One of the families I worked with as an advisor was going through such turmoil in their family business that it threatened to tear the family apart.  This story is about that actual case, somewhat “sanitized“ to protect the identity of the company and the individuals.

The business is a group of car dealerships, which began as a store for a single U.S. car manufacturer in the 1920s.

Founder Fred Yost was an affable man who had a reputation as a man of integrity.  He was a man of his word.  He valued his customers and worked with them when the hard times of the Great Depression hit.

In the early 50s, Oliver, Fred’s eldest son, came into the business.  Oliver was very bright and learned to follow the business model created by his father, which worked for many years.  Over time, however, the business model for automobile dealers changed.  Today, a successful car dealer makes money on the front end of the deal, as well as on the back end — meaning through financing, insurance and host of other savvy business arrangements.  Unfortunately Oliver wasn’t able to change the model and adapt to more modern methods.  As a result, the business stagnated.

Around 1980, Oliver’s son, Alan, entered the business right out of college. {Mistake: Alan should have worked for 3 to 5 years elsewhere.}  Alan is an intelligent man, but he is determined to find the easy way through everything, and he never excelled in the business.  When Oliver’s second son, Charlie, graduated from college, Fred told him there was no room in the car dealership for him.  Charlie went to work for a financial company that handled the finances for car dealerships.  In this role, he had to visit one dealership after another, review their financial details and make certain they were in compliance with the requirements of the finance company.  In his five years on the job, Charlie learned a great deal about how to maximize the profits in a car dealership. {Critical point: Charlie proved he could do the job before entering the family business, something I recommend.}

Fred saw Charlie’s talent and invited him into the family business.  In the next twenty years, Charlie transformed the dealership into an award-winning business with great profitability.  Fred recognized the principle of rewarding performance, so when it came time to sell or gift his shares to Alan and Charlie, he did so in a ratio of 1:3, with Alan getting one share for every three of Charlie’s.

Charlie was a “producer.“  He hired people like himself, and with his management team, he turned the business into four car stores — BMW, Mercedes, Chevrolet and Dodge/Jeep.  It is an automotive empire prized by manufacturers.

Over the years, as Charlie was giving his all to make the business highly successful, he watched Alan coast along, taking his large salary as well as a quarter of the profits.  It wasn’t long before Charlie had a big resentment toward Alan.  It all came to a head when Charlie said, “I want Alan out of the business.“

Years before, Fred had insisted that the brothers have a buy-sell agreement.  Had this agreement been the determining document, Charlie would have paid Alan just under $10 million for his share of the business.  Alan wanted more than the buy/sell would give him.  He hired an adversarial lawyer who worked on a contingency and promised Alan he could “get a lot more.“  It was going to be war!

Fred worried that if Alan proceeded with his plan, the family’s relationships would be destroyed.  The Yosts engaged me as a consultant to help them work through this difficult process.

Stay tuned for my next post to learn how the family negotiated the buy-sell agreement.

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