Business Succession in Turbulent Economic Times: The Hyatt Hotel Debacle and Other Lessons Learned From the Trenches

In these tumultuous economic times, your business succession plan is one variable you can control. Why should you take action now? The upheaval shaking the family-owned Hyatt Hotels Corporation during the past few years provides a cautionary tale for all family business owners. The Pritzker family of Chicago, which founded the hotel conglomerate, exemplifies the challenges faced when planning for multi-generational business succession under difficult economic and political circumstances.

The death of the Pritzker patriarch, Jay Pritzker, and the resulting dispute between family members, triggered a fire sale that has gutted the family's business holdings during one of the worst economic downturns for the lodging sector since September 11th. The disintegration of the family's business conglomerate, worth billions of dollars, occurred despite the patriarch's clear intention that the structure remain intact after his death. What went wrong?

• Failure to build consensus among the interested parties as to the final result
• Reactive planning in the face of an impending health crisis (or any financial, age, or market-related trigger)
• Dynasty trusts, while excellent tools for transfer tax planning and liability protection, are not necessarily the best mechanisms to manage family businesses in the long term.
• The fiduciaries, as the controlling executives of the family business, awarded themselves excessive compensation

Traditional estate and corporate plans with autocratic and restrictive management structures are no longer sufficient to address the needs of business owners in the current environment. Any business succession plan must retain the flexibility to be updated frequently to address changing circumstances and family dynamics. And an ongoing review of the plan, once implemented, is an absolute necessity.    

If you have any questions about the information presented here, please contact Patricia M. Annino, chair of the Estate Planning and Probate Practice Group at 617 456 8009 or pannino@PrinceLobel.com.