. ANALYSIS/EVALUATION

The stakeholders in this case are: Owners- Everyone that owns shares of Industrias La Vega and have a vested interest in profits. Francisco Valle Jr. as successor of the founder and currently the president was discussed in this case. This is a wholly- family business. The owners, themselves are the executive as well which signposts lack of experience.

1976-1994

Francisco Valle Sr. was the president of Industrias La Vega. Francisco Valle Sr. died on an automobile accident and Francisco Valle Jr., who worked closely with his father took over of the family business. None of the Valle daughters worked in business prior to their father's death. Organizational Structure had been updated. Creation of 2 classes of stocks : (1) Voting A [not pay dividends]; (2) Non-Voting [but dividend bearing] (Notabene: (2) had a par value 10 times higher than A shares)

1994

Feb-97

First family council meeting and followed by shareholders' meeting were held. Issues raised: 1. Company Sales continued to increased, profits plummeted in the past years but dividend distributions had been cut done. NB: * top-priority 2. * Lack of clarity and organization in the ownership structure, estate plan and financial reporting mechanism for shareholders. 3. *Lack of a well- organized family forum and Board of Directors 4. Board meetings existed only on paper, only family members were on the board. Solution raised: 1. Review ownership structure, possession of stock certificates 2. Retain valuation expert to perform company valuation 3. Review and account for family benefits 4. Open conversations about what shareholders wanted from the businesshigher dividends, more investments growth and liquidity of shareholdings via buy-sell agreement. 5. Desirability of board of independent contractors, list of board responsibilities, review of business strategy, Review and approve financial reports and budgets, Review of capital investments, compensation of key executives. Other Topics 1. Need to define responsibilities of the shareholders Raised: toward the business and of managers towards shareholders. 2. Need to define rules guiding relations between members of the family acting as suppliers and subcontractors to the company, and the third generation scholarship fund.

Sept. 1997

New issues raised:

1.Family foundation (study of its various projects in past 5 years done) 2. College scholarships for members of third generation 3. Possibility of sellling a couple of parcels of company farmland

May. 1998

Mari, precluded to attend meeting, sent 2 attorneys which put pressure on Francisco for full pressure on company's accounting and financial records being scrutinized. It was found out that Francisco Jr. held 50% voting A shares and 20% of non-voting dividend beaing B shares. Each of this 5 sisters owned 15% of the B shares, and Isabel retained 5% of B shares ad the remaining 50% of the voting shares. Mari decided to buy out her shares. Discussion of new dividend distribution policy and discussion of a draft of a family constitution including emergency contingency plan.

Oct. 1998

IV.

RECOMMENDATION

Grounded on the issues raised on the case, first, there must be a strict demarcation between a stockholders and managers. The owners must be focused on what their rights and capacities are rather on the management. Unless, they are part of the management team as well, they must not interfere on the functional responsibility.

A shareholder or stockholder is an individual or institution (including a corporation) that legally owns any part of a share of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself. 1

Stockholders are granted special privileges depending on the class of stock. These rights may include:

The right to sell their shares, The right to vote on the directors nominated by the board, The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions,

The right to dividends if they are declared,

http://en.wikipedia.org/wiki/Shareholder

The right to purchase new shares issued by the company, and The right to what assets remain after a liquidation.

Stockholders or shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, labor, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value and/or are impacted by the corporation2

A Manager, on the other hand, may be responsible for one functional area, but the General Manager is responsible for all areas. Sometimes, most commonly, the term General Manager refers to any executive who has overall responsibility for managing both the revenue and cost elements of a company's income statement. This is often referred to as profit & loss (P&L) responsibility. This means that a General Manager usually oversees most or all of the firm's marketing and sales functions as well as the day-to-day operations of the business. Frequently, the General Manager is responsible for effective planning, delegating, coordinating, staffing, organizing, and decision making to attain desirable profit making results for an organization.3

In many cases, the general manager of a business is given a different formal title or titles. Most corporate managers holding the titles of Chief Executive Officer (CEO) or President, for example, are the General Managers of their respective businesses. More rarely, the Chief Financial Officer (CFO), Chief Operating Officer (COO), or Chief Marketing Officer (CMO) will act as the General Manager of the business. Depending on the company, individuals with the title Managing Director, Regional Vice President, Country Manager, Product Manager, Branch Manager, or Segment Manager may also have general management responsibilities. In large companies many vice presidents will have the title of General Manager when they have the full set of responsibility for the

2 3

Ibid http://en.wikipedia.org/wiki/General_manager

function in that particular area of the business and are often titled Vice President and General Manager.4

In consumer products companies, General Managers are often given the title Brand Manager or Category Manager. In professional services firms, the General Manager may hold titles such as Managing Partner, Senior Partner, or Managing Director.5

Second, the above mentioned issues must be resolved gradually. During the board meeting, I suggest that there must be representative such as lawyers who could explain to individual owners on organizational structure, and other grueling areas of the business.

Lastly, a forensic external audit must be held on their financial books, dividend distribution and other matters relating to the business proper.

4 5

Ibid Ibid