Real Deal: The Case of the Misplaced Trust

BY KATE PETERSON

Editor’s Note: Real Deal scenarios are inspired by true stories, but are changed to sharpen the dilemmas involved. The names of the characters and stores have been changed and should not be confused with real people or places.

Tom Patrick had it all… A beautiful wife, two great kids, a tight circle of lifelong friends, and a remarkably successful business. For Tom, it was hard to imagine how life could get any better. He would often think back to that time nearly twenty five years ago, when he and Jill were newly married, and had just decided to move the store Tom had taken over from his father from its original downtown location. Tom had a vision of a jewelry “superstore” – a spacious, modern store that he could fill with the kind of selection that people would drive for miles to see. No one in the industry had built a store like this before – but he had family land, a strong balance sheet, a willing bank, a trusted industry advisor and a dream.

People in town thought Tom was crazy when they heard that he was building his dream store off the main highway, way out in the middle of nowhere. At first, they came out just to see “Tom’s Folly”, as they called it. What they found when they got there was a beautiful, comfortable store in a not-so-far-away place, with an amazing selection of beautiful jewelry, offering the same great value and warm personal service they’d always gotten from Tom and his Dad before him. Tom invested in an innovative, wide-reaching marketing program, and as the town continued to grow, just as his friend and advisor had predicted, more and more shoppers headed his way. In short order, Patrick’s became the destination of choice for every special occasion and celebration in the area. 

Maybe “crazy” had been an appropriate description for the time, effort and energy Tom put into Patrick’s Fine Jewelry over the years. On the up side, the store’s success allowed Jill to pursue her dream as well. She’d become a renowned author of children’s books, while being the stay at home mom she wanted for their two sons. She was always supportive of Tom and the business, but she had no involvement in the operation, nor any interest in being a part of it. On the down side, Tom’s focus on the store was all-consuming. As the business grew, he had less and less time for the hobbies he used to enjoy, or even for his family. He kept promising to slow down – to take the advice of well-meaning friends who would tell him that he should learn to enjoy what he’d built – but it seemed there was always just one more idea to pursue – one more thing that needed to be done.

No one knows for sure which of the “one more things” on the list Tom was planning to work on that Sunday morning last fall when he headed out to the store. He died of a massive heart attack in his car in the parking lot. Tom was 57.

One of the many things Tom had learned from his father was the importance of planning. Under his direction, Patrick’s day-to-day operation was run by a talented, dedicated, professional management team. Patrick’s had a strong brand identity in the market, and Tom had a long-standing relationship with the marketing firm that had helped him position and build the business for over twenty years. He had well-established associations with his vendors and a buyer whom he had groomed to do the job and positioned well within the business community. The sales floor and shop were run by two of the most capable, committed managers in the industry. He’d hired the people he needed to keep Patrick’s on the leading edge of technology. Most importantly, he had made provisions to take care of his business in the unlikely event of his demise. He knew that he would want the store to continue as a source of income for his family, at least until his sons (13 and 15 at the time of his death) were old enough to decide whether they wanted to run it or dispose of it, so at the advice of his estate planner, he set up a board of three directors who would act in concert to take over as CEO and direct the activities of the Patrick’s management team.

The day after his death, that board – consisting of Tom’s attorney, his accountant (both local residents and former high school classmates) and his long-time industry consultant and friend — began the difficult task of setting a course for the future of Patrick’s. Their first priority was to reassure the staff and the community that business would go on as usual, according to Tom’s wishes.

Things seemed to be moving along on auto-pilot for the first month. Store management, staff and customers were in shock over Tom’s death. Decisions that needed to be made in the store were being handled as they would have been had Tom been behind the closed door of his office. After the first month, though, things began to change. It seemed that two of the three board members, the attorney and the accountant, decided to give over control of the chair to the industry consultant, as the one who actually knew about the business and who was most qualified to take charge. Although he lived and worked several states away, he began to take an active role in the management of the company, directing day to day activities and making significant changes in merchandising and marketing strategies that had been highly effective for Patrick’s over the years. Many of the small changes were difficult to handle – but when the consultant released Tom’s trusted marketing firm and hired his own newly established entity to take over, the store’s management team objected vehemently. They were all told in no uncertain terms that they had no say in the matter and that this decision was made in the best interest of the store. They were also told that the board had authorized reasonable severance packages for anyone for whom the company’s leadership transition might be too uncomfortable.

Connie Ellison had been Tom’s sales manager for over 15 years. As the longest tenured member of the Patrick’s management team, she’d earned Jill’s confidence, as well as the respect of the staff, the other members of the management team, the customers and the community. She’d never gotten along with Tom’s consultant friend, however. She knew, as did the rest of the team, that what the consultant was doing was not only NOT in the best interest of the store, it was self-serving – possibly to the point of illegal conflict of interest. Severance package or not, however, she could not afford to lose her job.

THE BIG QUESTIONS: What should Connie do? With Jill still reeling from her husband’s death, should she risk upsetting her further by involving her in the politics of the board? Should she and the store’s management team try talking to the other board members? Are there legal issues of conflict of interest and fiduciary responsibility ay play here? What should store owners with no clear line of succession do to protect their business and family in the event of their death?

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