Tuesday 25 July 2017

Family at war as 'destitute' son sues 'domineering' matriarch

Kilkenny Group's Marian O'Gorman faces an acrimonious fight over firm's 'constitution', write Dearbhail McDonald and Donal Lynch

Michelle, Greg and Melissa O’Gorman
Michelle, Greg and Melissa O’Gorman

Dearbhail McDonald and Donal Lynch

When she drew up her 'Family Constitution' seven years ago, Marian O'Gorman, matriarch of the Kilkenny Group, sought to draw a line under a series of high-profile disputes with her brothers and sisters that had tarnished an otherwise outstanding reputation as an entrepreneur and chief executive of one of Ireland's leading, luxury retail dynasties.

The O'Gorman Family Business Constitution, which established the agreed principles and practices to be observed by O'Gorman and her four adult children with regard to the ownership and management of the Kilkenny Group, aimed to "encourage the family to stay together as a unit and enjoy the fruits of the business for generations to come".

Under the partnership agreement, which contains an "inviolate" personal code of conduct, drugs and gambling are banned, abuse of alcohol can not be condoned and family members are expected to dress appropriately.

Marian O'Gorman and her four adult children - Greg, Michelle, Melissa and Christopher - could not apply to the group for loans as this was agreed to be "bad business practice".

Personal guarantees were banned outright and no one could pledge their holdings as security for personal loans or third party borrowings.

In the event of her premature death, or incapacity prior to her planned retirement date, O'Gorman's husband of 40 years, Michael O'Gorman, would receive €100,000 a year until he reached the age of 65.

Conflict management was key - 'family fun' was high on the constitution's family code of ethics and younger members of the families were encouraged (but not pressurised) to apply for summer jobs "to encourage a business ethos" in the next generation.

Under the rules of conduct for siblings, parents and in-laws, siblings were obliged to support one another in public and speak positively of one another to spouses. Disputes were to be discussed privately and, in the event of major fallout, a mediator - and ultimately an arbitrator - would be deployed to resolve any issues and keep them far from public view.

Every contingency, it seemed, had been catered for in the 28-page constitution.

But last week a rip tide tore through the heart of the O'Gorman family when Greg O'Gorman sued his mother Marian in the High Court alleging she had reneged on the 2010 deal which, he says, means the Kilkenny Group is held in trust for him and his siblings.

Greg O'Gorman is at pains to stress that he has no dispute with his siblings: they are notice parties in the action as his legal action may affect their interests. In an explosive statement of claim, O'Gorman describes his mother as "by nature a domineering, aggressive and belligerent person" with a "well-documented propensity for acrimonious dispute with close family members".

The opening salvo, which included claims that Greg O'Gorman, his wife and three children aged under the age of eight had been left "financially destitute" after he was "summarily" dismissed from his job last summer, was enough to lead High Court judge Mr Justice Brian McGovern to implore mother and son to seek mediation to prevent a family dispute involving a successful business being explored publicly.

Kilkenny's flagship store on Dublin's Nassau Street Picture: Arthur Carron
Kilkenny's flagship store on Dublin's Nassau Street Picture: Arthur Carron

"Unfortunately," Greg O'Gorman's senior counsel Rossa Fanning told Judge McGovern, there was a "history of acrimonious disputes" which Mrs O'Gorman had found herself at the centre of over the years.

If the family feud tearing through the O'Gorman family feels like history repeating itself, it is because the Kilkenny Group, with 15 retail stores around the country and a thriving online portal, is itself the offspring of number of prior, bruising family conflicts.

The first split emerged over the future of Blarney Woollen Mills, a company which was founded by Marian's father, Christy Kelleher.

Christy Kelleher's death in 1991 led to a power struggle among his children - Marian and her sister Freda had a major falling out that year, the latter going on to form another business, the hugely successful Meadows & Byrne lifestyle chain.

This dispute was followed in 1999 by a High Court battle when Marian, her husband Michael and her sister Bernadette Kelleher Nolan went to court to stop their brothers Pat, Frank and Kevin from removing Michael from the group's board.

At the time it was thought that the move was part of a plan to remove Marian as chief executive. The stand-alone Kilkenny Group, which had originally been owned by the government, and bought by Blarney, was carved out from the group as part of the settlement, with the brothers retaining the Blarney Woollen Mills shop on Nassau Street in Dublin, and a share in the Blarney Park Hotel as well as other assets.

Relations between the various factions of the family remained strained - Greg O'Gorman claims that "significant business assets" were sold following the settlement of the second family dispute when Marian Gorman had a separate acrimonious family row with her sister Bernadette.

Greg O'Gorman has also claimed in court papers that there are a series of recent or pending employment law disputes involving key personnel, including "serious allegations of bullying" against his mother by named staff members.

The underlying tensions were acknowledged in 2015 by Marian O'Gorman when she told the Sunday Independent that she still doesn't speak to some of the family members who opposed her in the two court cases.

"We try very hard to keep the emotional side out of it," O'Gorman told this newspaper. "There isn't a lot of conflict."

Whatever the internal dynamics, to the outside world the family-owned Kilkenny Group was an extraordinary success that looked set to be passed to future generations without the turmoil that had afflicted previous ones.

According to Greg O'Gorman, Clydaville Investments Ltd - which carries on the business of luxury design under the "Kilkenny" brand and employs 300 people - increased its turnover under his watch from €18m in 2010 to approximately €30m in 2016 and that profits rose from €300,000 to €1,500,000 over the same period.

Turnover was €27m in 2015, says Greg O'Gorman whom the High Court has heard secured a preliminary desktop valuation of some €50m for the business, including its "significant" property assets. Greg O'Gorman says he returned home from London in 2003 at his mother's request to work as retail manager in the company's then under-performing Galway store. In the intervening years, he worked his way through the upper echelons of the group driven, he says, by his mother's promises that his efforts would be rewarded by way of a transfer of a shareholding in the company to him.

Marian O'Gorman
Marian O'Gorman

O'Gorman said he became the "public face" of Kilkenny and identified a series of initiatives he led that fuelled this growth.

These include the sourcing and securing of new retail locations at Swords Pavilions and Whitewater Shopping Centres and other locations, the initiation of the Kilkenny Irish Craft and Design Week that went on to secure external corporate sponsorship, the introduction of May and November sales events which he says have been the "key drivers" of some €2m increased turnover and associated profitability.

O'Gorman also claims that he developed and grew www.kilkennyshop.com, which achieved annual 50pc revenue growth and in excess of €1m in 2016 alone.

He also claims he developed and managed the company's database, which has details of more than 350,000 customers, which he describes as "a key business resource".

O'Gorman says he worked tirelessly, through long days, nights and weekends - at "significantly" below market-level compensation - to drive growth in the business, a growth he would enjoy as a 25pc equity holder - his siblings also enjoying a 25pc shareholding each.

One former company board member told the Sunday Independent that Greg was regarded as hard-working and disciplined, a far cry from a privileged son who inherited the silver spoon.

The peaceful transfer of ownership of the Kilkenny Group to Marian O'Gorman's children appeared to have been given effect to in the O'Gorman Family Business Constitution, a September 2010 draft of which has been submitted to Judge McGovern as part of the litigation.

The Constitution seeks to perpetuate the family's shared values "through the generations to come". The Constitution states that while the shares in the group are currently held by Marian, it is her wish to pass the benefit of her shareholding to her children equally with the creation of a structure that allows the family to own and control the business collectively rather than through individual shareholdings. This was to be done by Marian O'Gorman transferring her shares to a family partnership, initially comprising five partners - Marian and her four children. The document states that Marian will have "ultimate and final voting rights and decision-making authority", the quarter owning the value of the partnership. "At a time of her choosing Marian will transfer decision-making authority to the collective will of the partnership," reads one clause.

That clause was followed by another which states "Marian will continue as the named shareholder of Clydaville Investments Limited but will hold the holding in trust for the O'Gorman family partnership".

Read More: Previous family disputes - as alleged by Greg O'Gorman in litigation against his mother Marian O'Gorman

The document goes on to state that The Family Partnership will comprise four equal partners - Greg, Michelle, Melissa and Christopher - with Marian as managing partner.

"Marian, as managing partner, will have no direct equity participation in the partnership but will have a deciding vote in all decisions of the partnership for so long as she retains the managing partner role," read another clause.

The succession plan appeared to be working well, with reference to the children as "shareholders" when Marian O'Gorman announced new plans to grow the company, requiring potential changes to the family constitution.

Minutes from an O'Gorman Family Partnership meeting of March 5, 2015 cited the success of the Constitution, Michael O'Gorman noting how "respect and openness" underpinned it.

Changes to the family constitution were referenced once again in an August 2, 2015 email sent by Marian O'Gorman to EY, the accountancy firm, noting an agreement by each family member that the company could be sold within five to 10 years if profits were doubled within such a time frame.

Just a year later, Marian O'Gorman - according to her son Greg - read a prepared statement at an executive meeting of the company which turned the constitution on its head.

According to Greg O'Gorman, his mother declared at the June 22, 2016 meeting that the company would no longer operate as a family business and would no longer be referred to as a family business.

She is alleged to have told her family that she would have full control of the business going forward, that there would be no overlap between business and family and that those present at the meeting - including Greg O'Gorman - had "responsibilities but no rights".

Within weeks, Greg O'Gorman was no longer working at the family business and hasn't worked since. He claims he was "summarily dismissed" with a demeaning letter and lodged a claim for unfair dismissal with the Workplace Relations Commission last December.

Staff were told that Greg had simply moved on and that there was no conflict.

But there had been rancour for some time.

According to sources, a difference of opinion occurred about advice from external consultants, which led to clashes within the family about the direction of the business.

This in turn led to the formation of two factions within the family, with Greg and his father Michael on one side, and Marian and her daughters Melissa and Michelle and brother Christopher on the other.

Greg O'Gorman makes no criticism of his siblings, but the dispute is tearing the family apart.

The validity of the constitution, which is subject to a biannual review and can be amended or changed at any time by a majority of 75pc of all the partnership votes cast, is the crux of the legal action between mother and son.

The Sunday Independent put questions to Marian O'Gorman. Her spokesman replied: "No comment."

The constitution could also prove key to the Kilkenny Group's future. Greg O'Gorman wants a declaration that the September 2010 document is valid, was repeatedly affirmed since its inception and holds that he, along with his siblings, is a 25pc equity partner. Should the court find that the constitution was aspirational or is otherwise a non-binding document, O'Gorman wants the court to declare that he - buoyed by his mother's representations about the future ownership of the company - has part-performed it in any event by growing the business for more than 13 years.

This nuclear family is also facing the nuclear option of a winding up order or the appointment of a receiver - Greg O'Gorman is seeking these extreme options "in so far as is necessary".

He has asked the Commercial Court to fast-track the case as he believes the Kilkenny Group is set to make major decisions about its future within months. "There is a particular urgency in having this claim resolved in early due course due to its significant commercial importance to all parties and especially the company stakeholders and numerous employees who are not party to these proceedings," he said in a sworn statement.

"I am aware that over the course of the next number of months, there are critically important decisions to be taken concerning the future strategic direction of the company of a commercially sensitive nature."

His mother has consented to the case being admitted to the Commercial Court, but hopes of a happy ending for this retail dynasty appear remote.

Sunday Indo Business

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