Two decades after the death of legendary jeweler Harry Winston, the business he founded is likely to pass out of family hands.
Son Ronald Winston, the current president and CEO, vows he’ll sell the business “over my dead body,” but he’s been given little choice by a Westchester County, N.Y., judge.
Judge Albert Emanuelli has directed trustees, who hold virtually all the Winston stock, to sell the company and distribute the estate’s assets to Ronald and his younger brother Bruce. The two brothers have waged a costly seven-year legal war over the fate of the firm. Ronald wants to keep control, while Bruce wants the business sold to satisfy his right to half of Harry’s estate.
The judge’s decision instructs attorneys for two of the trustee-owners to recruit an investment house to handle the sale. Those attorneys say they already have begun interviewing potential candidates. The decision also thwarted a move by Ronald Winston to have the court order the trustees to accept a $28 million offer for Bruce’s half of the business.
The legal battle thus far has cost an estimated $10 million. It pits Ronald, who has worked in the firm for 27 years, against Bruce, who Ronald claims wants only to sell it off to finance his high living style. In court papers Ronald noted, “in the years Bruce served on the company board, he often asked others in the company to assume his duties for him and showed a general lack of interest in Harry Winston Inc.”
Bruce, in turn, charges Ronald with mismanagement. He says Ronald cost the company as much as $200 million by investing in questionable ventures such as failed movies and by neglecting the business to pursue hobbies such as an attempt to try out for the 1988 Olympic games. He also charges that his older brother is seeking to squeeze him out of his inheritance.
What swayed the judge in Bruce’s favor was his contention that the primary intent of their father’s will was to provide his sons with an equal inheritance. Ronald argued that Harry’s main intent was to keep the business in family hands under his own control. The judge ruled, however, that Bruce was effectively cut off from his inheritance because the company stock paid no dividends and offered him no income. Selling the company was the only effective way to provide it.
An American tragedy. Those who worked with Harry Winston Inc. during its glory days call this destructive legal battle a deep family tragedy.
“Harry started this business at age 19 just before the 1920s and built the greatest jewelry business in the world,” says one. “Now we’re seeing it torn apart.” He adds that the battles “could be a left-over curse from the Hope Diamond.”
Harry became a headline grabber in an industry usually known for discretion and secrecy. He had tea with Britain’s royal family, acted as personal jeweler to the Duchess of Windsor and was immortalized by Marilyn Monroe in the song “Diamonds are a Girl’s Best Friend.”
Many of the world’s great diamonds went through his hands. Among them were the blue Hope Diamond, which the great French adventurer Jean Baptiste Tavernier carried from India to King Louis XIV of France in 1669, and the Taylor-Burton Diamond, which Richard Burton presented to Elizabeth Taylor in 1969.
He was the benefactor of New York’s diamond community during the Depression, when many found it tough going. And he helped give it world class status by having such stones as the 726-ct. Jonker cut in New York instead of in Antwerp.
A death in the family. Although Bruce long pushed to sell the firm, court documents say the brothers worked in relative harmony until after their mother Edna’s death in 1986. Under Harry Winston’s will, the brothers were to receive equal shares in the business upon her death. The will stated that Ronald could have his shares outright, but Bruce’s would be parceled out over a 25-year period; he was to receive 10% of the company stock every five years.
When Edna died, Ronald was president of the company but its stock was held by three trustees appointed by Harry before his death – Ronald, Winston executive vice president Gerald Schultz, and a representative of Bankers Trust. A separate board, which actually runs the company, consisted of Ronald, Bruce and Schultz.
Early in 1990, Schultz retired from the company and from its board, but he remained a trustee. He and the Bankers’ Trust representative nominated William Wilkie to take his place as a director. Ronald objected, claiming the choice of Wilkie “was an attempt by Bruce and Bankers Trust to take over the company” and place it up for sale. Ronald then invoked a provision of his father’s will allowing him to override the trustees’ decision. In January 1991, Ronald called a special board of directors’ meeting at which he claimed his 50% share of the firm’s stock, parceled 10% to Bruce as provided for in the will and then used his preemptory power to dismiss Bruce from the board.
Thus began the legal barrage involving Ronald, Bruce and the two trustees, who generally have sided with Bruce in favoring sale of the firm.
An offer rejected. In the fall of 1992, Ronald offered to buy his brother’s share of the firm for $4.5 million, a sum purported to represent half the liquidation value. Bruce rejected the offer. A court-appointed appraiser valued the firm’s assets at $50 million, saying it was worth much more if potential buyers could bid for it as an on-going enterprise. Ronald then raised his offer to $17 million – an offer Bruce again rejected. In a September 1997 court filing, Ronald increased his offer to $28 million.
While these developments were occurring, the court suspended Ronald’s power to override his fellow trustees’ decisions and required Ronald to return his stock to the trustees’ control and abide by their majority decision. But the court set no deadline for the company sale and Ronald says he’s going ahead with plans to open a new salon in Asia this year.
Andrew Schau, attorney for trustee Gerald Schultz, will not name prospective buyers: “All we can say now is that we are interviewing potential investment bankers to assist in the sale of the common stock of Harry Winston Inc. and Harry Winston S.A. to a third party.” (Winston actually is two firms. Winston Inc. is incorporated in New York; Winston S.A. holds the Winston salon in Geneva, Switzerland. The trustees hold all stock in the New York company and 99% of the Swiss firm; Ronald owns the other 1% outright.)
Court documents say “several well-qualified bidders” have approached the court over the years but they do not name the bidders, saying identities are protected by a confidentiality agreement signed by all parties in the dispute. The documents reveal, however, that Ronald, “in his personal search for a partner to buy the company,” approached Tiffany & Co. Judge Emanuelli notes that the number of serious inquiries which have come through the court indicates “there is a competitive market of qualified buyers” for Harry Winston Inc. and that the sale of the firm would maximize its asset value to the estate.
More problems. Judge Emanuelli’s ruling on the company sale was the latest setback in Ronald’s quest to gain full control of the firm, which he has operated as part of the trustee group since his father’s death in 1978.
He faces two more suits. One, filed in Westchester County Court by Bruce and the two other trustees, charges that Ronald has mismanaged the company. The second, in Florida, involves the proceeds of his mother’s estate.
Ronald denies the allegations of mismanagement and steadfastly maintains that he’s looked after both the company’s and his brother’s interests. “Bruce is being manipulated by others who want to take over the company,” he says. The mismanagement suit was due to come to trial in February, but Bruce’s attorneys have petitioned the court for permission to order the company to turn over additional financial and corporate information.
Bruce Winston’s attorney, Edward Wohl of New York, says the review of documents will begin by March or April, but “we have no set trial date at this point.”
Court documents report that Harry Winston Inc. lost money in seven of the eleven years between 1980 and 1991, while Ronald’s annual salary increased steadily from $248,000 to $1.138 million between 1979 and 1990. Since then, there are conflicting accounts of the company’s fortunes. Judge Emanuelli referred to “Harry Winston’s 15-year history of unprofitability” in 1995, yet a Wall Street Journal article the following year said the company logged profits ranging from $181,000 to $1.2 million between 1992 and 1995. Ronald also claims he’s lowered his salary to about $200,000 yearly.
The brothers also are at odds over the proceeds of their mother Edna’s estate. In a suit still in trial in Broward County Circuit Court at press time, Bruce’s lawyers contend that Ronald, while acting as executor to Edna’s estate, sold millions of dollars worth of her jewelry without properly accounting for the proceeds. They also charge that he transferred $6 million from his mother’s account to the business trust shortly before her death in 1986 and refused to return it to the estate after she died. Wohl says that if the money were returned to the estate, Bruce would receive half of those funds outright instead of waiting years for them to be paid out through the company.
The attorneys want Ronald to account for a diamond necklace belonging to his mother which had an estimated value of $500,000 to $1 million. In a court document, current estate administrator Kenneth Mikos claims the necklace “has disappeared” from the estate. Bruce’s lawyers also claim that shortly after her death, Ronald sold a diamond ring and ruby necklace belonging to Edna “for less than fair market value.”
Most of Mrs. Winston’s jewels were sold at a Sotheby’s auction in October 1992, raising more than $5.2 million. The brothers split the proceeds.
The only point on which both sides seem to agree is that legal costs are sapping the company’s financial strength. Even the attorneys involved wish the brothers would settle. The litigation consumes many thousands of pages in six file cabinets of the Westchester County surrogate court.
Two years ago, Judge Emanuelli warned, “this case has all the ingredients for a hollow or Pyrrhic victory unless swift and extraordinary action is taken to stem the tide of loss and the compounding effect of overwhelming legal costs. The downward spiral of loss from the operation of Harry Winston since Harry’s death is well-documented in the corporate records.”