Family businesses possess great strengths — and potentially devastating weaknesses. One weakness involves the challenge of planning for a day when some or all family members leave the business.
On November 1, 2009, the New York Times ran an article by Charles V. Bagli titled “Flipping a Coin, Dividing an Empire.” In it, he described the buy-out agreement of three Elghanayan brothers to divide up a $3 billion real estate empire built over four decades. Mr. Bagli captured the situation in a nutshell: “Compared with property breakups of some other New York real estate families — often long, messy affairs replete with blood feuds, lawsuits and ugly recriminations — the Elghanayan brothers’ split has been relatively swift, smooth, and secretive.”
The brothers had drawn up a detailed partnership agreement after they were forced, twenty years ago, to resort to binding arbitration (with their father serving as arbitrator) to resolve a family business conflict when a fourth brother left the family business. The process they created involved a coin toss, a reverse auction, and other details based on game theory principles.
Even that detailed process proceeded with horse-trading, some tension, and some sadness. But, by planning ahead and creating a process that they understood and freely adopted, the brothers did some valuable conflict management. They reduced the scope and severity of a potential family wealth conflict and then, when the agreement was needed, they had a far easier conflict to resolve. One that they could put to rest without destroying their wealth, their company, or their family.
