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Family Feud

Lawsuit exposes family rift in the making


Published:

Carlson Companies
Headquarters:
Minnetonka, Minn.
Revenues: $37.1 billion in
2006.
Employees: 170,000
CEO: Marilyn Carlson
Nelson
History: Started as Gold
Bond Stamps, a customer
loyalty company, in 1938
by Curt Carlson, using a
$55 loan. The company
expanded into hospitality
in the 1960s and ultimately
changed its name to
Carlson Companies in 1973
to refl ect its diversifi cation.
Businesses: Carlson
has six business units,
including travel agencies,
hotels, restaurants, cruise
companies and marketing
brands. Hotels include
Radisson Hotels and
Resorts, Country Inn &
Suites, Regent Hotels &
Resorts and Park Plaza
Hotels. Restaurants include
T.G.I. Friday’s and Pick Up
Stix. Its travel companies
include Carlson Wagonlit
Travel, All Aboard Travel,
Fly4Less.com, CruiseDeals.
com, SeaMaster Cruises,
Carlson Destination
Marketing Services and
Carlson Leisure Travel
Services, among others.
Its marketing companies
include Peppers & Rogers
Group and Gold Points
Reward Network.

Every family has its squabbles, yet they take on a whole new meaning when that family owns an international, $37 billion business with many well-known brands and tens of thousands of employees.

Which was why Curt Carlson structured Minnesota-based Carlson Companies in a way to keep the business in the family while keeping those family members at bay.

Those efforts are about to be put to the test. Curtis Nelson, the late founder’s grandson, sued the company in April, saying it denied his promised place at the top of the corporate ladder. And he lays most of the blame on the company’s CEO—his mother, Marilyn Carlson Nelson.

The lawsuit exposes a family rift years in the making and threatens the future of the franchisor of hotel and restaurant companies such as Radisson, Country Inn & Suites and T.G.I. Fridays. It includes accusations of broken promises, bad business decisions, drug use and even the failure to pay franchise fees.

The feud also brings Carlson Companies into a not-so-exclusive club of family businesses hit by lawsuits involving the founders’ heirs. Just over the last year, for instance, companies ranging in size from a Cincinnati hot dog restaurant to the firm that controls CBS were marred by lawsuits among family members. Experts on family companies say such problems are not uncommon.

Mark Silverman, who runs family business consulting firm Strategic Initiatives, said that only 13 percent of family businesses make it to the third generation—the transition Carlson Companies is trying to make. Only 2.5 percent make it to the fourth. While many family businesses sell or go public, “the reason most of them fail primarily have to do with conflict,” he said.

Carlson Companies’ story is the stuff of legend. In 1938, Curt Carlson used a $55 loan to found customer loyalty company Gold Bond Stamps—a fact repeated throughout the legal filings by Curtis Nelson, his mother and the company. Over the years, Carlson grew the company into a massive business that oversees numerous brands, including several hotels, travel agencies, restaurants, marketing, and customer loyalty businesses. The company employs 170,000 people in 150 countries. Curt Carlson died in 1999.

Nelson filed his lawsuit in April after he was denied the CEO job last year, and his efforts failed to either buy the company outright or secure the 14-percent share of Carlson Companies held in a trust under his name. Carlson’s board offered Nelson a position as company vice chairman, but he declined.

In his lawsuit, Nelson said he had a “reasonable expectation” that he would get the job one day, based on promises from his grandfather and others at the company as well as his own performance. Nelson began working with the family company in 1989, when he was 25, and worked his way from managing a Virginia Radisson to company president and chief operating officer by 2003.

Nelson said that he had run every major business unit at one time or another, and when he was president served as the “de facto” CEO of Carlson. He also charged that his mother had little understanding of how to run the business units and often couldn’t comprehend financial statements. Yet he claims that Carlson Nelson was reluctant to give up the title she received in 1997 and sought to delay transfer of power before eventually telling her son he couldn’t have the job.

In their responses, both Carlson Nelson and the company portray Nelson as a different character, one who has spent years clamoring for the CEO job. They also note that Nelson will receive his entire $5.5 million 2006 bonus in addition to ongoing distributions from his trust, which totaled $5.4 million from 2004 to 2006.

Carlson Companies’ response alleges long-held concerns about Nelson’s leadership ability, citing “inconsistent behavior, an explosive temper and a lack of mature business judgment.”

“The entire board of directors of Carlson Companies Inc., including Curtis Nelson’s parent, sister, aunt, uncle, cousin and three outside pre-eminent business professionals unanimously concluded it was not in the best interest of the company to elect Curtis as CEO,” the response says. “Curtis’s response is the present lawsuit, which seeks to blame his mother—an internationally acclaimed business executive and inspirational leader—for his own failures. In fact, his mother…was his biggest supporter.”

Jon Austin, a spokesman for Nelson, said in an e-mail response to questions that “any objective review of Curtis’s tenure at CCI will actually show just the opposite” of the company’s portrayal. “He was an excellent manager and discharged his responsibilities to the benefit of Carlson Companies and its shareholders.”

The company has also filed a countercharge, saying Nelson was a hotel franchisee while an executive with the company, and yet never paid nearly $600,000 in royalties. The company also claims Nelson used company property to order large amounts of prescription drugs from several online pharmacies, along with “Quick Detox,” which promises that its users can “pass any drug test.”

Austin said Nelson will address those allegations in response to the suit, but noted that Nelson has publicly acknowledged that he is an alcoholic, and that he developed an addiction to prescription painkillers after his liver transplant in 2002—an addiction he disclosed to the company, Austin said.

The main issue, however, is whether Nelson even has a chance at his share. Fearing a family squabble, Carlson placed 98 percent of the company stock—which is non-voting—into seven trusts, one in each grandchild’s name. The rest, which is voting stock, was placed into two trusts, one in Carlson Nelson’s name, the other in the name of Barbara Carlson Gage, Carlson’s other daughter.

Nelson believes he is entitled to the share in the trust under his name. The company, however, says that the trusts were established to keep him from succeeding in making that very demand.

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