Feuds get pretty nasty with billions on the line

Family members in business fight like other families; stakes just higher

By Judith Messina
Published on April 24, 2006

Brent Redstone is suing his father, Viacom chairman Sumner Redstone. Rupert Murdoch's children are squabbling with him over their share of News Corp., the family business. The Milstein family recently settled a decade's worth of lawsuits over control of its financial and real estate empire.

Such conflicts are all in a day's work for rich New Yorkers whose money comes from the family enterprise.

The discord--from father-son head-butting to sibling rivalry--often plays out in the business, roiling succession plans and gumming up operations with conflicts that may have started in kindergarten. Even harmonious relationships can turn sour under the pressures of running an empire.

A lot invested

"With strangers, it's a relationship of convenience for a moment in time," says Wayne Rivers, president of the Family Business Institute in Raleigh, N.C. "With [family members], there's a lot of investment in the relationship."

In New York, where such melodramas are writ large in the media and the protagonists are often rich and prominent, there's a tendency to dismiss these squabbles as just one more foible of the wealthy.

In fact, though, experts say that the rich make the same mistakes and fight over the same issues that confound all families and every family business, from corner grocers to Fortune 100 firms: children who disappoint, patriarchs who won't let go and heirs who feel entitled.

"We think of these families as more dysfunctional than most," says a business consultant who is familiar with many of New York's high-profile families. "But it's very hard for anyone to work with their family over a long period of time, because it brings out all the old patterns."

Ninety percent of U.S. businesses are owned or controlled by families. Only 30% make it into the second generation and only 12% into the third. A scant 3% survive four generations or more, according to the Family Business Forum of the University of North Carolina in Asheville, one of the many centers established over the past decade to help such businesses work out their problems.

"Very few families in businesses ride merrily off into the sunset," Mr. Rivers says. "It's always difficult."

Hug it out

Experts say those who get it right may go through internal tugs-of-war, but they also learn to work through their difficulties and put the company's health and security above personal animosities.

"If families can talk openly with each other about what needs to get done, it can work," says Tom Davidow, a family-business consultant in Brookline, Mass.

The fundamental conflict is almost always over control--whether it's about who will hold the reins in the next generation, where the business is headed or how the spoils will be divided. Transitions in particular open a Pandora's box of resentments as sons vie to unseat their fathers and siblings joust for status as the most-favored.

The internecine spats read like case studies in family dynamics.

Rupert Murdoch's son Lachlan, who was deputy chief operating officer of News Corp. and the heir apparent of the $24 billion business, summarily quit last year and took off for Australia. He was reportedly chafing at being second-guessed by his father.

Brent Redstone's lawsuit against National Amusements alleges that his father, who elevated daughter Shari Redstone to vice chairman of Viacom, engaged in a concerted effort to freeze him out of the company.

Deal with it privately

The Milstein feud pitted the children of the two founding brothers against one another in a struggle for control of the clan's estimated $5 billion empire. After the death of one of the founders, who didn't have a succession plan, the cousins fought it out in court. Their ensuing legal struggle forced the sale of some valuable Manhattan properties.

Families who manage to avoid open warfare may still have disputes, say experts, but they have figured out ways to resolve them without damaging the business.

For example, 20 years ago, six siblings and a cousin inherited what is now the Manhattan-based Denihan Hospitality Group, a $100-million-plus, third-generation firm operating 10 hotels in New York and Chicago.

With their strong sense of tradition--their grandmother started the business in the 1930s as a dry-cleaning operation--and the help of a family-business consultant, the members put aside any personal agendas and agreed on each person's optimal role.

Planning ahead

"Sometimes you had to say, 'You may love doing that [job], but you're not good at it,' " says Patrick Denihan, co-chief executive. "It's not easy, but I certainly knew that if we ever had a problem, everyone would be able to support each other."

Though five of the partners have sold their interest over the past several years, the family spends a lot of time planning for succession and attending annual retreats with spouses, significant others and the next generation of owners.

"We talk about the business and its values," Mr. Denihan says.

©2006 Crain Communications Inc.