Family business buy-out conflicts

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.

Posted in Business Mediation, Conflict Resolution in the News, Family Businesses, Wednesday, November 11th, 2009

  • Categories