The current dispute over Sumner Redstone’s competency to make decisions regarding his firms is pitting company executives against family members and family members against each other, diverting significant attention from running the companies and revealing the challenges of governing a firm as its founder ages.
Redstone, who is now 92 and allegedly mentally incapacitated, had for many years planned his estate. He created a family trust that would take control over National Amusements after his death. National Amusements holds controlling interest in companies such as Viacom, CBS, Paramount Studios, Comedy Central and Nickelodeon.
In recent months Redstone suddenly altered his will and estate gift plan and changed the trustees of the Redstone trust and the members of the Viacom board. This provoked a corporate and family drama about whether he is capable of making the changes or is being manipulated by his daughter Shari Redstone, who serves as President of National Amusements and vice-chair of Viacom and CBS. Those decisions are being challenged by company executives and other family members in courts in Delaware and Massachusetts.
The Redstone dispute reveals the fundamental challenges facing family owned and controlled firms upon the incapacitation or death of the founder. In many cases family members are disinterested in running the firm or do not have the business knowledge and skills to do so. In these cases they often wish to sell the family firm to obtain its wealth. In cases where family members have the ability to run a firm, they may prefer different company strategies than the founder, disagree with each other over what the strategies should be, or differ on how the wealth or control of the firm should be distributed among themselves. Because of these types of challenges, only about one third of family firms are passed to a second generation and only about 15 percent reach a third generation.
These challenges can be significantly heightened if the founder maintains personal control over the firm too long, does not let go of sufficient control to implement the changes before death, or does not create irrevocable arrangements. These conditions create an environment in which influence can subsequently be exercised over the founder that leads to disagreements and open disputes among interested parties.
Family firms must take significant care to avoid these situations if there is any hope for calm and successful succession.