Adult adoption as a means of family business succession has been uncommon in the United States; however, recent high-profile cases involving Nicolas Puech and Hermès, Olive Watson and IBM, and Susan Gore and Gore-Tex have brought this topic into the spotlight.
Nicolas Puech, a billionaire descendant of Hermès’ founder, has initiated the legal process of adopting his former gardener. With no biological children of his own, Puech intends to leave at least half of his estimated $13 billion estate to his adoptee, multiple news organizations reported in December 2023. Speculations suggest that this decision might stem from a family dispute that led to Puech’s estrangement from most of his relatives. If successful, the adoption would redirect at least 50% of his Hermès shares to his adopted son instead of the Isocrates Foundation (formerly the Puech Foundation), a charity with which he has an inheritance contract.
In 1991, Olive F. Watson, granddaughter of IBM’s founder, Thomas J. Watson Sr., adopted her then-partner, Patricia Ann Spado. The purpose of this adoption was to grant Spado eligibility as an heir to Watson’s estate. However, the couple separated less than a year after the adoption. In 2004, when Watson’s mother passed away, Spado, as an adopted grandchild, sought a share of the trust established for the Watson grandchildren. The family’s trust lawyers argued that Watson’s parents were unaware of the adoption and had never intended for Spado to be an heir. In 2008, the probate court in Knox County, Maine, annulled the adoption, but the Maine Supreme Judicial Court overturned that decision in 2009.
Susan Gore, whose parents founded W.L. Gore & Associates (makers of Gore-Tex), adopted her ex-husband in 2003 to increase her family’s portion of a trust established by her parents. Bill and Vieve Gore’s trust was designed to transfer most of the company’s stock to their children and ultimately their grandchildren. Susan Gore had three children and her siblings each had four, which meant her branch would end up with less stock. Her plan was for Jan Otto, her ex-husband/adopted child to give the stock he would inherit to their children. After the adoption, Otto said he would keep the shares himself, and she considered “un-adopting” him. In 2012, the Supreme Court of Delaware ruled that the adoption did not entitle Otto to receive the shares, upholding the trust’s original intention to pass the stock to the actual Gore grandchildren.
These adoption cases appear to be driven more by a desire to secure additional family wealth rather than to maintain control of the family business. Nonetheless, they raise an intriguing question: Should family businesses consider adoption as part of their succession plan?
Continuity and commitment
In their research article titled “Listening to the Heart or the Head? Exploring the ‘Willingness Versus Ability’ Succession Dilemma” (Family Business Review 2019, 32:4, 330-353), Melanie Richards, Nadine Kammerlander and Thomas Zellweger examined the perspective of 1,060 family firm owner-managers regarding succession. They discovered that family business owners typically aim to identify a successor who is both highly committed and highly competent. However, finding such a candidate is often challenging, and determining whether commitment or competence is the more crucial attribute in this dilemma remains uncertain. The authors propose that the incumbent’s personal experiences, education and cultural background, as well as situational factors within the firm, influence their focus on corporate needs (favoring competence) or family needs (favoring commitment) when making succession decisions. Adoption can potentially develop the commitment required to sustain family ownership into the next generation by nurturing a highly competent individual within the family.
Adoption was used as a succession strategy in various cultures throughout history, each with unique motivations and implications. Here are some noteworthy examples:
Japanese culture: One of the best-known examples of adoption as a succession strategy is found in Japan, particularly among samurai and merchant families. This long-standing practice ensures the continuation of the family name and business legacy when a suitable biological heir is unavailable or deemed unfit. Known as Mukoyōshi (literally, “adopted son-in-law”), this tradition remains prevalent in modern Japan, especially in family businesses. The adoptee can also be a loyal employee of the family business.
Ancient Egypt: Adoption was practiced in ancient Egypt, particularly among the nobility, to secure lineage and ensure the transfer of property and titles. It was not uncommon for pharaohs and high-ranking officials to adopt heirs to maintain their dynasties.
Native American tribes: Certain Native American tribes practiced adoption for various reasons, including succession in leadership roles. Adopted individuals could come from within the tribe or, in some cases, from enemy tribes as part of peace-making strategies. This practice helped strengthen alliances and ensure the continuation of leadership lines.
African kingdoms: In some African kingdoms, adoption was used to secure succession lines, especially when the king or leader lacked biological heirs. Adopted heirs would be chosen based on their abilities, loyalty and leadership potential.
Polynesian cultures: In some Polynesian societies, adoption, including the practice of raising relatives’ children as one’s own, served to strengthen family ties and alliances. This practice could also play a role in succession and inheritance, particularly in the absence of direct descendants.
Islamic caliphates: During certain periods in Islamic history, particularly in the Ottoman Empire, succession did not always follow direct lineage. Rulers sometimes favored adopted sons or protégés as successors over biological children, especially if they deemed them more capable or suitable for leadership.
In the Roman Empire, adoption encompassed both family and broader societal and political dynamics. Even today, the purpose of adoption in ancient Rome resonates with family business owners, as it served various functions, including:
Ensuring succession and continuity. Adoption was a common practice among the patrician class to guarantee the continuation of a family line. When there was no male heir, adopting a capable and suitable male, often an adult, was instrumental in preserving the family name, inheritance and social standing.
Political strategy. Adoption served as a strategic tool in the Roman political arena. Prominent politicians and emperors adopted heirs to forge political alliances, consolidate power and ensure a seamless transition of authority. It was not uncommon for Roman emperors to adopt successors who were not their biological children but were chosen based on abilities or political suitability. This type of adoption was known as adrogatio.
Facilitating social mobility. Adoption provided a pathway for social advancement. Individuals from lower social classes who were adopted into patrician families could attain elevated social status, wealth and political opportunities that would otherwise have been inaccessible.
Legal and religious considerations. As is the case today, adoption in ancient Rome was a formal legal process with specific provisions under Roman law. Adopted children enjoyed similar legal rights as biological children, including inheritance rights. Additionally, adoption allowed for the continuation of religious traditions and roles within a family, as certain religious duties and priesthoods were hereditary.
Cultural significance. Adoption had more than just legal implications; it carried cultural significance in Roman society. It underscored the values of duty, loyalty and the perpetuation of family legacies, which were highly esteemed in Roman culture.
One notable example of adoption in the Roman Empire is Julius Caesar’s adoption of his great-nephew Gaius Octavius, who later became Emperor Augustus. This adoption played a pivotal role in the establishment of the Roman Empire.
The history of adoption as a succession strategy in family businesses is not extensively documented in academic literature, suggesting its relative rarity in the United States. However, in family business succession remains a critical issue that has received significant attention. Succession entails the transfer of management and ownership from one generation to the next, ensuring business continuity and longevity. This dynamic process profoundly impacts a company’s future performance and involves family progression and change.
Within the realm of family businesses, adoption can serve to legally recognize a chosen successor as an heir. This becomes particularly relevant when the current owner lacks a biological child or close relative. Adoption as a strategy enables the family to maintain control, navigate complex family dynamics, and address specific legal and financial objectives. Furthermore, it binds the capable successor to the success of the family, extending beyond mere business considerations.
The use of adoption as a succession strategy exemplifies how creative solutions can be deployed to tackle the challenges of succession planning. This strategy underscores the unique interplay between family dynamics and business continuity, with each case being shaped by the specific objectives and circumstances of the individuals involved.