The dissolution of a partnership can be fraught with conflict, especially when the business is all in the family.
Here’s a great example about dealing with a dissolving partnership that involves close bonds outside of the business relationship.
As Charles V. Bagli reported in the New York Times, three New York brothers proved that careful planning—and a willingness to trust in fate—can be keys to a peaceful breakup.
From the ground up In the early 1970s, armed with $100,000 from their Iranian immigrant father, brothers Henry and Tom Elghanayan began investing in apartment buildings in New York City. Joined by brothers Fred and Jeff, the four built a multibillion-dollar empire, the Rockrose Development Corporation, by renovating and developing properties in up-and-coming neighborhoods.
Henry got an itch to strike out on his own as a developer.
He wanted to enlist partners in an investment fund—an idea his brothers opposed—and clear the way for his son, Justin, to eventually take over the family business.
When Henry approached his younger brothers Tom and Fred about breaking up Rockrose, writes Bagli, they were taken aback. Fortunately, however, they had a blueprint to guide them.
Back in 1989, brother Jeff, an architect, had left the business for California. To buy him out, the brothers resorted to a binding arbitration process with their father, Nourallah, serving as the arbiter. Afterward, the brothers hashed out what they believed would be a better way to separate, should the need arise.
Following the Blueprint
In January 2009, the three brothers put that plan into action. First, they engaged in an auction that would earn one of them the right to separate their real estate assets into three different “piles.” Brother Fred, the winner, was charged with creating the piles. He had an incentive to be fair, as he would receive the pile that remained after his brothers made their picks.
On March 4, 2009, Henry won a coin toss that gave him the right to choose first. He chose the pile
containing the Rockrose name and most of the group’s development properties, as well as eight residential buildings. Tom and Fred, who would continue working together, were left with 13 more apartment buildings, some office buildings, and other properties.
The breakup was set for June, but the two sides continued to negotiate until September. In the end, Henry traded back many of the development sites to his brothers in return for some parcels of land in Long Island City. Each brother was satisfied with the final outcome, and their relationship remained intact.
An Amicable Separation
A few years ago, Henry heard Princeton University game theorist Ingrid C. Daubechies give a talk about a problem that involved dividing property fairly among a number of players. After the talk, he asked her what she thought of the solution he and his brothers had devised. According to Daubechies, the Elghanayans had come up with what game theorists refer to as an “envy-free” solution. Because the arrangement capitalized on the brothers’ different preferences, it would leave each side feeling they had scored a victory.
“This procedure was cooked up by all three of us,” Tom Elghanayan told the New York Times. “It was not a lawyer’s construct. In many ways it was like a chess game.”
But unlike the typical chess match, this game had three winners, not one.
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