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Monday, December 13, 2021

Succession finale does Bus Orgs--please explain

Succession's Season 3 finale aired Sunday. The big story development involves Bus Orgs stuff about which I know nothing and that I hope someone can explain. (After the jump to avoid spoilers)

First, a preliminary shout out to Mog. Mog is a cat in a series of children's picture books. The episode opens with Logan reading  Goodbye Mog to his too-old-for-this-book grandson. In the book, the cat dies but hangs around as a ghost to guide the family's new cat. Using this as the episode opening references the cliffhanger of Episode 8, which left people wondering whether Kendall had died. We got a kick out of the scene because someone gave us this book (and only this book--nothing else from the Mog series) when our kid was a baby and we all found it a bit freaky for a children's book. We joke about our four former pets "mogging" our new dog to help her become part of the family.

OK, here is the bus orgs part.

The episode centers around Logan selling the family company to a larger company, a move that likely would push Kendall, Shiv, and Roman out of positions of power. They attempt to stop it through the following move: The articles governing the holding company (which owns the family company) provide that no move can cause loss of family control without support of a super-majority of the owners of the holding company. The owners include at least Logan and his four children. It is not clear if there are others, if the requirement is a super-majority of shares or shareholders, and how many shares each person knows; what is clear is that without their support the deal cannot go through. We also learn that the super-majority provision was established as part of Logan's divorce settlement with his second ex-wife, Caroline (Kendall/Shiv/Roman's mother), to protect her then-minor children.

The plan fails when Caroline screws the kids over by doing something that enables Logan to move forward without his kids' approval. The question is what, exactly, she does.

• Caroline tells the kids that she renegotiated the divorce settlement (in exchange for something, likely Logan's help getting her skeezy new husband a peerage) to eliminate the super-majority requirement. But its that possible? Can the divorce settlement legally create (and then eliminate) the super-majority requirement in the company's organizing documents and rules? It seems to me the settlement would have required Logan to put that requirement in the company regulations, where it now remains. Changing the divorce settlement cannot change the company regs; the company must do that. And presumably Logan cannot change those regs unilaterally without some notice and approval of the three kids who now enjoy legal rights as adult owners.

• Maybe the regulation requires a super-majority of shares, Caroline remains an owner of the holding company, and she threw her shares behind Logan's share to create a super-majority of shares that can outvote those of the kids? That would make a bit more sense, although it has nothing to do with renegotiating the divorce settlement.

Is there some other explanation? Is this another instance of the show (in the eyes of some profs) playing fast-and-loose with how corporate governance operates in the interest of the drama of how badly Logan and Caroline treat their children (as Shiv says, "we just walked in on Mom and Dad fucking us")? The story obviously defies reality in that they negotiate and complete a major corporate acquisition in less than a day, from a temporary villa in Italy. But I am wondering if anyone understands the mechanism that made the plot work.

Posted by Howard Wasserman on December 13, 2021 at 09:03 AM in Culture, Howard Wasserman, Television | Permalink


Two more things on this.

First, I've now had a chance to skim an actual primer on the law of voting agreements that's of fairly recent vintage. (Link below.) The primer covers DE and NY law. According to the fan wiki, Waystar is public, so it seems safe to assume it's a DE or NY corporation. In those states, the law is quite permissive when it comes to voting agreements. Specifically, most any restriction on transfer is allowed (look at Section VI starting on page 1172), although an absolute veto might not actually be. Otherwise, voting agreements are the just same as any other private contract. So I don't see why a divorce agreement couldn't include these kinds of provisions that dictate what Login and/or Caroline (mostly the former because the latter only holds 3%) could do with their shares, to the benefit of the children as third parties.


Second, I realize I've sort of been conflating the holding company and the public company. Again, hardly any details are available for the latter, and even fewer can be found for the former. But I think what I said about the public company would apply equally well to the holding company. If anything, there should be more flexibility on what can be done with the holding company in terms of restricting changes in control.

Now I'm just biding my time until an actual Corporate Law prof drops in to explain how I'm wrong about everything...

Posted by: kotodama | Dec 13, 2021 9:00:18 PM

I don’t follow the show, but I always enjoy a good biz orgs puzzle.

Again, without the benefit of having watched the actual episode, I’m a little unclear on the (fictional) facts. Your description says: “The articles governing the holding company … provide that no move can cause loss of family control without support of a super-majority of the owners of the holding company.” So in that case, it’d primarily be the articles of incorporation/corporate bylaws that establish this supermajority requirement. But according to Wikipedia’s episode summary: “The three siblings recall a clause in Logan and Caroline’s divorce agreement granting the children a vote over any change in company control[.]” Going by that description, the requirement would really derive from the divorce agreement instead. And I don’t view these two possibilities as necessarily equivalent.

Given the two potentially conflicting scenarios, I’ll consider each separately. Taking yours first—where the requirement arises from the articles/bylaws—I agree, it doesn’t seem to make sense. As an initial matter, it seems plausible enough the provision in the company regs could have been inserted by the divorce settlement. It’s unclear when the divorce happened in the course of the company’s history, but you can sort of piece it together. According to the Succession fan wiki, Logan was born in ’38, so he turned 80 in 2018. Kendall was 40 at that time, which makes his birth year ’78. Because Kendall was the oldest of the children with Caroline, and she had two later children with Logan, the soonest the divorce could have happened would be the early or mid-80s. It’s also not clear when exactly Waystar came into existence. The fan wiki says it was already expanding by 1985. So I guess it’s possible, as you posit, that the divorce settlement could have required the addition of that provision into the existing regs—because the divorce would certainly postdate the company’s founding—although I’m still not sure how that’d work precisely.

But in any case, I agree that, once the provision becomes part of the company regs, it has to be followed, notwithstanding any later changes to the separate divorce agreement. It’s hard for me to conceive of the regs actually incorporating the divorce agreement by reference directly. The far more plausible scenario is just that Login had a contractual obligation to ensure that the regs were modified, and once that happened, the divorce agreement was no longer relevant.

Your suggestion of thinking about it in terms of shares, not shareholders, is interesting too. I actually think it could work vis-à-vis the divorce agreement. Assuming that, like you say, Logan and Caroline have a supermajority if they pool their shares, they could have agreed not to do that for purposes of changing company control, unless their children approve. I believe such a side agreement between shareholders—i.e., outside the company regs—can be valid. And then it would make sense if Logan and Caroline later decide to remove the condition of the kids’ approval. That’s also closer to the Wikipedia description. However, according to the fan wiki at least, Caroline only has 3% of Waystar shares. So it seems unlikely she’d be the deciding factor in Logan amassing a supermajority either between the two of them or in concert with other shareholders too. But you never know.

Finally, the scenario from the Wikipedia description. Again, it mentions “a clause in Logan and Caroline’s divorce agreement granting the children a vote.” That seems related to your latter scenario. I think it works too. Let’s assume Logan already has some mechanism he could otherwise employ to change control if he wanted to. As part of the divorce agreement, I could see Logan agreeing to forgo using that mechanism without the kids’ approval. The kids were not parties to the agreement of course, but they could potentially exercise that veto power as third-party beneficiaries. So later, when Logan and Caroline decide to bypass the children, they just agree between themselves to remove the kids as beneficiaries by modifying the divorce agreement.

Posted by: kotodama | Dec 13, 2021 4:27:25 PM

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