February 17, 2017    6 minute read

Is The Trump Organization Really Under New Management?

The King Is Dead, Long Live The King    February 17, 2017    6 minute read

Is The Trump Organization Really Under New Management?

Until the day he was sworn in as the 45th President of the United States of America, Donald J. Trump was the CEO and president of the Trump Organization, an extremely broad holding that brought Trump to be worth an estimated $3.9bn. The new president is facing strong criticism regarding the way he decided to hand over the baton of his company to the next generation. Is the emperor handing over the throne to his business, or is he just on vacation at the White House?

Trump Sr has kept ownership of the business and avoided making any move that would distance himself irreversibly from its management over the course of his term. Critics claim that the type of trust set up by Donald Trump to hand over the company does not create an irreversible legal situation: he may take back substantial control of the organisation at any time, especially given how close the trustees are to the President.

The trustees of the trust set up by president Trump, who will lead the company during his term, are his two oldest sons – Don Jr. and Eric -and his longtime trusted CFO Allen Weisselberg.

This harsh criticism set the foundations for more profound doubts. Is Donald Trump on a temporary leave from his beloved organisation or is this a truly permanent family business succession?

The Ownership Issue

Keeping ownership, as Trump Sr decided to do, is a strategy that doesn’t have any precedents in the modern history of the United States. Previous presidents have instead divested their assets and placed the liquid proceeds of such divestitures into blind trusts. This procedure manages to resolve conflicts of interest by having the above-mentioned proceeds reinvested by an independent agent. In this scenario, the president does not have knowledge of the where the proceeds of the divestiture have been reinvested. and therefore he cannot take measures to favour his personal interest.

Even if this method clearly resolves the conflict of interest issue for most presidents, Trump may have decided to do otherwise because of what the liquidation implies. The concerns over the issues Trump’s actions have created may, in fact, be altered with a change of governance. A change in governance alters the incentives that ultimately shape routines in a company, which are in turn what determine the daily ‘protocol’ driving a company to success or failure.

A Method To the Madness?

Liquidating Trump’s assets would have on the one hand been a major challenge in itself and, on the other hand, very difficult on personal and economic grounds. Trump’s main campaign focus was on his empire and how he would run America as well as he ran his business. Liquidating and, therefore, giving up his empire would have been economically berserk and personally challenging for a person who is used to having control over everything he is in contact with. The figure of the Trump businessman that has resonated so much with the voters would arguably have suddenly vanished if he had used a blind trust.

To put doubts on existing conflicts of interest to their demise, President Trump held an unusual press conference with Sherri Dillon, a lawyer at Morgan, Lewis & Bockius. Dillon, standing in front of a pile of document folders supposedly related to the handover of the business, discussed the details of it, reassuring the American people that the documents were “crafted to completely isolate Donald Trump from his business interests.”

In addition, President Trump also promised to not discuss business matters with his two sons. The Trump method of isolating from his business is in effect a ‘Believe Me’ isolation which has only as much worth as the president’s promises – as usual for the new President.

The Consequences of Trump’s Stake

What does all this imply for The Trump Organization? Firstly, the Trump name will, of course, be amplified even more, giving him a new type of advertisement reflecting his enormous status. This creates a double-edged sword for the organisation. On the one hand, the views of President Trump will affect current affairs through his foreign policy. The ‘Believe Me’ policy included that there will not be any further engagement in foreign deals during the term. Current and future domestic deals, though subject to thorough vetting, will be affected the most as they will constitute the majority of the company’s concern.

On the other hand, Trump’s prestige will undoubtedly be affected. The Trump brand might suffer given the extreme positions taken by Donald Trump and his governmental team. The overall effect will be ambiguous, though, and is difficult to assess accurately given the ‘B2B’ nature of Trump’s core business.

Secondly, the new team that will lead the company is composed of Trump’s two oldest sons and his trusted CFO. The two sons have been working with and for the organisation for more than a decade – starting from the bottom and working their way up, both reaching the positions of executive vice president for development and acquisitions, respectively.

The brothers have also obtained excellent pedigree in terms of education. There is a strong basis for innovation, as well as the reassuring presence of ‘old’ executives with a proven record of success.

Finally, this move could have been the best resolution for the succession challenge that every family business has to face at a certain maturity point. Passing management down to the next generation is a trouble that involves both moral hazard and asymmetric information. In this particular case, Trump Sr. was forced to hand over the business – but the burst of fame arising from his victory, the experience of his children and the reassuring presence of old proven executives, are all elements that arguably could mean that this will be a successful succession.

Conclusion

Is this the end of Trump’s businessman era or is he just going to come back in eight, four – or even fewer years, in case he is impeached?

The fact that he is not letting his business go, struggling as much as he is in handing over the throne of his business empire to his heirs, leads one to wonder whether president Trump truly wants to be in the position he is, or whether he already regrets winning the presidency. At any rate, he made very clear during the above-mentioned press conference that “[Don Jr. and Eric] are going to do a tremendous job” but, in case they fail, “You guys are fired”, he promised. And who would replace them in that case?

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