Last June, M. Richard Robinson, Jr., the 84-year-old chair and chief executive of Scholastic, Inc., publisher of a huge library of children’s books including the Harry Potter, Captain Underpants, The Magic School Bus, and Hunger Games series, died suddenly while taking a walk. What happened next, as the New York Times reports, “surprised everyone.” A business succession plan can help a business continue to operate as usual and facilitate the smooth transition of ownership. The importance of having a succession plan in place to address what happens regarding the transfer of ownership and daily operations for a business if an owner or officer dies is illustrated by considering an example of what can happen when the owner of a business does not have a clear succession plan in place, as happened with Scholastic.
Scholastic is a public company and a large publishing house, but it is also a family business. It was founded by Robinson’s father in 1920, and, until Robinson’s death, the company’s Class A shares were all owned by Robinson or in family trusts for Robinson’s siblings. Robinson, however, did not leave his interest in the company to his two adult sons, to his siblings, or to a family trust. Instead, Robinson left his interest in the company, consisting of more than half of the company’s Class A stock – estimated to be worth approximately $1.2 billion – to Iole Lucchese, a longtime Scholastic employee. Robinson described Lucchese in his Will as his “partner and closest friend,” and Lucchese reportedly had an office romance with Robinson in the past. The bequest turned out to be a surprise to Lucchese, to the company’s executives and board, and to Robinson’s family.
As I discussed in previous blog posts, a surprise estate plan may provide plenty of necessary dramatic tension in a novel, but it tends to lead to anger, lawsuits, and unnecessary turmoil in real life. In the Scholastic example, the company’s executives and board apparently had no idea what would happen to Robinson’s stake in the company – and who would succeed him as Chair of the Board – prior to his death. Lucchese may turn out to be the right choice to be the next Chair, but the surprise bequest has already led to a bumpy ascent for her into that role.
Robinson’s transfer of his interest in Scholastic provides an unfortunate example of what not to do regarding succession planning for a business. At Scholastic, there appears to have been a breakdown in communication on multiple levels. First, Robinson, should have communicated to the company’s board his intent for transferring his interest in the company and discussed with the board the plan for his successor. In addition, it would have been prudent for him to discuss his plan with Lucchese and seek her input. As for the board, it should have initiated discussions with all key board members to discuss succession planning, so that the business would not be negatively impacted when a board member dies.
For companies much smaller than Scholastic, it remains important to have a business succession plan in place. Planning for who will take over a business should not in any manner resemble the sorting hat’s process of choosing the house for a student at Hogwarts – mysterious and unknown to all, until the announcement is made. Rather, a business succession plan should be the result of an interactive process that provides no surprises, both for the family and for the business.
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