President-elect Donald Trump has said he will disengage from his sprawling family business and pass it on to three of his children to run.
Easier said than done.
Passing on a family business to heirs, whether they are involved or not, can be a very knotty dilemma, rife with disagreements, lawsuit, jealousy, estrangements, you name it.
Trump — who Forbes magazine says is worth $3.7 billion — has said he would build a wall between the presidency and the Trump Organization to prevent conflicts of interest from seeping between business and politics.
In this case that means passing on a large business to the next generation to run, and making sure they know how to do it, are comfortable with their assigned roles and — most importantly — get along.
The three eldest Trump kids have been deeply involved in the business for years, according to an analysis of the company by the New York Times.
They — Donald Jr., 38; Ivanka, 35; and Eric, 32 — and a team of executives will be assuming responsibility for the Trump Organization, according to the the president-elect.
The three, each a vice president of development and acquisitions, have said they like each other and called the Trump Organization a “mom and pop” business, according to The Times.
“I’m very optimistic that they can do it,” said Ted Clark, director of Northeastern University’s Center for Family Business. “When you think of the access to excess that these kids have had, they seem to be very focused and positively oriented. They are very impressive.”
There are ample cases where succession plans backfired. Or there wasn’t a succession plan to begin with.
When talking about the responsibility of taking over Feld Entertainment, built on franchises such as Ringling Bros. and Barnum & Bailey Circus and Disney on Ice, Nicole Feld has said: “It always sits there in the back of your mind . . . that phrase: ‘It takes three generations to ruin a business. The first generation builds it. The second generation grows it. And the third one usually destroys it.’ We live with that every single day.”
There’s even a book about it, called “Family Wars,” which chronicles the many ways a family business can crater.
Take the Gucci family, the leather goods brood whose third-generation leader was shot dead on his way to work in 1995. “The hit was ordered by his former wife, Patrizia, to punish him for selling his 50 percent stake and depriving their children of inheritances,” according to the Financial Times.
The Stroh family, whose beer fortune took a century to build, was profiled in Forbes two years ago under the ignominious headline, “How To Blow $9 Billion. The Fallen Stroh Family.”
We only need to look at the recent feud between Sumner Redstone and his daughter, Shari Redstone, for control of the family empire, National Amusements. The Pritzker family in Chicago, owner of the Hyatt Hotel chain, had to liquidate parts of the family fortune, including one piece sold to Warren Buffett, after relatives demanded cash.
What might happen with Trump?
“The Trump family’s situation is a classic case of what I call accidental partners – people who are suddenly forced to be business partners when external factors are pushing them together, not their own desire or decision to choose each other as partners,” said David Gage, founder of BMC Associates, an Arlington, Va., company that consults to family and non-family businesses on how to transfer businesses to the next generation.
Gage offered these tips for Trump — or anyone looking to move the business into the next generation:
Planning is key: Parents can’t reliably predict when they’re going to be, say, tapped to be president, or need to divest, or transfer, their ownership for some other reason, so they should start planning now to get the kids ready ‘just in case.’
Get along: Even some of the closest sibling relationships are destroyed when siblings become business partners. The expectations and dynamics of sibling partners are different in some important ways than they are with normal siblings.
When the parents are gone … : Parents often see their adult children working together in different parts of the family business/empire — all working under their direction, and erroneously conclude that if they are working together now, they should still be able to collaborate on their own if they are out of the picture. This assumption on the parents’ part couldn’t be further from reality. The scenario is completely altered when parents exit the picture — or move to the White House. Most critically, the power dynamics among the siblings shift radically the moment a parent steps aside.
The Mar-a-Lago retreat: So should President-elect Trump decide how the next generation should work together? No. Instead, he should tell his children to go off to Camp David, or Mar-a-Lago, and spend three days hammering out exactly how they think they could work together as a team. Who would have which roles? What authority would each of them have to make decisions? How will they communicate with one another? How will they handle their differences and any conflicts that arise? Who is going to own what and how are they going to be compensated?
“These are some of the critical questions that they should answer for themselves, essentially creating a ‘Partnership Charter’ for themselves, which they could then deliver to the president-elect for him to respond to,” Gage said.
Clark is an optimist who said things may go smoother than people think. He said Trump has stepped back from the day-to-day operations for months, if not years, which makes it likely that there already stands a strong network in and around the children to carry on the business without him.
“There is certain ballast in the Trump Organization already, with many high-level executives in management,” he said. “These are professionals, and they can run the business.”