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Please be as detailed and well-explained as you can to answer the questions in the “Babbitt Ranches Case Questions” document after you understand everything in the Babbitt Ranches Case. There is also data provided in the Excel document. Three documents total, and please write your answer right under the questions in that document.

Babbitt Ranches: Governance and Strategic Planning in Family Businesses
Case Questions
1 How do the shareholders of Babbitt Ranches act differently than shareholders of a publicly
traded company?
What do they do that is different? Why?
2 What are the challenges for Billy Cordasco to implement the newly formed constitution?
As he said, “How do you best implement this type of thing?”
3 Will the constitution provide useful guidance as governance structure for Babbitt Ranches
as they move forward?
4 How can the constitution provide guidance to evaluate new business opportunities? “as a
touchstone as opportunities and challenges are discussed and decisions are made.”
Babbitt Ranches Case Questions
1996
Current Assets:
Cash
Accts. Rec.
Accts. Rec.- Cataract
Accts. Rec.-BBTC
Cattle Inventory
Bison Inventory
Beef Products Inv.
Other Inventory
Prepaid Exp. & Other
Total Current Assets
$
$
$
257,182
6,036
62,538
1997
$
67,906
$
47,348
$ 140,599
1998
$
$
$
74,143
6,698
98,576
Exhibit 4
Babbitt Ranches
Balance Sheets
1994-2006
2000
2001
1999
$
106,275
$
152,025
$
71,788
$
66,831
$
$
398,747
20,724
31,910
658,024
15,000
2002
2003
2004
2005
2006
2007
$
222,820
$
719,093
$ 1,212,729
$
81,643
$
$
1,699,849
77,099
223,438
80,762
525,600
15,000
989,903
297
34,643
$ 1,320,482
$ 217,000
$
$
$
$
$
$
$
$
$
528,408
15,000
$
$
552,420
15,000
$
$
$
581,004
$
533,772
$ 648,592
$
733,633
$
$
$
681,247
15,000
11,818
$
$
615,633
15,000
$
$
$
$
$
19,318
878,846
$
17,465
$ 921,910
$
$
44,669
957,719
$
$
16,729
902,857
$
$
17,960
867,449
$
18,082
$ 1,142,487
$
19,048
$ 1,086,668
$
31,644
$ 1,294,145
$
28,372
$ 1,620,635
$
37,182
$ 2,138,388
1828
$
42,128 $
$ 1,907,128 $
563,724
568,800
1538
44,377
2,403,867
Property & Equipment:
Land
Buildings and Improve
Water Works
Machinery & Equip.
Vehicles
Livestock
Less: Accum. Deprec.
Net PPPE
$ 1,075,109
$ 185,202
$
43,296
$
78,273
$ 313,014
$ 346,444
$ (633,802)
$ 1,407,536
$ 1,075,109
$ 185,202
$
56,460
$
88,123
$ 337,799
$ 294,884
$ (609,675)
$ 1,427,902
$ 1,135,359
$
185,202
$
61,365
$
91,640
$
382,449
$
301,389
$ (655,641)
$ 1,501,763
$ 1,135,359
$ 185,202
$
74,291
$ 103,118
$ 380,349
$ 328,025
$ (713,539)
$ 1,492,805
$ 1,135,359
$ 185,202
$
94,979
$ 103,973
$ 402,599
$ 360,644
$ (782,124)
$ 1,500,632
$ 1,135,359
$ 185,202
$ 113,302
$ 175,132
$ 453,667
$ 417,381
$ (858,181)
$ 1,621,862
$ 1,135,359
$ 185,202
$ 132,235
$ 189,514
$ 488,581
$ 430,781
$ (926,868)
$ 1,634,804
$ 1,135,359
$ 185,202
$ 141,945
$ 201,323
$ 409,381
$ 423,486
$ (939,624)
$ 1,557,072
$ 1,135,359
$ 194,886
$ 153,468
$ 211,691
$ 463,444
$ 470,385
$ (1,026,235)
$ 1,602,998
$ 1,159,249
$ 227,348
$ 165,912
$ 271,671
$ 477,818
$ 503,748
$ (1,083,288)
$ 1,722,458
$ 1,159,249
$ 261,644
$ 205,409
$ 289,747
$ 469,333
$ 562,530
$ (1,119,866)
$ 1,828,046
$
$
$
$
$
$
$
$
1,159,249
323,356
261,383
341,186
478,614
621,343
(1,257,349)
1,927,782
Total Assets
$ 2,286,382
$ 2,349,812
$ 2,459,482
$ 2,395,662
$ 2,368,081
$ 2,764,349
$ 2,721,472
$ 2,851,217
$ 3,223,633
$ 3,860,846
$ 3,735,174
$
4,331,649
$
$
$
$
$
$
36,244
35,535
32,993
$
$
$
38,594
18,312
33,482
$
$
$
35,764
10,766
56,647
$
$
$
$
$
$
$
90,247
$
30,020
$
63,184
$
$
$
$
34,296
$
$
$
32,484
539,330
58,456
$
$
$
39,713
274,326
61,840
$
$
$
126,155
292,657
66,291
$
45,112
$
77,001
415,000
2,809
508,197
26,967
535,164
$
$
$
$
$
120,115
3,042
226,334
23,925
250,259
$
$
$
$
15,105
690,487
8,851
699,338
$
$
8,851
384,730
$
384,730
$
$
$
485,103
485,103
Current Liabilities:
Accts. Payable
Accts. Pay.-Cataract
Accrued Comp & Exp.
Distributions Payable
Deferred Revenue
Line of Credit
Current LT Debt
Total Current Liabilities
Long-Term Liabilities
Total Liabilities
33,617
15,442
24,177
66,229
50,277
48,259
44,012
213,919
68,404
22,959
55
34,808
$
73,236
$ 181,773
$
73,236
$ 181,773
$
$
$
$
$
$ 2,213,146
$ 2,168,039
$ 1,924,318
$ 2,145,403
$ 2,179,565
$ 2,417,572
$ 2,531,918
$ 2,769,493
$ 3,118,067
$ 3,161,508
$ 3,350,444
$
3,846,546
Total Liabilities & Equity $ 2,286,382
$ 2,349,812
$ 2,459,482
$ 2,395,662
$ 2,368,081
$ 2,764,349
$ 2,721,472
$ 2,851,217
$ 3,223,633
$ 3,860,846
$ 3,735,174
$
4,331,649
Members Capital
$
$
$
$
3,294
168,059
20,457
188,516
$
$
$
$
3,568
329,903
16,874
346,777
$
$
$
$
12,443
165,874
23,680
189,554
$
$
$
$
12,746
70,568
11,156
81,724
$
$
$
$
17,313
81,629
23,937
105,566
Exhibit 1
Babbitt Ranches
Income Statements
1994-2006
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sales Revenue:
Livestock Sales
Less: Cost of Sales
Gross Margin
$ 674,639
$ 12,672
$ 661,967
$ 783,072 $ 788,756
$ (22,680) $ 126,919
$ 805,752 $ 661,837
$ 1,449,023
$ 218,612
$ 1,230,411
$ 1,180,828
$ 157,997
$ 1,022,831
$ 1,248,695
$ 47,553
$ 1,201,142
$ 1,007,162
$ 132,424
$ 874,738
$ 938,917 $ 1,053,728 $ 1,465,671
$
(2,808) $ (24,012) $
5,448
$ 941,725 $ 1,077,740 $ 1,460,223
$ 1,541,839 $ 1,774,352
$
(5,076) $ (12,204)
$ 1,546,915 $ 1,786,556
Pasture Fees
Gain on sale of livestock
Net Operating Revenue
$ 120,908
$ 39,647
$ 822,522
$ 133,610
$ 24,899
$ 964,261
$ 74,334
$ 37,399
$ 773,570
$ 84,069
$ 58,909
$ 1,373,389
$ 87,025
$ 49,804
$ 1,159,660
$ 90,930
$ 55,879
$ 1,347,951
$ 61,820
$ 71,735
$ 1,008,293
$ 48,230
$ 67,798
$ 1,057,753
$ 114,540
$ 63,749
$ 1,256,029
$ 67,377
$ 66,917
$ 1,594,517
$ 105,080
$ 61,345
$ 1,713,340
$ 117,875
$ 89,173
$ 1,993,604
$ 145,221
$ 13,443
$ 33,512
$ 16,153
$ 19,193
$ 3,679
$ 4,607
$ 153,908
$ 13,703
$ 38,861
$ 24,586
$ 29,106
$ 1,534
$ 4,387
$ 153,028
$ 14,324
$ 38,498
$ 31,865
$ 51,281
$
4,668
$
4,225
$ 169,697
$ 14,772
$ 40,485
$ 27,481
$ 39,900
$
5,010
$
4,555
$ 169,007
$ 15,531
$ 41,587
$ 34,485
$ 33,479
$
7,533
$
5,158
$ 181,017
$ 14,083
$ 39,436
$ 21,798
$ 28,124
$
7,194
$
5,258
$ 168,470
$ 16,527
$ 37,085
$ 31,990
$ 63,403
$
3,304
$
5,405
$
$
$
$
$
$
$
$
$
25,352
31,463
990
2,725
59,838
7,647
43,630
96,154
70,458
$ 28,939
$ 43,835
$ 1,032
$ 1,448
$ 105,735
$ 7,793
$ 57,457
$ 94,095
$ 99,813
$ 29,516
$ 38,692
$
1,558
$
2,662
$ 162,075
$
5,059
$ 59,718
$ 101,844
$ 64,242
$ 23,826
$ 42,090
$
1,732
$ 10,496
$ 101,524
$ 13,371
$ 79,307
$ 105,931
$ 62,072
$ 33,723
$ 33,331
$
2,210
$ 10,711
$ 156,206
$
7,662
$ 79,858
$ 107,938
$ 66,787
$ 43,690
$ 50,919
$
3,932
$
9,890
$ 136,236
$
1,043
$ 51,853
$ 135,430
$ 67,555
$ 26,660
$ 27,727
$ 13,465
$ 28,584
$ 153,653
$ 6,685
$ 7,200
$ 20,505
$ 9,749
$ 26,907
$ 26,697
$ 23,415
$ 28,566
$ 125,951
$ 17,176
$ 7,200
$ 11,979
$ 5,220
$ 26,654
$ 26,464
$ 19,096
$ 30,331
$ 110,589
$ 29,051
$
7,200
$ 28,045
$ 28,982
$ 28,431
$ 26,635
$ 15,109
$ 40,052
$ 116,222
$ 67,731
$
7,200
$ 35,268
$ 20,597
$
$
$
$
$
29,334
29,618
14,111
66,206
78,759
$ 28,613
$ 37,148
$
3,788
$ 49,420
$ 111,301
$ 25,360
$ 67,464
$
4,108
$
7,787
$ 118,212
$
6,095
$ 75,546
$ 154,469
$ 77,718
$ 48,734
$ 30,149
$ 39,940
$
8,761
$ 53,230
$ 263,012
$ 180,049
$ 15,715
$ 31,024
$ 40,662
$ 43,647
$
6,987
$
4,857
$
54
$ 32,169
$ 43,029
$
3,973
$ 11,466
$ 84,451
$
4,255
$ 65,523
$ 143,736
$ 36,249
$ 197,235
$ 29,971
$ 26,328
$ 13,320
$ 42,921
$ 54,137
$ 200,103
$ 16,822
$ 33,125
$ 54,804
$ 28,819
$
1,678
$
5,128
$
289
$ 35,068
$ 24,536
$
2,805
$ 19,098
$ 115,617
$
5,428
$ 99,893
$ 140,077
$ 57,003
$
270
$ 27,553
$ 42,222
$ 11,915
$ 34,857
$ 81,893
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
221,090
18,357
29,517
64,802
26,024
5,086
4,245
485
41,544
76,825
32,132
14,612
151,663
5,616
107,720
162,693
67,440
34,676
27,418
45,423
14,117
45,630
101,248
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
233,281
23,997
38,144
68,343
10,205
6,600
3,914
1,299
35,008
21,036
36,954
12,087
135,108
8,640
126,613
196,584
68,672
3,630
26,666
45,312
17,275
38,920
154,744
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,200
35,458
$
$
$
$
$
$
$
$
$
$
$
$
$
$
10,080
13,783
31,534
$
$
10,080
8,403
$ 868,293
$ 979,343
$ 1,069,667
$ 1,099,494
$ 1,065,892
$ 1,059,223
$ 1,350,231
$
93,768
$ 288,728
$ (341,938) $
1,042
7,021
$
$
7,026
$ 108,000
$ 334,711
$ 12,600
Operating Expenses:
Wages
Payroll Taxes
Grub
Supplies
Shipping
Travel
Dues & Subscriptions
Bank Fees
Telephone & Utilities
Professional Expense
Horse Fees
Advertising & Contributions
Repairs
Taxes & License
Truck & Fuel Expense
Depreciation
Land Leases
Pasture Fees
Property Taxes
General Insurance
Industrial Insurance
Group Insur. & Benefits
Feed & Salt
Feed Yard Expense
Office Rent
General & Admin.
Misc. Expenses
Penalties & Fines (see note)
Total Operating Expenses
Operating Income (Loss)
Other Revenue & Expenses:
Water Revenue
Oil & Gas Lease
Cell Tower Revenue
Gravel Sales
Rental income
Interest Income
Gain (loss) on sale of assets
Grant Revenue
Misc. Revenues
Interest Expense
Net Other Rev & Exp.
Net Income
$ (45,771) $ (15,082) $ (296,097) $ 273,895
$
$
9,357
$ 25,580
$ 632,848
4,800
$
$
16,644
14,041
$
$
10,348
7,021
$
$
$ 30,500
$ 52,136
$
55,474
$
94,063
$ 142,018
$
7,700
$
$
297
$
$
2,718
2,100
3,514
$ 7,234 $ 2,261 $
$ (5,269) $ (15,632) $
$ 669,750 $ 77,579 $
$ 623,979
$ 62,497
7,200
22,911
1,384
7,021
$ 325,076
$
2,800
7,200
35,287
975
7,200
31,087
$ 1,052,382
$ 1,353,760
$ 1,331,515
$
9,480
$ 14,441
$
4,960
$ 129,350
$ 1,633,317
(92,292) $ 203,647
$ 240,757
$ 381,825
$ 360,287
$
7,021
$
100
$ 444,210
$ 397,868
$ 178,200
$ 452,955
$ 1,150,045
$
7,026
$
7,200
5,279
900
7,021
$ 321,041 $ 327,284
$
7,000
$
2,754 $
3,447
$
(7,414)
$
8,737
$ (13,225)
$ 45,000
6,826 $ 26,714 $
964 $
2,622 $
928 $
1,000 $
637 $
1,750 $
3,490
(40,967) $ (41,799) $ (36,261) $ (20,380) $
(8,981) $
(1,540) $
(905) $
(1,003) $
(9,344)
52,315 $ 101,165 $ 122,484 $ 317,139 $ 456,284 $ 329,867 $ 337,484 $ 462,562 $ 432,526
$ (243,782) $ 375,060
$
$ 216,252
$ 605,867
2,000
$ 114,346
272,835
26,070
41,297
78,982
11,322
2,412
4,312
1,724
30,484
71,828
36,429
1,157
131,928
1,637
155,184
222,129
72,558
4,128
24,241
48,211
31,197
53,258
151,763
$ 237,575
$ 541,131
$
$
4,684
5,800
$ 703,319
$ 814,351
$
7,177
$ 45,000
$
3,222
$ (14,669)
$ 671,885
$ 1,032,172
For the exclusive use of X. Ying, 2021.
NA0068
Babbitt Ranches: Governance and
Strategic Planning in Family Business
Lisa Majure, Northern Arizona University
Kathryn Savage, Northern Arizona University
If a business’ sole purpose is to make money, they are not fun places to be, and they don’t
last long. (Joe Sharber, Babbitt Ranches Conversation Council member)
If you ask Billy Cordasco what sustainability is, he takes his time answering. “It’s a hard
concept,” he says, “because the environment is always changing.” The best explanation I
ever heard is “living off interest, not principal.” (Houk, 2006)
he year 2008 marked the 122nd anniversary of Babbitt Ranches, LLC, a fourthgeneration family owned business. Babbitt Ranches, formerly known as The
Babbitt Brothers Trading Company, was started in 1886 and became one of the
largest and most successful mercantile and ranching empires in the West in the late
1800s and early 1900s. In 2008, Babbitt Ranches encompassed 700,000 acres in northern Arizona and was the twenty-fifth largest landowner in the U.S. On January 24,
2008, the owners and employees of Babbitt Ranches officially adopted The Constitution
of Babbitt Ranches (see Appendix A). The overview to the constitution explained the
importance of the document:
T
The values that make the people of Babbitt Ranches who they are and the characteristics
that have shaped the organization into a lasting legacy now have been captured and articulated in a constitution. . . . The Babbitt Ranches Constitution is designed to guide the
future and reinforce the past. It serves as a touchstone as opportunities and challenges are
discussed and decisions are made. (Babbitt Ranches Constitution Overview)
The president of Babbitt Ranches, Billy Cordasco, needed to operationalize the constitution both to structure interactions with the firm’s Conversation Council (Babbitt’s
name for its board of directors) and shareholders and to guide the identification and pursuit of opportunities that were consistent with the constitution. The “journey” involved
in creating the constitution had increased understanding and learning across the owners
and employees of the ranch, but Billy had a keen sense of the next hurdle: “It will take
effort to continue what is put in place by the constitution.” His sense was that business
opportunities and ideas needed to be “flushed” through the constitution: “Ideas need to
be presented in the framework of the constitution; without that, people revert to personal values.” The constitution was printed, approved, and widely accepted, but the
Copyright © 2010 by the Case Research Journal and Lisa Majure and Kathryn Savage. The authors wish
to thank the participants in the Small Business and Entrepreneurship Roundtable at the North American
Case Research Association’s 2007 Annual Meeting, and the Case Research Journal’s editors and anonymous reviewers for all of their helpful suggestions.
Babbitt Ranches: Government and Strategic Planning in Family Business
1
This document is authorized for use only by Xiaoting Ying in ENTR 2215 Spring 2021 taught by TED CLARK, Northeastern University from Jan 2021 to Jul 2021.
For the exclusive use of X. Ying, 2021.
question that remained for Billy, given the history and culture of Babbitt Ranches, was,
“How do you best implement this type of thing?”
HISTORY OF BABBITT BROTHERS TRADING COMPANY
In 1886, five imaginative and energetic brothers moved out west from Cincinnati, Ohio.
Through hard work and dreaming they parlayed a small herd of cattle and a small lumber store into a mercantile and ranching empire that Arizona historians considered to be
one of the more successful and respected family business endeavors in the west (Cline
1976). With a $20,000 draft in their pocket, they purchased a herd of 864 cattle that
were branded with the Babbitt “CO Bar,” a sentimental reminder of their old home in
Cincinnati, Ohio. The five pioneering Babbitt Brothers settled in Flagstaff, Arizona, and
proceeded to expand their land ownership, cattle ranches, and business ventures
throughout the 1900s. In the words of one Arizona historian: “The Babbitts, in short,
fed and clothed and equipped and transported and entertained and buried Arizonans of
four generations, and they did it more efficiently and profitably than anyone else.”
(Cline 1976)
Billy Cordasco’s grandfather, John George Babbitt, presided over the ranch for more
than fifty years. Raised by his grandfather, Billy gained on-the-job ranch experience and
a great appreciation for the strong ethical value of the family business’ responsibility to
be stewards of the land. He graduated from Northern Arizona University in 1990 with
a degree in business administration and became president of Babbitt Ranches in 1992,
at the age of twenty-nine. Historically, a member of the Babbitt family ran the ranch.
This tradition, combined with his experience with the day-to-day operation of the ranch
and his passion for the business, contributed to the Conversation Council’s unanimous
vote to hire Billy as president. In fact, no other family member or outsider expressed an
interest in becoming a candidate for the job. Billy believed that private landowners had
an ethical obligation to preserve the land in an ecologically and environmentally responsible manner and he set that as one of his goals. Under his direction, Babbitt Ranches
won numerous state, national, and international environmental stewardship awards.
(See Table 1.)
Table 1
1995
Awards and Accomplishments
Arizona Environmental Stewardship Award—Arizona Cattle Growers Association
1996
National Environmental Stewardship Award—National Cattleman Association
1999
Cattleman of the Year—Arizona Hereford Association
2001
The Nature Conservancy—Conservation Easement (40,000 acres)
2002
Ecological Monitoring and Assessment Foundation (EMA)—A research and information
dissemination program developed in conjunction with Northern Arizona University
2004
Donated Land for a County Park in Tuba City, AZ (on the Navajo Reservation)
2004
International Stewardship Award—International Association of Fish and Wildlife Agencies
2005
Remuda of the Year (Best horses)—American Quarterhorse Association
2008
Forest Legacy Program—Conservation Easement (two 320 acre parcels)
Source: Billy Cordasco, President, Babbitt Ranches
2
Case Research Journal • Volume 30 • Issue 3 • Summer 2010
This document is authorized for use only by Xiaoting Ying in ENTR 2215 Spring 2021 taught by TED CLARK, Northeastern University from Jan 2021 to Jul 2021.
For the exclusive use of X. Ying, 2021.
Babbitt Ranches participated in numerous ecological and scientific research endeavors. In 2001, they placed 40,000 acres of Babbitt land under conservation easement
with the Nature Conservancy. In early 2008, they put two 320 acre parcels into conservation with the Forest Legacy Program. In 2002, Babbitt Ranches, in conjunction with
Northern Arizona University, founded the Ecological Monitoring and Assessment
Foundation, a research and information dissemination program. In 2003, Babbitt
Ranches granted permission to NASA to test the Mars Rovers on Babbitt land. In early
2008, they allowed NOAA (the National Oceanic and Atmospheric Administration) to
put a monitoring station on Babbitt land as part of a worldwide project to monitor
global warming. One of the most endangered species in the U.S., the black-footed ferret, was introduced on Babbitt lands in 2007. Additionally, a well-known family member, Bruce Babbitt, left a significant legacy of environmental accomplishment while
serving as governor of Arizona from 1978–1987, the U.S. Secretary of the Interior from
1993–2001, and most recently, as chairman of the board for the World Wildlife Fund.
Support for conservation activities, research, and responsible land stewardship was consistent with the long-run perspective characteristic of the Babbitt family:
We’ve always felt strongly about keeping the land open to the public . . . these actions
will be much appreciated by future generations . . . who will need places to simply view
nature as it was before the imprint of huge human populations. (Paul Babbitt Jr.,
Conversation Council member) (Minard 2001)
The five founding Babbitt brothers were part of an entrepreneurial generation that
experienced the excitement and thrill of settling the western U.S. in the late 1800s and
early 1900s. They bought land and started the vast Babbitt ranching empire. Their offspring, the second generation, who witnessed the hard work of their parents, felt obliged
to continue the founding fathers’ efforts, and expanded the family business into many
retail and mercantile business ventures. Unfortunately, by the time the third generation
came along, the company had lost its momentum. They simply got what was handed
down from the second generation, and did not participate in the thrills of start-up or
the hard work of the second generation’s expansion efforts. As Billy says, “the third generation was the tail end of the fun.” As Billy described:
The company lost its continuity, identity, and focus. Third generation members were
divided: some feared loss and held on tight to the family business and its core values,
while others started to seek out opportunities beyond the family business and preferred
to simply liquidate the ranches.
In 1988, the council (board) of Babbitt Ranches approved a debt-financed stock
buyback from some contentious third-generation family shareholders who wanted to
cash out of the family business. Precipitating the stock buyback was a “sense of stagnation,” explained Billy. “There was no wind and no current. . . . It wasn’t as much about
tomorrow as yesterday, and just getting through today.” Longtime Conversation
Council member, Bobby D’Mura recalled, “There was quite a bit of internal struggle
with family members. The company was like a rudderless ship. We needed a guiding
philosophy to define where to go.” Over time, as family demographics changed, variation in family member background, age, and financial need had increased.
Consequently, disagreement about the direction of the business became more common.
In addition, it became more difficult to routinely involve a wide-range of family members in the decision making process. The stock buy-back that occurred in 1988 was the
only acceptable exit strategy for many of the third generation shareholders.
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Unfortunately, it forced the company to sell most of their retail businesses during the
1990s in order to reduce firm debt. Although the buyback reduced the size of the firm,
the shareholders remaining after the buyback were those who were firmly committed to
continuing the family business and traditions. Confronted with this situation when he
became president in the early 1990s, Billy wondered, “What do we do?” To start, Billy
chose to shift the focus of the family business back to its roots in ranching and land
stewardship. He also began efforts to develop a common basis for the governance of the
family business. He believed that “the further you can get them (the family) to look
down the road, the sooner they will come together.”
At a meeting in early 1991, the Conversation Council began developing the elements of the constitution. That meeting revolved around the Abraham Lincoln quote
that later became part of the constitution: “If we could first know where we are and
whither we are tending, we could better judge what to do and how to do it.” From
that turning point, council meetings identified and clarified specific values, goals, and
objectives for the business. The strong ethical family values of land preservation and
stewardship, handed down through four generations, ultimately led to the formation
of a multiple-bottom-line objective, with organizational, ecological, economical, and
community elements to guide ranch operations. Buy-in for the individual elements
that later evolved into the constitution was achieved gradually, without a stated intent
to create a larger comprehensive document. It was only after years of work on the
individual parts that they were integrated and combined into the Babbitt Ranches
Constitution. While the constitution was based on Babbitt family goals and ideals, it
also drew on outside sources to help establish its objectivity, credibility, and legitimacy
for all family members.
CURRENT GOVERNANCE OF BABBITT RANCHES
As shown in the organizational chart in Exhibit 1, the ranch operation employed fifteen
ranch hands. In addition, Babbitt Ranches maintained an office in Flagstaff staffed by
two employees. The ranch and office employees reported directly to Billy. Billy was
hired as president by and reported to the ten-member Conversation Council, whose primary role was evaluation of opportunities and approval of major changes in the firm’s
business portfolio. The family shareholders voted annually for the ten council members.
As president of Babbitt Ranches, Billy made the day-to-day operating decisions of the
firm, but did not make major business decisions without first gaining consensus from
his ten-member council. Membership on the council was relatively stable over time,
with some members of the council having served for over thirty years. The Babbitt family tree, shown in Exhibit 2 identified the ten family members who served on the council in early 2008. Although the shareholders and Conversation Council members shown
in Exhibit 1 were family members, ranch and office employees were not part of the
Babbitt family.
Family members/shareholders interested in participating in the management of the
family business did so by becoming a council member. Typically, the interested family
member would contact Billy to discuss the nature of his or her contribution and participation in the management of the business. The potential candidate would then be evaluated by the incumbent council members. If the council approved the candidate, they
would be added to the slate of council members that shareholders could vote for at the
next annual meeting.
4
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Exhibit 1
Babbitt Ranches Organization Chart
Over time, Billy described the tone of the council meetings as changed, shifting
from an emphasis on “knowing and controlling” to “learning and understanding.” He
embraced a corporate culture based on participation and often used the slogan “Just
Participate” in all communications with council members. The council met formally
three or four times a year to discuss current initiatives and evaluate opportunities. The
meeting chair rotated each meeting with the symbolic “passing of the horseshoe” from
the outgoing to the incoming chair.
Given the family’s communication process and emphasis on relationships, council
votes were almost always unanimous. Typically, if council members did not agree it
was because legitimate concerns had been raised. In response, Billy and the council
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Exhibit 2
Babbitt Family Tree and Conversation Council
Mary Elizabeth Babbitt (1853–1883)
Raymond G. Babbitt (1887–1959)
& Rose Marie Walsh (1888–1966)
Edwin D. Babbitt (1889–1967)
& Edna Buggelin (1894–1937)
& Bess Van Ness (1898–1984)
Joseph R. Babbitt (1894–1929)
& Viola Passey (1894– )
Dabid Babbitt (1858–1929)
& Emma C. Verkamp (1862–1899)
David M. J. Babbitt (1894–1929)
& Mabel Fuqua
Raymond G. Babbitt II (1922–1980)
James D. Babbitt (1924– )
Catherine F. Babbitt (1926– )
Rosemary Babbitt (1926– )
Margaret G. Babbitt (1932– )
Emma Jean Babbitt (1919– )
Elizabeth V. Babbitt (1920– )
Mary Eleanor Babbitt (1921– )
Rayma L. Babbitt (1924– )
Theresa J. Babbitt (1925– )
Joseph R. Babbitt, Hr. (1932– )
Edwin W. Babbitt
Susan Babbitt
Michael R. D’Mura
Norman J. Sharber
Patricia Babbitt (1926– )
David B. Babbitt (1927– )
Mary Elaine Babbitt (1895–1938)
Gertrude Catherine Babbitt (1989–1971)
Bertrand H. Babbitt (1888–1960)
& Jessie Cline
Herbert G. Babbitt (1892–1945)
& Josephine Hays (1906– )
George J. Babbitt (1860–1920)
& Philomena Wessel (1865–1948)
Margaret Babbitt (1892–1981)
& Thomas E. McCullough (1887–1962)
Nancy A. Babbitt (1938– )
C. Joanne Babbitt (1940– )
Herbert G. Babbitt Jr. (1942– )
Bertrand G. Babbitt (1945– )
Thomas F. McCullough
George B. McCullough (1926– )
William R. McCullough (1933– )
George J. Babbitt (1899–1981)
& Ruth Behn (1901–1951)
& Madeline Hunter (1910– )
William Babbitt (1863–1930)
& Elizabeth Roche (?–1946)
Mary Eunice Babbitt (1905–1989)
& Isaac Veazey (1899–1948)
Robert F. Veazy (1936– )
Helen M. Babbitt (1891–1971)
Ruth E. Babbitt (1893– 1901)
Paul J. Babbitt (1898–1988)
& Frances Perry (1914– )
Kenneth J. Babbitt (1936– )
Bruce E. Babbitt (1938– )
Paul J. Babbitt Jr. (1941– )
Charles J. Babbitt (1944– )
James E. Babbitt (1948– )
Christine Babbitt (1951– )
James E. Babbitt (1902–1944)
& Phillipa Brannen
Mary Phillipa Babbitt (1934– )
Dorothy B. Babbitt (1936– )
Barry Nugent
Matt Shea
John G. Babbitt (1908– )
& Elizabeth Quimby (1909– )
Betty Anne Babbitt (1935–1977)
John G. Babbitt Jr. (1946–1970)
William C. Cordasco
Mary Babbitt (1898–1973)
Matilda McDuffie (1926– )
George T. McDuffie (1927– )
Roy O. McDuffie Jr. (1932–1985)
Edward Reese McDuffie (1932– )
Maurice C. Babbitt (1897–1925)
Charles J. Babbitt (1865–1956)
& Mary B. Verkamp (1865–1948)
Edward J. Babbitt (1868–1943)
& Matilda Verkamp (1872–1949)
Elizabeth Babbitt (1899– )
& Roy O. McDuffie (1896–1938)
Edward G. Babbitt (1904–1963)
& Mary Grace Groneman (1921– )
6
Charles J. Babbitt III
Edward J. Babbitt (1952– )
Barbara A. Babbitt (1953– )
David G. Babbitt (1955– )
Mary Helen Babbitt (1956– )
Jane C. Babbitt (1958– )
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members gathered additional information to address the concerns, the council revisited
the issue, discussed it again, and eventually reached consensus.
While the council had adopted no formal measurable goals, there was general agreement as to the need for sustainable cash flows, and recognition that the way to achieve
them was to diversify the firm’s interests to “offset the unpredictability of the cattle market.” Billy explained: “Revenue is uncontrollable, it depends on commodity prices. I
might as well leave that number in the budget blank.” With the exception of budgeted
expenses, numerical financial targets were rare as was any attempt to link compensation
directly to financial performance. Billy explained that the culture of the Babbitt Ranches
was not consistent with traditional incentive contracts: “Incentives cloud your passions
and the passions of the corporation, they disrupt the business.”
THE VALUE OF THE CONSTITUTION
While the Babbitt family had a long history of tradition and shared values, the
Conversation Council’s adoption of the constitution officially formalized a set of core
beliefs and guiding principles. According to Billy, one strength of the constitution was
that “By design, it doesn’t define exactly what to do. It is not a handcuff.” In addition:
The Constitution allows participation. It is bigger than any one person. Without this
guidance everyone falls back to personal investment value, which is selfish. What’s in it
for me?
Members of the Conversation Council elaborated on the need for the constitution.
In the words of council member Joe Sharber:
The value was not just in the constitution, but the thinking that went into it. It is a tool
to guide and direct—[it allows the Conversation Council] to think about what they are
doing and why they are doing it, rather than react emotionally.
The audience for the constitution was wider than the Conversation Council. A second council member, Susan Babbitt, explained:
It provides cognition for board members, employees, family members. Decisions have a
pebble in the pond, a ripple effect. The constitution helps: (1) identify the multiple areas
affected by our decisions, (2) document principles for future generations, and (3) provide structure to the way we do business.
By setting direction, the constitution helped communicate core values and direction
to both employees and those family members who were not as close to the business as
those on the Conversation Council. Shortly after the constitution was adopted it was
presented, along with ranch financial information, at the annual ranch meeting in
January of 2008, attended by all the employees. Although none of the ranch employees
were family members, some had worked for Babbitt Ranches for decades.1 According to
Billy, the meeting with employees served to “communicate and share the core values of
Babbitt Ranches with the ranch workers—they do things throughout the year, but
sometimes don’t know why.”
Council members explicitly recognized the difficulty of developing a shared direction for the ranch as the number of shareholders increased. As the family grew, differences among family members also increased. These differences were primarily a function of age, an understanding of the business, and the amount of stock owned by each
individual. As shown in Table 2, while family members of the third generation owned
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the greatest percentage (54 percent) share of stock, eight of the ten members of the
Conversation Council and Billy Cordasco belonged to the fourth generation. In other
words, the children (fourth generation) of the majority owners (third generation) essentially ran the business. In general, the older members of the family were more concerned
with the liquidity provided by annual distributions and less willing to incur debt to fund
major projects. Among the owners in general, individual circumstances varied widely;
some shareholders were independently wealthy with successful careers separate from the
ranch. Others had such small holdings that the annual distribution was not significant
to them. Individual shareholdings ranged from two shares to 1,687.5 shares. Babbitt
Ranches was a closely held family business, so there was no public market for its shares.
For its 122 years of existence, shares of stock in Babbitt Ranches have been distributed
to the designated beneficiaries of family members upon their death. Additionally, family members were restricted from selling shares to outsiders and any sale of shares needed to be approved by the council.2
Table 2
Shareholder Age Distribution
Age Range
# of shareholders
% share ownership
Age 0–30
3
1%
Age 30–45
23
18%
Age 46–62
35
27%
Age > 62
29
54%
Source: Babbitt Ranches
Table 3
Concentration of Share Ownership
# of shareholders
Total
# of shares owned
total # of shares
% owned
52
< 100 1,826 10.0% 19 100–250 3,368 19.0% 9 250–500 3,483 19.5% 8 500–1000 4,915 27.5% 3 > 1000
91
4,277
24.0%
17,869
100.0%
Source: Babbitt Ranches
Given that 54 percent of ownership belonged to shareholders over the age of sixtytwo, some resistance to the risk and cash flow implications of very large long-term
investments was expected. However, Billy knew that in ten years the demographics of
the board would be very different as younger family members (fifth generation) inherited shares from their parents and grandparents. Additionally, the concentration of share
ownership would naturally become more dispersed over time as shares were passed
down from one individual to multiple children or grandchildren. As shown in Table 3,
the majority of the shares (51.5 percent) were owned by only eleven shareholders, and
three of those shareholders owned a total of 24 percent of shares outstanding. The three
largest shareholders were third generation Babbitts, who were independently wealthy
and had yet to distribute shares to their fourteen collective children.
In contrast to the older members of the family, some of the younger shareholders were
more receptive to making large investments that could result in less cash flow in the short
run but more cash flow in the long run. Conversation Council members recognized the
value of the constitution as a tool to develop a common view across the generations:
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It gives the younger generation guidance—they can read and see what the company is
about—pride in ownership, the old cowboy mystique. (Bobby D’Mura, Conversation
Council member)
The constitution helps hand values down to the next generation. Through the late 70s
and 80s there was a much tighter family group. The family has continued to grow. The
constitution is a main resource for passing the heritage along. (Susan Babbitt,
Conversation Council member)
There was also value to the older generation:
Their grasp of the business was different. A previous CEO sold off assets to pay dividends, and that was OK, because the purpose of a business was to pay dividends. . . .
There also has been a paradigm shift for the older generation. . . . They did not grow up
with an environmental consciousness. (Joe Sharber, Conversation Council member)
The broad audience for the constitution was reflected in the words of its official
adoption:
Hereunto set for this twenty-fourth day of January in the year two thousand and eight
the owners and employees of Babbitt Ranches, as witnessed by long-time friends and
business associates, hereby proclaim this, The Constitution of Babbitt Ranches, the official document adopting the character and values by which the organization was established and shall operate. (The Constitution of Babbitt Ranches)
CONSTITUTION OVERVIEW
As presented in Appendix A, the constitution consisted of ten articles. Article I provided an overall guiding philosophy and emphasized elements of the multiple bottom
line:
Through our efforts of learning and understanding we are better able to join, share, and
be a part of the Babbitt Ranches’ organizational, ecological, economical, and community
decisions.
Following this philosophy, Article II, the Conversation Council Creed, developed
additional guidelines for board discussion. The opening quote, from Margaret Wheatly,
advocated human conversation as the best way to foster “personal, organizational, and
community change.” It is followed by more pointed statements directed at useful interaction. For example, Section I specified “We commit to learn, to understand, to appreciate and to trust one another while letting go of the need to be right and leave the past
in the past.”
Article II emphasized the importance placed on family relationships and communication in making decisions about ranch business. Ideally, decisions would evolve from
discussion and efforts to inform family members about opportunities. In practice, the
typical majority vote was not enough to authorize a major decision. Billy Cordasco
explained:
A 60–40 percent vote wouldn’t pass. All you are asking for is a wreck. You need 95 percent, and then I would find out why the 5 percent was not in favor and address those
issues. It would then go to all shareholders for a vote—an issue of respect and keeping
the shareholders involved. If you don’t you are done. . . . You might need to provide
incentives—buy out those who don’t approve.
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The Cowboy Essence detailed in Articles III and IV spoke to the “cowboy legacy”
and described desired characteristics for family members and employees. Articles V, VI,
and VII were titled Land Ethic, Sustainable Community Principles, and Human
Dimension and Science, respectively. These sections confirmed the family commitment
to ethics, sustainability, and stewardship, and reaffirmed the importance of participation, communication, and the multiple bottom line. Article VIII, Equity Model
Fundamentals, set forth a more traditional framework for economic decisions that considered future values and liquidity. Still, the soft skills were not forgotten. The article
began with a quote from Edwin A. Hoover emphasizing relationships, and ended with
guidance to “develop communication processes.”
Article XI, Priceless Values, began with a quote from Billy also emphasizing the
importance of relationships:
With yourself, with family and friends, with the community and the environment—One
way or another—and in the end—relationships are all there is.
To the Babbitt family, “priceless values” are weighed heavily during family deliberations. Billy described the concept as:
An “invisible” umbrella value—priceless values are memories, experiences, and feelings
of the family that are their own. You can’t always put your finger on it. You can’t define
it, but must appreciate it to be successful.
The priceless values of the family members generated the components (organization,
ecology, economy, and community) of the multiple bottom line described in Article IX.
The multiple bottom line was pictured as a scale in an earlier version of the constitution (Exhibit 3), but was actually more complex. Billy explained:
You are not trying to balance and make the factors equal. There are times when economics is most important and there are times when ecology is most important. The scale does
not mean that all factors are balanced—the scale represents balance. By considering all
those things you stay in balance—it doesn’t mean that all things are equal.
Conversations with the board members confirmed the commitment to the multiple
bottom line:
The purpose (of the business) is not necessarily just to make a profit. We see the land
itself separately from the business and recognize its intrinsic value. We have a responsibility for the land. The business gives us the opportunity to be land stewards. We are trying to look at business plans on a 100-year scale. We try to think long term. We do
research that has no effect on day-to-day operations, but in fifteen or twenty years that
research will give us a tool to think about the business. (Joe Sharber)
When you own that much land you have a responsibility. You get out of something what
you put into it. Overall, the constitution is like a three-legged stool. You have to get all
the parts working together—the multiple bottom line. (Bobby D’Mura)
Consistent with family values, decisions were not always based exclusively on traditional financial objectives. For example, the family’s commitment to the environment
and sense of responsibility to their community resulted in the donation of 40,000 acres
of land that borders the Grand Canyon to the Nature Conservancy. From an economic
perspective, putting the land into conservation was not the highest and best use of the
development potential of the land. However, the council believed that this decision was
consistent with the family’s long-standing strong ethical values of land preservation and
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Exhibit 3
Multiple Bottom Line
Source: Babbitt Ranches Constitution
stewardship. In making this decision, the council met monthly for eight months, discussed all four bottom line goals, and ultimately voted unanimously to donate the land.
Once approved by the council, this decision went to a vote of the shareholders where a
simple majority voted in favor of the land donation. Similarly, a decision to allow the
endangered black-footed ferret to be introduced on roughly 50,000 acres of Babbitt
Ranch land provided no economic benefit to the shareholders. In fact, the presence of
the endangered species on the land prohibited its future development. However, the
ecological and community values of protecting an endangered species were of utmost
importance to the council, who again voted unanimously in favor of the decision.
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The final section of the constitution, Article X, the Constitution Commitment,
employed another Abraham Lincoln quote and reflected the overall objective of the
council:
We do the very best we know how, the very best we can, and we mean to keep on doing
so until the end.
FINANCIAL HISTORY OF BABBITT RANCHES
Exhibit 4 and Exhibit 5 depict Babbitt Ranches’ financial performance over the twelveyear period from 1996–2007. During this time period, the company primarily relied on
livestock sales as their major source of revenue. The company bred and raised cattle and
then sold them at spot prices in the commodity markets. Typically, Babbitt Ranches
sold cattle in September and October of each year. The company physically counted its
cattle annually at year-end. In December 2007, the company had about 8,100 cattle in
inventory: roughly 4,000 cows, 3,400 calves, and 700 bulls and heifers. The company
also bred and sold high quality quarterhorses, which were sold at auction every year in
the springtime.
All expenses shown on the income statement in Exhibit 4, with the exception of a
portion of the miscellaneous expenses, were due solely to ranching operations. Also of
note was that in addition to their salaries, Babbitt Ranches provided all housing, utilities, food (grub), and insurance for its fifteen ranch workers. Overall, the income statement revealed that total operating expenses exceeded the sales revenue from the ranch
in five of the twelve years reported. However, other revenue sources offset the losses
from ranching operations, and net income was only negative in one of the twelve years.
Beginning in 1999 and continuing through 2004, ranching operations were affected by
the severe drought that occurred in the Southwest. Drought conditions resulted in lower
average weight per cow, fewer cow sales, and higher costs of feed (Nabhan and Taylor
2004). At the same time, mad cow disease created negative publicity in the industry.
The balance sheet in Exhibit 5 shows large and increasing year-end cash balances in
2001 and beyond. Babbitt Ranches reserved this cash to fund pending dividend distributions to shareholders early in the following year.
DEVELOPMENT OF EXISTING AND POTENTIAL
BUSINESS OPPORTUNITIES
Billy constantly evaluated the business ventures that appeared as sources of revenue on
the income statements shown in Exhibit 4 in addition to potential new opportunities.
While livestock sales constituted the bulk of revenues for Babbitt Ranches, the company’s management continually sought to identify other opportunities to make use of
Babbitt lands. Due to the extreme variability in income that was inherent in ranching
operations, it was considered particularly important to maintain and/or pursue projects
that could stabilize cash flows in the long run. However, in some cases the pursuit of a
new business venture required large-scale dollar investments, which would reduce shortrun cash distributions. Evaluation of opportunities consumed both time and energy and
was a continual and difficult balancing act designed to satisfy the needs of Babbitt
Ranches’ diverse shareholder base. The evaluation process would be aided by using it as
a basis for making decisions that was acceptable to all involved. One potential use of the
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Exhibit 4
Babbitt Ranches Income Statements
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Exhibit 5
Source: Babbitt Ranches
Babbitt Ranches Balance Sheets
For the exclusive use of X. Ying, 2021.
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Constitution was to serve as a “touchstone” to narrow the field of potential projects to
those that were most consistent with Babbitt Ranches’ goals and values. This “flushing”
of projects through the constitution was intended to produce a smaller subset of projects
that would then be subject to additional scrutiny. Only after the idea was approved in
concept, would time be spent to obtain the specific data needed to evaluate the proposal on a financial basis, and to develop the business plan. Alternatively, if a business idea
was rejected at the Constitutional level by the council, then no more time and energy
need be devoted to further analysis. In early 2008, Billy planned to present the following
options to the council for consideration:
Selling Beef Products—Babbitt cattle were native grass-fed, all-natural, and hormone and antibiotic-free, so the company could engage in the local niche-marketing of
beef products such as burger, steak, and beef jerky. Selling beef products in the local
market would capitalize on current consumer trends and enable Babbitt Ranches to
avoid selling live cattle on the highly-variable spot market. This endeavor would require
the company to either outsource or set up the initial processing of the cattle (slaughterhouse facilities), the final processing and packaging, and the distribution channels for
the beef products. In the years 2000–2001, the company attempted entry into the beef
products market but quickly pulled back due to poor financial results and operational
problems. One of the major reasons for the failure of this start-up business was the lack
of slaughterhouse and processing facilities and reliable channels of distribution. The
company encountered difficulty maintaining relationships with their beef product
wholesalers and did not have its own channels for retail distribution. Years later, having
acquired additional knowledge and insight about taking their beef to market, the company was considering re-entering this line of business.
Re-entry into the beef products market would require a significant initial investment
in the range of $1.5 million for slaughtering and processing facilities. The ability to capture the significant profit margin at the retail level (farmers markets and direct sales), in
addition to selling into the wholesale market (restaurants and health food stores), would
be critical to the operation’s success. Initially, this option could potentially generate
$150,000 in profit per year. However, profit per cow at the retail level was about twice
that of the wholesale level, so profit estimates largely depended on the mix of sales at
the wholesale versus retail level. Profits also depended on the beef products mix (jerky,
hamburger, or steak), and the number of cattle processed (the maximum feasible was
around 1,400 cattle per year). This business opportunity would benefit the community
by creating jobs; however, it also required active participation of Babbitt Ranches’
already busy management, which would present a considerable challenge.
Gravel Royalties—In the 1990s Babbitt Ranches leased 60 acres of land to another company for gravel pit operations. Since that time, Babbitt Ranches received significant royalties ($452,956 in 2007) based on the number of tons of gravel taken from
their land. This business represented passive income as no Babbitt personnel were
involved in its operation. While seemingly in conflict with Babbitt’s ecological emphasis, Billy preferred to view the entire life cycle of the gravel pit operations. His vision was
that in the future the land would be used for a regional landfill with the opportunity to
tap methane gas for alternative fuel. Ultimately, the land would be re-vegetated for
pronghorn habitat. In Billy’s view: “the gravel pit operation, while currently less ecologically sensitive, still fulfills three of our four bottom-line goals.”
Grass Seed Sales—Another potential business opportunity was native grass seed
production. Babbitt lands were some of the last pure native grasslands in the state of
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Arizona. These grasslands did not suffer from problems of invasive, noxious, and nonnative weeds. A great need existed for suppliers of native grass seed for the purpose of
re-seeding areas devastated by wildfires throughout the drought-ridden Southwestern
states. In early 2008, the Ecological Monitoring and Assessment Foundation (see Table
1) was conducting preliminary research regarding the feasibility and potential of grass
seed production. Billy was in contact with the owners of a large seed distributor (wholesale and retail) who were interested in harvesting some of the native grass and wildflower
seeds growing on Babbitt lands. This distributor would pay Babbitt Ranches $.50 to $1
per pound of seed collected and indicated that yields were about four pounds of seed
per acre. Thus, a 5,000 acre parcel, harvested each year, could generate potential revenue of as much as $20,000 per year. Parcels harvested would need to be rotated and
parcels already harvested would need to be re-seeded for future years. This option presented another passive income opportunity that would not require Babbitt Ranches to
harvest, package, or distribute the seed themselves.
Real Estate Conservation—Babbitt Ranches had extensive land holdings so there
was potential for participation in the real estate market. However, family members were
not interested in cashing out of the business by selling the land to developers. In addition, the company wished to preserve the environment and ecosystems of the land.
Consistent with these goals, the opportunity existed to trade parcels of Babbitt land to
Forest Service in exchange for Forest Service land. This allowed the Forest Service to
conserve native land while the land received in exchange potentially could be developed.
A simpler alternative was to sell conservation easements, which protected the land from
development and provided large one-time distributions and pass-through tax deductions to shareholders. Historically, in addition to easements, the firm had received conservation grants. In 2006, Babbitt Ranches was awarded a ten-year grant contract from
the National Resource Conservation Service for various past and future conservation
and resource protection projects on Babbitt lands. This grant provided $45,000 annually over its ten-year term.
Water—Babbitt Ranch lands held water resources discovered as a by-product of past
oil and gas companies’ exploration efforts. Several oil companies spent millions of dollars drilling on 7,000 acres of Babbitt land for oil but found water instead. (Babbitt
Ranches received $1 per acre per year for the exploration rights.) Hydrology reports of
surrounding communities in northern Arizona projected that current water supplies
would be inadequate by the year 2050. Concern over future water needs prompted the
nearby city of Flagstaff to purchase the 20,000 acre Red Gap Ranch for its water rights
in December of 2005 for $7.9 million. Thus, Babbitt Ranches could sell water rights or
drill their own wells and sell the water to other communities in northern Arizona. Water
rights would likely increase in value over time, especially in the drought-ridden
Southwest. Most recently (in early 2008), a large oil and gas exploration company proposed a ten-year lease agreement for an additional 220,000 acres of Babbitt lands.
Babbitt Ranches would receive $1 per acre per year for the exploration rights, and, more
importantly, would receive all the water data over the ten-year lease term. If oil or gas
was discovered, Babbitt Ranches also would profit from royalties.
Wind Energy—Wind maps of northern Arizona indicated that certain locations on
Babbitt lands had great potential for wind farms to generate electricity. Two wind towers
were set up on Babbitt lands to collect real-time data to assess the viability of increasing
generating capacity. As natural gas and oil became more expensive, alternative energy
projects (both wind and solar) became more and more attractive business opportunities.
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For the exclusive use of X. Ying, 2021.
If Babbitt Ranches participated in wind energy projects they would likely lease land to
energy firms and receive lease payments and/or royalties. In an October 2006 report the
National Renewable Energy Lab (NREL) estimated that the value of a landowner easement for a wind farm was $2,000–$5,000 per megawatt of installed capacity, with contracts varying based on location and capacity potential. Small scale wind farms typically
ranged from 40 to 60 megawatt capacity. Thus, leasing land for a small scale wind farm
represented an opportunity for Babbitt Ranches to earn passive income of anywhere from
$80,000 to $300,000 per year.
Alternatively, Babbitt Ranches could construct their own wind farm, but the upfront
investment would probably be prohibitive, in the range of $100 million. The cost to
purchase one wind tower alone was $1.5–$2 million, not including the costs of installation, transmission lines, and other capital investment.
Cell Towers—Finally, one of Babbitt Ranches existing sources of revenue was from
cell phone towers. Babbitt lands largely consisted of rugged rural terrain adjacent to and
surrounded by the Navajo Nation. The Navajo Nation was primitive in terms of both
infrastructure and living conditions. Large stretches of state highways running through
the reservation in the northern part of the state did not have cell phone reception,
because there were no cell towers. Thus, Babbitt land was the ideal location for constructing cell towers. In 1997, the company entered into an agreement with a cell phone
company whereby the cell phone company would construct the tower, but ownership
of the tower would revert to Babbitt Ranches by the end of the lease term. The tower
was leased to multiple cell phone companies with revenues to Babbitt Ranches based on
the number of cell phone users. This twenty-year lease will be up for renewal in 2017
at which time it was likely to be re-negotiated. However, due to county limitations on
cell phone towers, it was not possible for new towers to be constructed on Babbitt lands.
As Exhibit 3 shows, revenue from cell towers was $178,200 in 2007, representing payment for the previous five years of activity.
THE FUTURE
A major milestone was accomplished with the formal approval of the constitution. The
constitution had been printed and signed, but from Billy Cordasco’s point of view, formal acceptance was only the beginning. He recognized the need to use the document
as a guide for decision making and assessment. Part of Billy’s job was to ensure that
potential benefits and drawbacks of any new business proposal were communicated
through the framework of the constitution. Similarly, there was a need to communicate
the results of past operations using the perspective of the constitution and the multiple
bottom-line goals. While there was agreement as to the objectives and values expressed
in the constitution, the details associated with making the constitution an effective
“touchstone” to guide action and evaluate past efforts were relatively unformulated.
Billy needed a plan for implementation.
NOTES
1. In fact, the current ranch manager moved to the ranch at the age of two, in 1963,
when his father was hired as foreman (Hendricks 2009).
2. There was only one instance in which the council approved of the sale of shares to
an outsider. When Bruce Babbitt became secretary of the interior he had to sell his
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This document is authorized for use only by Xiaoting Ying in ENTR 2215 Spring 2021 taught by TED CLARK, Northeastern University from Jan 2021 to Jul 2021.
For the exclusive use of X. Ying, 2021.
shares in Babbitt Ranches to avoid conflicts of interest in his new position. As luck
would have it, the outsider who bought the shares later went bankrupt and Babbitt
Ranches repurchased the shares (now Treasury stock) at a bargain price.
REFERENCES
Cline, P. 1976. They came to the mountain. Flagstaff, AZ: Northland Publishing with
Northern Arizona University.
Hendricks, L. 2009. The cowboy life. Arizona Daily Sun September 27, p. 1.
Houk, R. 2005. The Babbitt Ranches “Just Participate!” Renewing the Countryside.
http://renewingthecountryside.org/index.php?option=&mode=category&task=vie
w&category=2&limit=1&limitstart=151&Itemid=43
Nabhan, G.; and N. Taylor. 2004. Linking drought and long-term water scarcity to
food security in the four corners states: A food policy paper. Northern Arizona
University.
Minard, A. 2001. Babbitts give up more ranchland development rights! Grand Canyon
News Archive December 7, 2001. http://grandcanyontreks.org/news1201.htm
Olson, C.; and J. Snyder. 2009. Friendly wind blows money across rural America.
National Cattlemen September 2009, p. 11–12.
Waddock, S.; Bodwell, C.; and S. Graves. 2002. Responsibility, the new business imperative. Academy of Management Executive 16(2), 132–148.
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APPENDIX A THE CONSTITUTION OF BABBITT RANCHES
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APPENDIX (CONTINUED)
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THE CONSTITUTION OF BABBITT RANCHES
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APPENDIX (CONTINUED)
THE CONSTITUTION OF BABBITT RANCHES
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APPENDIX (CONTINUED)
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THE CONSTITUTION OF BABBITT RANCHES
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APPENDIX (CONTINUED)
THE CONSTITUTION OF BABBITT RANCHES
Babbitt Ranches: Government and Strategic Planning in Family Business
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APPENDIX (CONTINUED)
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THE CONSTITUTION OF BABBITT RANCHES
Case Research Journal • Volume 30 • Issue 3 • Summer 2010
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