The dispute over the Buss family’s remaining ownership of the Los Angeles Lakers escalated this week, turning one of professional sports’ best known family ownership stories into a timely succession planning case study.
Five of Jerry Buss’s six children, Johnny, Jim, Janie, Joey and Jesse Buss, have publicly backed selling the family’s remaining 17.8% interest in the Lakers. Their sister, Jeanie Buss, is contesting their ability to do so.
Her position is that the family trust and a 2017 court order protect the ownership structure that allows her to remain the Lakers’ controlling owner. Her siblings say it is time for the family to exit.
The disagreement raises an important question for any owner planning to transfer a business to multiple children:
Jerry Buss had an estate plan. But did the Buss family have a succession process?
Transferring Ownership Is Only the Beginning
When Jerry Buss died in 2013, his ownership of the Lakers passed through a family trust to his six children. Jeanie Buss assumed the leadership role her father intended for her, while her siblings shared in the family’s ownership.
In many respects, the plan worked.
Buss created a trust, transferred a valuable asset to the next generation and established who would lead.
But transferring ownership does not resolve what happens when the next generation eventually wants different things.
The Buss family faced an earlier version of that problem in 2017, when Jim and Johnny Buss challenged Jeanie’s control. Today, the issue has moved from who controls the Lakers to whether the family should continue owning them at all.
That distinction is important.
Leadership, Control and Economics Are Different Questions
When several children inherit a family business, succession planning needs to address three separate issues.
Leadership: Who runs the business?
Control: Who has authority over the major ownership decisions?
Economics: How does each owner realize the value of his or her interest?
Those answers do not have to be the same.
The child running the company can have voting control without requiring every sibling to remain invested indefinitely. Other children can participate in the economic value of the business without having equal management authority.
If an owner eventually wants out, there should also be a defined path to liquidity.
That means deciding in advance how an owner can exit, who has the right to purchase the interest, how the interest will be valued and how the purchase will be funded without putting unnecessary financial pressure on the business.
This is where a succession process goes beyond simply transferring shares.
Do Your Children Actually Want to Be Business Partners?
There is another question that should be asked before ownership is transferred:
Should all of the children inherit the business?
Treating children fairly does not necessarily mean giving them equal ownership.
If one child wants to own and operate the company while the others want financial independence from it, dividing the company equally may create a problem rather than solve one.
Depending on the family’s circumstances, other estate assets, insurance, investments or a structured buyout may allow a parent to treat children equitably without requiring them to become permanent business partners.
The important point is to have those conversations while the founder is still able to participate in them.
Children who are comfortable owning a business together today may have very different objectives 10 or 15 years from now. Their financial circumstances change. Their involvement in the company changes. Their families change. Their appetite for having a substantial portion of their wealth tied to one business can change as well.
A succession structure needs to account for that possibility.
A Succession Plan Is Not the Same as a Succession Process
Jerry Buss successfully transferred the Lakers to his children and established who would control them.
Thirteen years later, the family is confronting the harder question:
Could six children with different interests continue to own the Lakers together?
That is the issue business owners should take from the Buss family dispute.
A succession plan can establish what happens to the business when the founder is gone.
A succession process goes further. It establishes how the next generation will govern the business, resolve disagreements, create liquidity and adjust when the objectives of individual owners change.
If you own a family business, do not wait until the next generation is sitting around the table to discover whether they actually want to be business partners.
Build the ownership structure, governance process and exit mechanisms into the succession process before the transition occurs.