Benihana founder’s tunnel vision
A recent Ernst & Young report entitled “Family Governance: The Issues, the Concerns and the Strategies to Deal with Them” lists a number of governance missteps that commonly arise in family companies.
One of the issues cited in the white paper is “tunneling” -- business ownership through cross-shareholdings. The E&Y authors note that this strategy, which usually undermines non-family minority shareholders, can damage the efficiency of the business.
In the case of the Benihana restaurant chain, founder Rocky Aoki’s tunneling strategy caused relationship problems not with non-family partners, but within his oddly blended family -- and, before his death at age 69 in in 2008, ended up undermining his own interest in the company. A lengthy feature article in the March 15 issue of Fortune spelled out the lurid story.
Rocky Aoki was married three times and fathered seven children by three women. His widow, 59-year-old Keiko Ono Aoki, is not the mother of any of his children. Today, Rocky’s kids and his widow are suing each other for control of the enterprise. As the Fortune report explained, that sorry situation is a result of an ownership structure that, while it helped the founder meet his financial needs at the time it was set up, had disastrous long-term effects.
The confusing ownership structure was rooted in Rocky’s 1983 decision to raise funds for expansion by dividing his business into two companies and taking one of them public. As Fortune explained it, Benihana of Tokyo kept 39 of the restaurants, all located outside U.S. Eleven more restaurants were moved into a second company, Benihana Inc. Rocky sold 49.1% of Benihana Inc. to the public; the remaining 50.9% was held by Benihana of Tokyo. Rocky was chairman of both companies, which shared a headquarters.
Rocky did some finagling to get his hands on the Benihana restaurant at the Hilton Hawaiian Village Waikiki hotel, his favorite. Benihana Inc. owns the Waikiki restaurant, but Benihana of Tokyo manages it, the Fortune article explained.
In 1999, Rocky pleaded guilty to insider trading. Although he was not sent to prison, his liquor licenses were revoked, the Fortune report said. In order to keep the licenses at his restaurants, Rocky stepped down from all his company positions, although he continued to be paid as a consultant. And he transferred his interest in Benihana of Tokyo (which owned a majority stake in Benihana Inc.) to a trust that was to be managed by three of his children and his attorney.
Then, in 2002, Rocky married Keiko, to his children’s dismay, according to Fortune. His two eldest children urged him to sign a postnuptial agreement, without success. Later, the children convinced Rocky to sign an amendment to the trust that put them in control and cut out Keiko. Rocky, who contended that he didn’t understand what he agreed to, then made four revisions to his will that progressively gave more control to his wife, the article said.
In 2004, fearing Keiko’s influence, the board of Benihana Inc. (which included Rocky’s eldest son) issued new stock and reduced the family’s stake from 50.9% to 36.5%. Rocky sued the company, but not his son. But in 2006, when three of his children sold more shares (further decreasing the family trust’s holdings), Rocky sued them (plus a fourth child) for breach of fiduciary duty and sought to have them removed as trustees, the Fortune report said.
By this point, Rocky was no longer a paid consultant for Benihana Inc. and “was reduced to asking his estranged children to approve his withdrawing money from the trust he had created out of his own business,” Fortune reported. Rocky revised his will again, leaving his assets in trust for Keiko. The founder “had managed to reach a place of nearly perfect contradiction: Depending on which document you looked at, two kids were guaranteed Aoki’s assets -- or [Keiko] could make all the decisions and keep a quarter for herself,” the article said.
After Rocky’s death, the trust that had given the children control of Benihana of Tokyo was terminated; Keiko became sole trustee and appointed herself CEO. The widow, who has entrepreneurial ideas that she says are in line with what Rocky would have wanted, began taking steps to revitalize the business, the Fortune article noted.
Meanwhile, according to the article, Benihana Inc. also brought in new management and made changes, which Keiko contended amounted to corporatization of the chain, according to Fortune. Lawsuits and countersuits followed.
In December 2012, investment firm Angelo Gordon bought Benihana Inc. The new owners offered to buy Benihana of Tokyo from Keiko, but she declined, the Fortune article said. Benihana Inc. now holds 79 restaurants in the U.S. and South America, including the one at Waikiki; Benihana of Tokyo owns or franchises 18 restaurants in Europe and Asia and manages the Waikiki location.
Among other legal wrangling, the two companies went to federal court over Keiko’s plans to sell a “Beni Burger” at Waikiki, a move that Benihana Inc. argued would cheapen the brand. Keiko’s company sued in December 2014, claiming Benihana Inc.’s complaints “are nothing more than attempts to get her to sell,” Fortune reported.
Between the corporate litigation and the intrafamily suits, Fortune predicted, “The battles, it seems, will continue for years.”
Most likely, your life is not as colorful as Rocky Aoki’s. Even so, you can take a lesson from his story: Trusts and ownership structures you create today will affect your family years later. Before signing any documents that represent long-term commitments for your family and your business, consider various “what-if” scenarios, and make sure your advisers explain all the potential ramifications.
A non-family leader in the interim
In February, the giant French spirits company Pernod Ricard announced that Alexandre Ricard would officially assume the role of chairman and CEO.
The announcement was not a surprise. Ricard, 42, is the grandson of Paul Ricard, who helped create the company via a merger in the 1970s. The Ricard family holds the largest stake in the company, whose brands include Absolut vodka, Jameson Irish whiskey, Chivas Regal Scotch, Malibu rum and Beefeater gin.
When Alexandre’s uncle Patrick Ricard died suddenly of a heart attack at age 67 in 2012, the company had planned that Alexandre (known as Alex) would eventually become the chairman. But although Alex had been with Pernod since 2003 (after first working at Accenture and Morgan Stanley), he did not assume the top job right away.
At the time of Patrick Ricard’s death, non-family executive Pierre Pringuet was serving as the company’s CEO; Patrick had stepped down from the CEO post in 2008 and retained the title of chairman.
After Patrick’s death in 2012, Pringuet added the role of vice chairman, and Patrick’s sister Danièle Ricard, then 73, became non-executive chairwoman. Alex was appointed deputy CEO and chief operating officer.
In February 2015, after Pringuet had reached the mandatory retirement age of 65, Alex became chairman and CEO. About a year before his elevation, the Wall Street Journal asked Alex how he felt about working with Pringuet while waiting to climb the ladder. “The success factor, I strongly believe, is if two people work together hand in hand and get along, which I’m lucky enough is the case,” he said.
A well-chosen non-family interim leader like Pringuet is an excellent option when the family wants a next-generation member to eventually take the reins but would prefer for that family member to gain more experience first. In the January/February 2013 issue of Family Business, we profiled Annin Flagmakers of Roseland, N.J., where a duo of non-family executives led the company between the retirement of the fifth-generation leadership team and the ascent of sixth-generation president Carter Beard and his cousin Sandy Van Lieu, the senior vice president of mass-market sales.
As Pernod’s CEO, Alex Ricard will pursue an ambitious goal of overtaking Diageo, the leader in the market. Only time will tell if he will succeed, but the skills he honed while working closely with Pringuet are likely to be helpful in his new role. “It’s not a question of what I think he should do,” Pringuet told industry website Just-Drinks when asked if he had advice for Alex. “I already know what he thinks.”
Schooling the World Economic Forum
Last month, the World Economic Forum’s online publication, Agenda, featured an article provocatively entitled “Are Family Firms Damaging Europe’s Growth?”
The article was written by Oriana Bandiera of the London School of Economics and Andrea Prat of Columbia University; both authors are also affiliated with the Center for Economic and Policy Research. They presented results from a study they conducted indicating that family business CEOs work fewer hours than non-family CEOs. The authors argued that “hours worked by the CEO are strongly correlated with firm productivity.”
Their concluding paragraph suggested, “Would an increase in taxation that affects the owners of family firms bring about an increase in productive efficiency?”
Dennis Jaffe, a family business adviser and an emeritus professor at Saybrook University, and Isabelle Lescent-Giles of San Jose State University, fired back with a rebuttal, which they posted on Medium.com. “Measuring CEOs’ contributions to society by the time spent in their office, rather than their efficiency and effectiveness as both leaders and managers, is dangerous,” they wrote. “And measuring firm performance on short-term profits only rewards asset stripping, and ignores the contribution of firms over the longer term.”
Jaffe and Lescent-Giles cited multiple academic research findings that show family companies outperform non-family firms when the variables measured are growth and value creation over time.
In their rebuttal, Jaffe and Lescent-Giles acknowledged that there are problems associated with family control. “If the needs of the family are able to undermine good business practice, they can be incredibly destructive,” the write. “In our own recent study of long-lasting family businesses, we have come to see … that the advantages of the family business have to be developed over generations.”
In their conclusion, Jaffe and Lescent-Giles offered this smackdown: “The field is complex and developing nicely, and we do not need simplistic generalizations or conclusions from single studies to move forward.”
Creating a more humane workplace
The technological advances that have put a wealth of information at our fingertips and enabled us to stay constantly connected have resulted in our being always on the job -- or at least expected to be reachable at any time. In a New York Times opinion piece last May, Tony Schwartz and Christine Porath of consulting firm The Energy Project said what we already know all too well: Being always on call and contending with myriad interruptions from the tasks at hand causes burnout.
Burnt-out employees, Schwartz and Porath noted, are not engaged with their organization or its mission. “Demand for our time,” they wrote, “is increasingly exceeding our capacity -- draining us of the energy we need to bring our skill and talent fully to life.”
Schwartz and Porath added that the most satisfied and productive employees are those whose employers help them meet their “core needs”: physical (having a chance to recharge their batteries at work), emotional (feeling valued and appreciated), mental (being able to focus on their most important tasks and having flexibility in where and when they get their work done) and spiritual (doing what they enjoy most and feeling that their work has a higher purpose).
What’s more, the authors noted that employee engagement is correlated with higher performance at work. “Put simply,” Schwartz and Porath wrote, “the way people feel at work profoundly influences how they perform.”
About a decade ago, Charlie Luck, the third-generation CEO of the Luck Companies, undertook a major initiative to change the culture of his company. The business, which is based in Richmond, Va., produces crushed stone, sand and gravel; owns tennis court company Har-Tru Sports; and has a real estate development division. After Luck observed backstabbing and competition for resources among his employees, he decided to remake the organization to focus on values and improve the way people related to each other.
A 2012 article in Family Business Magazine described the Luck Companies’ culture transformation, and the boost in morale and financial results that followed. The company instituted leadership training centered on its values of integrity, commitment, leadership and creativity. Training programs taught employees how to understand others’ values and work styles, and how to give and receive feedback. One tool presented was the “pause button” -- in tough situations, associates were trained to stop and allow themselves to carefully consider what to do.
The result? Not only did morale and productivity improve in the workplace, but also Luck Stone employees reported that the interpersonal training helped their relationships at home.
Charlie Luck will be speaking about his company’s values at Transitions East 2015 later this month.
“In a numbers-driven world,” Schwartz and Porath wrote in the Times, “the most compelling argument for change is the growing evidence that meeting the needs of employees fuels their productivity, loyalty and performance.” That is a compelling argument for taking steps to make your business more humane.
Development plans for the whole family
Family business consultants and researchers have produced a wealth of literature on training and developing future leaders of the business. Often overlooked, however, is the fact that other family shareholders need training and development, too.
Family shareholders who don’t work in the business might be tremendous family council members; those with high potential could be groomed as a future chair of the council or the family assembly. Other family members might be well suited for service on the family foundation board. Those with strong business skills might be a good fit for the board of directors of the family business.
All too often, family members are thrust into these roles without training; they are given the jobs solely on the basis of their family status. Experience has shown that this is the wrong way to appoint a successor CEO, so why is it so common when installing family members into these other key positions?
As family business consultant Jim Barrett wrote in The Family Business Mentoring Handbook, “Even though these are not managerial roles, they involve as many hassles as full-time company positions do -- and they also can be just as satisfying. Family and business leaders must train next-generation members to assume these positions so that problems, frustrations and disappointments can be avoided later on.”
In the November/December 2014 issue of Family Business Magazine, several family business members comment that family council committees can serve as a good “farm system” for future family leaders. Committees can be organized to perform a variety of functions, such as planning the next family meeting or developing a new family policy. The committee experience can help family leaders identify which family members have leadership potential. Likewise, family members who serve on committees may discover they have a passion for the family business that they hadn’t recognized before.
A panel presentation at our Transitions East 2015 conference will focus on developing talented and committed family members for a range of roles in the family and the business. As Meghan Juday, family council chair and a member of the board of directors at IDEAL Industries, wrote in our November/December 2014 issue, “In order for the family to be the best possible partner with the board and management, it is critical to have the right people in these important roles.”