Fascinating article in today's WSJ ($) on the turmoil within the Mondavi family:
For decades, Robert G. Mondavi worked with his brother for their family's Charles Krug Winery, where they argued regularly. Robert wanted to expand the business while Peter was more conservative. In 1965, Robert punched Peter during a dispute over a mink coat. Seeking a resolution, the Mondavis forced Robert to take a paid leave. When he returned, Robert left the family firm and founded what would become Robert Mondavi Corp., a Napa Valley pioneer that helped transform an agricultural backwater into a world-class wine-producing region. Desperate to ensure the tensions bedeviling his generation wouldn't be repeated, Robert, who is now 90 years old, spent 30 years planning how he would transfer control of the company to his two sons.
But last year, Robert's son, Timothy, 53, abruptly left his job as "winegrower," took a six-month sabbatical and went to Hawaii where he shaved his head. In January, Robert helped oust his other son, Michael, 61, as chairman of the company. Michael and Timothy, following the tradition set by their father and uncle, had paralyzed the business by fighting over details large and small, from whether Mondavi should go public to the design of its labels.
For the first time, there is no Mondavi family member managing the winery, and Michael is starting to branch out on his own. Many in the industry think Mondavi, the U.S.'s sixth-largest wine company -- ranked by volume -- and valued at nearly $600 million, may be broken up or sold.
In my experience, there is almost nothing harder than successfully passing a family-owned business from one generation to another. It becomes even harder when the business is publicly held. You lose some of the legal devices that allow you to fine tune control of the corporation, such as shareholder agreements constraining director discretion, which are available only to close corporations. You pick up outside investors, to whom you owe fiduciary duties. You become subject to SEC disclosure rules, which limit your ability to keep family business confidences. (I discuss the relevant legal issues in the chapters on close corporations and going public in my Corporation Law and Economics treatise.) To be sure, there is a whole consulting industry designed to help family business plan successions, of which the Mondavis seem to have made use:
In building the company, Robert devised mechanisms to tackle the family's problems. He hired a team of family-business specialists, including a psychologist and a psychiatrist, which created an annual "family council." Once a year, the council invited family members to a retreat that usually took place in June or July.
Vis-à-vis outside investors, they used dual class stock so that the family could maintain voting control (I'm going to post separately on that issue.) Yet, despite their best efforts, the Mondavis seem to have failed. There is probably something hardwired in all of us that wants to pass our empire, such as it may be, on to our heirs. Yet, it rarely works. Often the founders are control freaks who can't let go, which seems to be part of the Mondavis problem:
Friends of Robert and his second wife recall being invited to private tastings at Mondavi's Oakville winery. Robert, Michael and Timothy, hosting these events together, would interrupt each other or grab the microphone in order to get in the last word on the style or the taste of a wine. Usually, Robert won the battles. "You'd walk out of there and shake your head," recalls a longtime Mondavi friend.
And, very often, the kids turn out not to have the entrepreneurial or managerial skills possessed by the founding generation. (Indeed, in their book The Company: A Short History of a Revolutionary Idea, John Micklethwait and Adrian Wooldridge attribute the rise of professionally managed corporations in the 1800s in part to precisely this problem.) Again, this appears to be an issue for the Mondavis. Under Robert, there were few California wineries making better or more influential wines. Under Timothy and Michael, by contrast, there have been a series of oenological and managerial mistakes:
Timothy's winemaking style came under fire. Influential critic Robert Parker Jr. blasted the company's 1998 and 1999 vintages in his newsletter as, "indifferent, innocuous wines that err on the side of intellectual vapidness." Wine Spectator critic James Laube said the wines were "not terribly inspiring." [I've noted this myself.]
The market was changing as consumers became enamored of so-called cult wines from boutique vineyards and inexpensive foreign imports pushed by low-cost retailers such as Costco. It wasn't easy for Mondavi, which was caught between these two trends, to adapt. "Michael's exuberance caused the company to bite off more than it could chew," says Gayle Dargan, a former senior vice president at the winery.
And so now things are starting to sound like a Falconcrest episode (boy will that allusion date me):
In January, the family and outside directors voted to replace Michael as chairman of the company. In his place, they installed Ted Hall, a former McKinsey consultant who owned a nearby farm and had been recruited to the board just one month earlier. The company says the vote was unanimous. Robert played a role in the ouster of his eldest son. According to Robert's nephew Mr. Ventura, and friends of the family, Robert sided with the company's advisers who argued the business needed to be run by professionals and that the two sons should be given time off.
What a sad outcome it will be for what was probably the most influential Napa winemaking family of the latter half of the 20th Century if they end up as both a TV movie and a business school case on how not to manage family succession.
