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The family biz break - up : there's a lot at stake

Governance : divorce

Divorce has high costs, both monetarily and emotionally. Nowhere is this more true than in the world of family business, as evidenced by some high-profile cases in recent years. Love, power and ownership can all be at stake when family and business split.

Suzy Bibko is editor of Families in Business.

Divorce statistics are depressing. In a dozen countries around the world, 50% or more marriages end in divorce. And nearly 20 more countries have a quarter of marriages not surviving. That's a bit startling. And probably makes more than a few people wonder if marriage is worth it. Especially when you consider the high costs of divorce.

Those high costs usually surround celebrity divorce – not only because of the large amounts of money at stake, but also because of the "drama" that inevitably ensues between the couple. All of a sudden, everything is laid bare especially emotions and what should be a private matter is suddenly front page news.

The world of family business, unfortunately, isn't allowed an escape clause from such proceedings. Big money, big  brands and big personalities make for big stories. And no matter how private families wish to be about their business, divorce turns that dictum on its head. In recent years, there have been several high-profile divorce cases in the family business community, with money, power and ownership at stake.

Love, Italian-style
One of the craziest cases in the world of family business, let alone divorce, involves the Gucci family. In 1995, 46-year-old Maurizio Gucci was gunned down outside his office in Milan. Maurizio's killer was allegedly hired by an intermediary on behalf of his ex-wife, Patrizia Reggiani.

But the story starts long before then. The Guccis had always been known as a volatile family – whether that was due to Italian "passion" or encouraged from generation to generation by founder Guccio Gucci will never be known – with family fueds and scandal a seeming constant among the relatives. Started as a saddlery shop in Florence in 1906 by Guccio, he soon saw a profit selling leather bags to horsemen in 1920s. The company flourished as he turned to luxury luggage, and by 1938, Guccio had opened his first retail shop in Rome.

The company rapidly expanded in the 60s, under the leadership of Guccio's son, Aldo. By the mid-70s, Gucci was truly an empire. Unfortunatley, Aldo wasn't exactly an honest businessman, and he ended up in a $7 million tax fraud scandal. Aldo's illegal activities meant that his nephew, Maurizio, would eventually take control of the company. While the company was still in family hands, Maurizio and his father, Rodolfo (Aldo's brother and a company shareholder), weren't exactly on good terms, as Maurizio had married Reggiani against his father's wishes (she was a truck driver's daughter and considered a gold-digger). The controversy between Maurizio and Rodolfo continued even after Rodolfo died, when Maurizio produced documents that signed over Rodolfo's shares in the company to Maurizio – a move that saved Maurizio from a massive tax bill and made him a primary shareholder in the family firm. As a result of the latter, Maurizio became embroiled in a legal battle with Aldo and Aldo's son, Paolo (Aldo was sent to prison in 1986), over control of the firm.

The family fighting continued, and Maurizio eventually won control of the company, though by 1989 nearly 50% of the company had been bought by Investcorp. Maurizio's vision was for the company to be a fashion-forward design house, and he assembled a top team to help him achieve just that. But sadly, mismanagement and overspending saw him nearly destroy the company. By 1992, Maurizio had sold his controlling interest for £300 million.

While all this was going on, Maurizio and Reggiani's marriage was falling apart, with Maurizio eventually moving in with a younger woman. In 1994, the couple went through an acrimonious divorce and a settlement was finally reached giving Reggiani £650,000 – a sum she was not happy with (she wanted £1 million) and famously called "a plate of lentils". Then, in 1995, Maurizio was gunned down outside his Milan office. Reggiano was arrested for hiring the hitman and sentenced to 26 years in prison. A retrial was eventually ordered in 2004, after her family claimed she was too brain-damaged to have committed the crime (Reggiani had a brain tumour removed in 1992). Love apparently knows no bounds, especially when money is involved.

Headline News
At the other end of the spectrum is the divorce of Rupert Murdoch and his second wife, Anna. The founder of media empire News Corp married Anna in the 1960s, but split amicably after 32 years. However, things weren't as rosy as they seemed, as Anna had been on the board of News Corp and Rupert eventually forced her out after the split. The divorce was finalised in 1999, with Anna getting US$1.7 billion in assets, $110 million of it in cash. Rupert then married Wendi Deng, one of his employees, 17 days later.

But the story doesn't end there. In fact, that's really where it begins. With Wendi, Rupert now has two young children. He has three older children with Anna, and one more older child from his first marriage, several of which work or worked in the family company. Apparently, things are quite cordial between the Wendi and Anna camps, with Wendi's children playing with Anna's grandchildren, and everyone being invited to family gatherings.

But, with a media empire at stake, trouble is supposedly simmering beneath the surface. At the heart of it all is the trust that owns the family's 28.5% voting stake in News Corp, the AE Harris Trust. Rupert wants to change the terms of the trust to give his two younger children with Wendi a greater role in the trust. His older children, who do not object to giving their half-siblings a greater share in the inheritance, however, do not want them to have an active or voting role in the trust – in other words, control is key (because control determines how the money flows). The terms of the trust give each of Rupert's four adult children the power to appoint a trustee with one vote each. Rupert has four trustees and votes that expire upon his death.

This all really harks back to Rupert and Anna's divorce in 1999, as Anna wanted a settlement that would establish her children's control of the family business – a smart move on her part, as legal specialists say the adult children's stance is within the spirit of the settlement. It seems that love isn't such an issue here, but control and power are at stake, along with a vast amount of money. It will be interesting to see what develops and if today's civility spirals into front page news on one of Murdoch's tabloids.

You're out!
One of the most recent divorce cases in family business surrounds America's favourite pastime: baseball. For several years, there has been speculation around the future leadership of the New York Yankees. George Steinbrenner and his family own the majority stake in the team, with Steinbrenner as the boss for seemingly forever (he's 76). In 2005, Steinbrenner finally announced that his son-in-law and Yankees general partner and chairman of Yankee Global Enterprises, Steve Swindal, would succeed him as head of the organisation. While no date was given for Steinbrenner's handover, this was finally seen as step toward ending the question mark as to the winningest team in baseball history's future leadership.

However, just as easy as a team's winning streak can end, so can the best laid plans in family business succession. In February, Swindal was arrested on suspicion of driving under the influence, and in March, Swindal's wife (Jennifer Steinbrenner, George's daughter) filed for divorce. This step is being seen as a move that will end Swindal's chances of taking over as head of the Yankees. In a statement issued by his spokesman, Steinbrenner said, "I'm the Boss. I continue to be the Boss. I have no intention of retiring, and my family runs the Yankees with me."

While Swindal has refused to speculate on his future, Steinbrenner's statement seems to confirm that a change in the present leadership will not be on the roster. However, industry sources think that while Swindal will not be promoted, ousting him altogether may prove difficult, as Swindal is a partial owner of the team. Thus, untangling the specifics of his interests may be complicated.

Steinbrenner has four children: two daughters and two sons. He seems to favour male participation in his family firm, and perhaps this is where the organisation is falling down. Harold Steinbrenner is executive vice president and treasurer of Yankee Global Enterprsises and Hank Steinbrenner is a senior vice president of the team, both of whom are far less active than Swindal in the team and supposedly have no interest in succeeding their father. Daughter Jessica is married to Felix Lopez, and it is Lopez, who like Swindal, is part of the business, rather than Jessica. Lopez is a senior vice president and has been very visible in the company in the past year, making him a possible contender for leadership. However, Jessica's previous husband, Joe Molloy, had been an influential Yankees general partner in the 1990s. Divorce ended that career (Molloy is presently an assistant middle school principal in Florida), which means that Lopez's position might not be as secure as everyone thinks if he and Jessica ever fall out. It seems the old adage of blood being thicker than water may be true when it comes to the Steinbrenner clan. Maybe a few Steinbrenner women in the boardroom could sort things out.

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