I am Entitled, Give Me My Money!

PART I – Setting the Stage

(Don’t let this happen to your Family Business)

It was a family tragedy… (Charles Bronfman, commenting to The Globe & Mail in 2013 about his own family as it spiraled downward both financially and as a family).

The story I tell is not a happy story and is all too common, with lots of fact and fiction, little understanding, and no effective communication. 

This is a story about a family – mom, dad, brother, and sister.  A Once Upon a Time type of story.  The family does not live Happily Ever After.  What’s more, we all know of a family and a story such as this.  So let’s begin...

Frank Stronach immigrated to Canada from Austria in 1957.  Frank had nothing but determination when he arrived in this land of opportunity.

For those who do not recognize the name, Stronach founded publicly traded Magna International, Canada’s largest automotive parts manufacturer.  The Stronach family also operated within entertainment and real estate and continue to do so today.

Stronach managed to assemble a personal worth of about $2 billion, a rather notable achievement in 60 years.

Here is the challenge, family members are now suing each other. 

Frank (86) handed his daughter Belinda (53) control of The Stronach Group and the family trust in 2011, when Frank was approaching 80 years of age.  Belinda was fully involved in the business.  Frank wanted to pursue other business interests in his retirement years.

Frank invested considerably in Adena Farms and other business ventures; according to Frank, $300M worth of investment.  According to Belinda, it is closer to $800M when you add in real estate and golf course. 

Belinda turned the tap off in 2017.  After negotiating with Frank, an additional $30M was made available.  That too was shut down after $8M of spending.  In both instances Belinda claimed the spending was jeopardizing ongoing operations elsewhere (real estate and entertainment).

In October of 2018 Frank and wife Elfreide commenced a lawsuit against Belinda for $520M to gain back control of the family trust, management of Stronach Group, and access to cash.  The suit claims Belinda is “mismanaging his fortune” and that Belinda is “incapable of running on a fair, proper, sensible, and business like basis”.  The claim also notes that Belinda has ”misappropriated $70M to maintain her extravagant lifestyle”. 

Belinda and children Nicole and Frank have launched a countersuit against dad and grandfather claiming “improvident spending and unsound business decisions.”  Belinda’s belief is that Frank is receiving poor advice and is “no longer rational” nor ”business smart”. 

Belinda’s brother Andrew (51) has picked sides by launching a lawsuit against his sister and her children demanding control of his 23% share of the family trust so to protect his interest. 

Andrew’s wife Kathleen (separated from Andrew since 2009, but not divorced) has commenced a suit to protect what she believes is her share of the trust. 

Andrew and Kathleen’s daughter Selena commenced her own lawsuit in February shortly after turning 18.  Selena needs to ensure a continued lifestyle, access to the unlimited credit card spending, 15,000 square foot house, monthly holidays, and enough cash to ensure her cattle operation remains solvent.

Everyone is suing everyone.  Ouch!

So, what has gone wrong?  What causes family to sue each other?  Fear?  Ego?  Entitlement?  All these factors play in and there is no shortage of reasons that could describe why. 

This is where I will stop for now, as this sets the stage.  There are hundreds of millions of dollars at stake.  Family, however, does not seem to matter whatsoever.  It seems to be all about the money.

Frank has recently attempted to play the family card in a July 2019 Globe and Mail interview.  Frank would be pleased to welcome Belinda back to the family so long as control of everything is handed over to Frank. 

In my next post I will talk about the dynamics of what is happening, why, and steps that can be taken to reduce the possibility of a similar situation within your own family.

One final thought given the time of year. 

Once Upon a Time, Christmas at the Stronach family home in 1971.  Frank is 38, Belinda 5, Andrew 3 with mom Elfreide in her mid-30’s.  Frank has been in Canada for 14 years and is on his way to success.  Both family and Santa Claus are still important.  The company jet, money, credit cards, and 6-star hotels – not so important.  In fact, they do not exist.

I suspect there is happiness, laughter, and enjoyment the morning of December 25 as Christmas gifts are opened.  Christmas Dinner is a big deal for everyone, not so important anymore.  In fact, this also no longer exists.  Unfortunate, as I like to believe that family is more important than money and lawsuits.

- Doug Yaremko

Ownership, Governance, Partnerships- It's All About the Money

Or is it?

Over my 30 years as a banker I have seen far too many decisions made based solely by money. In the context of this discussion I am referring to decisions made by the individual who has the most money invested. Sometimes this approach is needed (for example in a wind-down,) but often this approach to decision making may not make sense – particularly strategic decisions.

Think of childhood days gone by – “it’s my football so we’ll play by my rules.” Perceived power from ownership. Strategically, maybe not the best approach if you’re also the receiver.

Let’s talk about a real-life business situation.

A few years ago, I worked with a company that had struggled financially for several years. Losses. Multiple cash calls. Poorly reasoned strategic decisions.

The person leading the strategic charge had no business background and was not involved in day-to-day operations. He did have the most at stake based on dollars invested (though not a controlling interest.) He had also brought in several friends as investors. No doubt he felt an obligation to show leadership and results.

Investors and management permitted his leadership given his implied financial authority, but the approach to decision making and control did not make sense. And over multiple years it had yielded nothing but losses.

The business originally started with someone who had a revolutionary idea. This person didn’t have enough cash to grow the business and turned to outside investment. These outside investors saw the potential and participated without consideration to appropriate ownership and decision-making models.

Nobody stepped up to challenge the implied leadership. It was difficult to do. It took courage and communication both of which can be demanding. The outcome? The investments were written off and the opportunity squandered. Yet the company was at the forefront of a new industry which continues to thrive today.

Effective business partnerships are hard to maintain at best and take much work to nurture and foster.

When it comes to the money invested, investors should not automatically be granted control of a business based on dollars. However, stakeholders, often knowingly, permit undesired outcomes like these because ownership, control and the decision-making process are not addressed in an appropriate manner.

The lesson: Communication and understanding business partners’ expectations is vital. These are complicated discussions. It is too easy to allow someone to lead with or hide behind the size of their investment. My experience is that this is not the best approach. It is NOT all about the money!

I have a keen interest in business partnerships. For years I’ve observed every partnership possible – Weak, successful, failed, effective, unproductive, abusive. The worst situations are families ripped apart from ineffective family business partnerships. Good intentions that came with unexpected and unnecessary outcomes.

This is my first post. I will continue to share stories, ideas, insight and perspectives here on this site. All with a focus to assist Business Partners.

My partners and I have built 4West Advisors for the sole purpose of helping Business Partners build strong, sustainable and profitable business partnerships.

Thanks for reading.

Doug