Feil family feud: Eight years, tens of millions … for what?
By Barbara Spector
Three of the siblings who control The Feil Organization, a multibillion-dollar New York real estate firm, recently ended an eight-year feud after spending an estimated tens of millions in legal fees.
The family business, whose holdings include the Fred F. French Building on Manhattan’s Fifth Avenue, is said to be worth $7 billion.
Jeffrey Feil, who was groomed by his father, Louis, to take over the family business, has been fighting in court with his sisters Marilyn Barry and Carole Feil since the death of their mother, Gertrude, in 2006. Among other issues, the feud has involved dividend payments to the sisters and their contention that their brother withheld access to business records.
The siblings -- along with another sister, Judith Jaffe -- own the business equally. Jeffrey Feil contended in court that he runs the business the way their father, the founder, would have wanted.
The parties recently agreed to settle three different lawsuits in New York and Louisiana, according to the Wall Street Journal. Under the terms of the settlement, Jeffrey Feil will use a new formula to distribute dividends to his sisters. The board will include non-family as well as family members. Although Jeffrey Feil will name his successor, the successor will report to the board, whose power will increase.
“When we read this, we were just struck by what an inefficient process this was to uncover some very basic developmental solutions,” says Doug Baumoel, founding partner of Continuity Family Business Consulting, a firm whose specialties include conflict management, corporate and family governance, and organizational development. (Continuity did not advise the Feil family.)
Family business conflicts often arise because family members have differing interests, says Blair Trippe, Continuity’s managing partner. “There’s a built-in conflict in the structure of family business,” she says. “People have different roles, and different motivations and concerns based on their roles.”
For example, a family member who manages the business needs cash to fund the growth of the enterprise, while owners who don’t work for the firm seek a return on their investment. “Oftentimes, the owners are [merely] getting a dividend, and nobody is engaged,” Trippe says. “If people don’t really understand the asset, they jump to conclusions.”
The most effective way to manage conflict is to focus on development, Baumoel and Trippe explain. Development approaches take two forms: structural development (creation of governance structures such as those the Feils ended up with) and personal development (understanding one’s own interests and the interests of others).
When family conflicts escalate into legal battles, the underlying reason generally is that family members’ identities are wrapped up in the positions they stake out, so that winning becomes about more than just the money, Baumoel says.
“It’s rare that people first jump to court,” Baumoel says. “They try to do some negotiation, they run into a dead end because you can’t negotiate values and identity, and then they rush to court.”
Litigation has its place, Baumoel and Trippe note. A court decision, for example, can clarify a legal point. But “in broad-based litigation, everybody loses,” Baumoel says -- and Trippe adds that the family’s dirty laundry gets aired in the process.
The Wall Street Journal noted that Jeffrey Feil probably would have had to take on partners in order to buy out his sisters had he chosen to go that route. The partners would likely have offered less than full value because of the fire-sale situation. And the siblings would have incurred high tax bills had they sold any of the properties.
“They could have had an understanding that selling out to buy each of [the sisters] out was going to be really difficult,” Trippe says. “It was not really in anybody’s interest to do it that way.”
Although the siblings continue as business partners, their relationships are strained, the Journal report said.
“It’s a shame that they went through this in the first place,” Baumoel says. After having spent tens of millions in dollars fighting in court, he notes, the siblings agreed on a developmental resolution -- “which is what they needed anyway.”