When succession goes awry – Four examples of failure
Whether it’s due to a lack of planning, an unwillingness of the founding generation to hand over power and decision-making, or a next-generation that feels entitled to more, failed succession planning in family businesses has led to dramatic outcomes all over the world. Here are four well-known examples.
MCCAIN FOODS– BROTHERS IN DISAGREEMENT
This Canadian food processing giant was founded and run by brothers Wallace and Harrison McCain. They were born in the rural town of Florenceville, New Brunswick, where they eventually built their business empire.
Growing up in Florenceville, they shared the same bedroom and were together nearly everywhere they went. This inseparable behavior continued as they ran the business almost as a two-headed, single being.
By the mid-1990s, they had built one of the premiere food production and processing operations in the world. However, when the 2000s rolled around, they were not on speaking terms and running rival companies in the same industry.
The reason for the split could be boiled down to one word – succession. They could not see eye to eye on the plan to hand over control of the company.
Wallace thought his son Michael, with his Ivy League business degree, was the natural heir to the business. Harrison and his children did not agree. They suggested it should be an outsider who takes over day-to-day management.
“I’m not going to candy-coat that situation. It was a very hard thing for me to endure, to watch such a successful partnership go down the drain the way it did,” Wallace McCain said at a business banquet in 2001.
In the end, Harrison won out. An outsider was chosen to run the company, and Wallace took over rival company Maple Leaf Foods.
THE GUCCI FEUD
By Ofawuowime [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], from Wikimedia Commons
For a while, this Italian fashion icon was a textbook example of first to second generation succession. The founding patriarch Guccio Gucci started his company in Florence in the early 20th century. He built the business by launching his line of quality luggage and handbags.
When Guccio died in 1953, the business was left to Aldo, the oldest of the three sons. Aldo quickly expanded the business to the major markets outside of Italy. This soon made Gucci an international name in fashion. President John F. Kennedy even referred to Aldo Gucci as the first ambassador of fashion.
The Guccis are an example of how, without a clear direction for the future of the company, problems can arise when next generations harbour conflicting ambitions. In this case, Aldo’s son Paolo wanted to launch a new fashion line. When his father and uncle shot down the idea, he launched it behind their backs. He was fired and exiled from the family business.
Paolo would seek his revenge by exposing Aldo’s tax issues, which saw him eventually serve a year in federal prison for tax evasion. In time, Paolo and his cousin Maurizio would team up to take over the business. But without a clear plan, the cousins nearly ran the business aground.
Paolo launched another disastrous fashion line, and when Maurizio had sole control of the company, Gucci had a negative net worth of $17.3 million. With more than $40 million in personal debt, Maurizio was finally forced out of the company by Investcorp.
RELIANCE INDUSTRIES – WHEN SPLITTING A COMPANY IN TWO IS NOT ENOUGH
Prime Minister’s Office (GODL-India) [GODL-India (https://data.gov.in/sites/default/files/Gazette_Notification_OGDL.pdf)], via Wikimedia Commons
Dhirubhai Ambani founded Reliance Industries in India in 1977. Headquartered in Mumbai, Reliance is involved in various sectors across the country, including energy, petrochemicals, textiles, natural resources, retail and telecommunications.
Dhirubhai died of a sudden stroke in 2002 without putting a succession plan in place. In fact, he died without so much as a will. The elder son, Mukesh Ambani, took over as Chairman and Managing Director of Reliance Industries Ltd, while Anil took the role of Vice-Chairman.
Immediately, there was tension between the brothers. Mukesh admitted to trying to remove Anil from the board of directors. Eventually, the feud became public. In 2005, their mother intervened and brokered a deal that split the company in two.
In the deal, Mukesh controlled Reliance Industries and IPCL. Anil was awarded Reliance Infocomm, Reliance Energy and Reliance Capital.
Any hope that this split would end the feud between the brothers was quickly dispelled. In the ensuing years, the brothers tried to block each other’s deals with the government.
Anil sued Mukesh for defamation over statements he made to The New York Times. Anil even took out ads criticising his brother’s company.
In the end, Mukesh bought out Anil in 2018. Estimates report that Anil’s personal worth is now only one-tenth of Mukesh’s.
THE VIACOM SAGA
By Unknown – Viacom International Media Networks, Public Domain, https://commons.wikimedia.org/w/index.php?curid=42947787
The events that surrounded the succession of Sumner Redstone for the controlling interest in Viacom has been described as resembling the Game of Thrones saga. Redstone owns 80 per cent of National Amusements Inc. (NAI), which in turn owns both CBS Corp. and Viacom.
Viacom is a media conglomerate that controls Paramount Pictures as well as major U.S. cable stations such as MTV, BET and Comedy Central, just to name a few.
With Sumner’s daughter Shari owning the other 20 per cent of NAI, her eventual succession seemed like a mortal lock. Things changed around 2007 when Sumner and Shari engaged in a public rift. Rather than naming Shari as his successor, Redstone wrote in an open letter to Forbes:
“While my daughter talks of good governance, she apparently ignores the cardinal rule of good governance that the boards of the two public companies, Viacom and CBS, should select my successor.”
Sumner and Shari appeared to have reconciled nearly a decade later. In February 2016, Sumner Redstone’s long-time second in command Phillipe Dauman was named as his successor as Chairman of Viacom and CBS. Shari was the only board member to vote against his appointment.
Three months later, Sumner and Shari teamed up to try to remove Dauman and his attorney George Abrams as board members of NAI. This prompted a counter-suit by Dauman, who claimed that the senior Redstone’s scheming daughter was manipulating him. Three months after that, Dauman resigned his position.
Shari Redstone has been in and out of power behind the scenes depending on the source. There have been on and off plans to reunite CBS and Viacom, but the battle for control of the company continues to this day, and the picture only gets murkier with each passing month.
One thing can be gleaned from these four examples: no matter how big or successful the company, a smooth transition of power from one generation to the next can never be taken for granted.
This article can be found in Tharawat Magazine’s website.