Example 1: $25 million wholesaler of industrial safety products. Founded by the father, now 80 years old, had to decide on a successor from among 4 brothers, all serving a key functional role in the company. The brothers have feuded with each other for many years, dramatically affecting the performance of the business. All agreed that they would leave the business once the father appointed the successor CEO. Two questions required resolution: Selection of the successor; equity value and terms of payment to the brothers upon their exit. The matters remain unresolved. The chosen successor was the youngest brother, based solely on his preferred relationship with the father. The brothers estimate of equity value far exceeds that derived by commonly accepted valuation techniques. Finally, the cash flow from operations of the business is inadequate to fund any reasonable payout post transition. Mediation and family counseling have been proposed and accepted in order to resolve the business issues, but more importantly, to insure that the family will not fracture even further.
Example 2: The father/CEO of a highly profitable metal working business was prepared to appoint one of his sons as successor. With approval and encouragement of his board of directors, he decided on the older son (John), a high school drop-out but a proven, well liked VP of manufacturing. The younger brother (Tom), well educated, had been serving as VP new products and was responsible for acquisitions. On the morning of the proposed announcement, Tom, angry at being passed over, physically accosts John as they entered the board meeting. John presses charges. The business and family concerns are significant.
After meeting with all key employees, customers and vendors, all suggested that the two could no longer co-exist in the company. An equitable plan was developed to give Tom one of the recently acquired subsidiaries as compensation for his equity holdings and arranged for a long term supply contract so that a viable core business could be build. Although it took almost one year of coaching and counseling, the family could finally gather together to celebrate life cycle events.