Sumner Redstone may have been a brilliant businessman. After all, he used his privately held firm, National Amusements, to acquire controlling stakes in both Viacom and CBS, a media empire valued at more than $40 billion. His personal wealth has been pegged at $5 billion. But Redstone flunked the fundamental test of when and how to make an exit.
At age 93, with his mental and physical competence in question, his daughter, granddaughter, former live-in girlfriends, directors of Redstone’s private trust and other participants are engaged in a nasty multi-sided fight for control of his assets. Lawsuits costing millions of dollars are under way, and billions of dollars of market value are at risk.
Redstone is not a Baby Boomer, but his predicament should serve as a wake-up call to millions of CEOs in the demographic bulge in the snake’s neck, meaning those born between 1946 and 1964. The leading edge of the generation that popularized the hula hoop, rock music, marijuana and the sit-in protest has been turning 70 all this year. They may have inherited closely held businesses from their parents of the World War II generation, or they may have started the businesses themselves.
Either way, it’s high time to figure out how to retire. But only 37% of them have a formal plan for orderly succession, according to a survey by U.S. Trust, a unit of Bank of America. And there are many permutations as to what can go wrong.
As in Redstone’s case, CEOs can reach a point that they either die or become enfeebled without leaving a succession plan in place. Others find themselves locked in struggles with children inside the business, who are eager to take it over and push the parent out. If the parent is pushed out of the CEO’s slot and takes a position on the board, what happens if that parent looks to intervene in management?
“Founders are great at running a business but terrible at letting go of authority,” says Leslie Dashew, president of the Human Side of Enterprise consultancy in Scottsdale, Arizona. “A lot of times, they will make someone president but won’t let him make any decisions.”
In other cases, the kids are in the business but aren’t interested in—or perhaps not capable of—running the company. Faced with that scenario, a founding CEO may be tempted to sell the business to either a strategic investor or a financial investor—running the risk that the company could be consolidated or flipped, with both children and long-term employees losing their livelihoods.
“I think for almost all the privately owned or family-owned businesses that don’t make it to the second or third generation, the reason is poor succession planning or no succession planning,” says Warren Stephens, a second-generation CEO of Stephens, an investment bank and financial services firm based in Little Rock, Arkansas.