Newman's Own [kids] v Newman's Own - (Part One)
This was a series of articles from our newsletter.
Open up a cupboard or a fridge (that's our's in the photo) and the odds are high you'll run across something from Newman's Own - popcorn, salsa, salad dressing, lemonade, pasta sauce, the list is over 100 products long.
Paul Newman and a writer friend, A.E. Hotchner, started making salad dressing for friends, family, and colleagues in 1980. As news of how great it was spread, demand became so high they began selling it. In the first year they cleared $920,000. They immediately decided that the profits should go to charity.
In 1982, after adding marinara sauce, they formed Newman's Own, Inc. From the start it was a for-profit corporation that donated 100% of its net earnings to charities - many of them their own with a camp for children with serious medical conditions and their families - the Hole in the Wall Gang camp - chief among them.
Newman's wife, Joanne Woodward, and their four daughters became involved. In 1990, following the tragic death of Newman's son, Scott, from an accidental drug overdose, a rehab facility named in his memory was added as a prime beneficiary.
Paul Newman and Joanne Woodward kept acting and winning awards, but the family's business was now philanthropy. A daughter, Nell, developed her own organic food company that was soon allowed to use Newman's name and image and became Newman's Own Organic. All profits, of course, went to charity. Newman Organic products were noted for the iconic label of Nell and Paul in an American Gothic-like pose.
By 2007, with Paul Newman still at the helm, Newman's Own, Inc. had distributed over $270 million to charities, Hole in the Wall camps were established in countries all over the world, the rehab facility was full and funded, Newman Organics was threatening to outsell the original brands, 'professionals' were in charge of day-to-day operations, Joanne and the daughters were developing their own foundations to pursue charitable causes that were important to them.
Toward the end of 2007 Paul Newman turned over the company to 'the professionals' headed by an old friend with a background in management consulting and charities. He had a number of family meetings to review plans for the company's future, the charities, and the disposition of his estate.
Newman formed the Newman's Own Foundation, Newman's Own, Inc was gifted in whole to the foundation. While Newman was the sole member of the foundation he stated in an interview, "All my children get a certain amount to be able to give away every year and they will be giving away my estate as well…. Yes, they are involved. They sit on the board of the companies and the foundation.”
In September 2007, Newman was rushed to a hospital with severe pain in his back. There was a spot on his lung, he was operated on, the diagnosis was leukemia. He died in September 2008.
Within four years of his death:
- Newman's Own was valued at more than $500 million with annual sales in excess of $60 million. Over $15 million a year went to charities around the world.
- Newman's Own was facing a forced sale to pay a looming tax bill and penalty.
- Nell's picture was removed from Newman's Own Organics, the company was absorbed by the foundation, Nell was stripped of all responsibilities despite volunteering to work for free. .
- Funding was revoked for the Scott Newman Rehabilitation Center, the center closed.
- There were no Newmans associated - in any way - with Newman's Own.
- Three weeks ago the daughters sued the foundation in a Connecticut Superior Court.
What happened? We'll dive into it in a few days with Part II of Newman's Own v Newman's Own.
A hint - communication, timing, and not enough lawyers (really).
Newman's Own [kids] v Newman's Own - (Part Two)
Our last newsletter (click here for a refresher) left off with a long list of issues with the Newman’s Own foundation – not the least of which was the fact that there were no longer any Newman’s involved with Newman’s Own.
Two of Paul Newman’s daughters filed a lawsuit against the Foundation at the end of August. A court battle in Norwalk, Connecticut is about to happen but the issues that have finally come to a head have been brewing for decades.
It’s the story of one of the most famous, most well-paid actors of all time, married to another great, highly paid actor, who starts a for-profit company that grows to at least a $500 billion valuation, employs thousands but donates all its profits to charities – many of which are charities Newman formed.
Business and estate planning were essential to keeping the whole thing going as Newman’s Own became more and more successful every year from its founding in 1982.
Newman started to take care of his personal estate needs in the early ‘80s, working with his long-time business attorney (and close friend). He executed a will, several trusts, took care of his family.
Newman continued as the sole shareholder of Newman’s Own and his was the final say in the overall operations and strategy of the company while day-to-day operations were delegated to ‘professionals.’
In this, Paul Newman was not much different than many of Hopkins Centrich’s clients: a sizable personal fortune and a thriving company that he wanted to go on long after his death – with his family involved.
In the early 2000s, Newman formed a foundation, he was advised to put Newman’s Own into it. That was an enormous mistake, though it wasn’t caught at the time. If it had been, perhaps things would have been different for the advisors who recommended it, putting everything in jeopardy.
Having a foundation wholly own a for-profit company – regardless of where the profits went – would trigger, in five years, a provision in the tax code that would result in a 200% tax that would, in effect, close the company.
Paul Newman died in 2008, the tax was due in 2013. The foundation got a five-year extension. Over those five years, they spent hundreds of thousands of dollars lobbying congress for a change in the tax code. They got it at the last possible moment.
The rule was hardly in small print and tucked away in an appendix deep within the unread portions of the code. It had been in the code for 50 years and was – for a tax provision – starkly clear: a private foundation was not allowed to own more than 35 percent of a for-profit company for more than five years.
Good planning would have caught it. Good planning most definitely does not include relying on congress to amend the tax code.
There were potential ‘work arounds’ as other business owners and philanthropists had utilized over the years. They would have, however, led to the foundation ceding some measure(s) of control.
Control – of the charities, the mission, Paul Newman’s name and likeness, the foods the company sold - as we’ll see in the next newsletter, was the last thing the foundation was about to give up.
Newman's Own [kids] v Newman's Own - (Part Three)
About that control: at first, the foundation followed Newman’s wishes and released $400,000 a year to the daughters for them to contribute to their favorite charities as they saw fit. The rehab center named for Scott remained funded. No family members, however, were named to the board of directors. In fact, no family members were informed of anything the foundation was doing. Nothing.
They did get to listen to the CEO of the foundation as he, continuously, asserted that only he ‘really knew what Paul wanted,’ and “my job is to protect Paul.”
The family was also rocked by the fact that Newman’s will seemed radically different than what Newman had articulated over many family conversations since he drafted his estate plan in 1980. Less than a year before Paul Newman’s death, his will was changed. Things like a codicil Newman often spoke about – it left a favorite race car to a favorite driver, among other personal bequests – was nullified. His Academy Award was gifted to the foundation. It was the 12th and last change to his will but the first done without his longtime attorney who was never consulted. A few months later, Newman, in a state of confusion, called his old lawyer to talk about the new will.
When they questioned the foundation’s CEO, now seemingly in charge of everything Newman-related, he bluntly told them that any challenge to the will would result in them ‘getting nothing.’
The daughters took that to heart and, besides, "everything had to turn out okay, right?" After all, Paul had called innumerable family meetings to talk about the future of Newman’s Own, his estate plan, his charities, the foundation.
But, as a Bloomberg columnist recently noted, “They watched while Newman's Own, the foundation, and the estate were hijacked by the managers" .
It’s important to note as we wrap up our series that this is not about money. Yes, people say that all the time. “It’s the principal, it’s not the money,” but in this case it’s about charity and honoring a philanthropist’s wishes.
As their attorney succinctly puts it “This lawsuit does not seek personal compensation for Mr. Newman’s daughters, but simply seeks to hold Newman’s Own Foundation accountable to the charities they have shortchanged in recent years.”
They are asking for $1.6 million in damages to be sent to selected charities and that the foundation be required to adhere to their father’s original wishes.
They, of course, have no way to even discuss those wishes with the board when the CEO held that, “Paul never thought of Newman’s Own as a family enterprise ... At one time, he was giving some thought to having one daughter on each board serving a time-limited term, but ultimately decided against doing so.”
The CEO was removed by the board in 2019 for ‘inappropriate behavior,’ with employees. The new CEO changed nothing, the Newman family is still excluded from every facet of the foundation and the food company.
And so, the lawsuit.
We have no idea how this will turn out, we do know, however, that none of this should ever have occurred.
We’re writing about this because while this is a fascinating fact pattern with fascinating and infuriating characters galore, it is hardly unique to the Newman family.
Boiled down to its essentials, it’s the story of an eminently successful husband and wife, an incredibly successful business, an evolving estate plan, charitable endeavors, and a close-knit family at least peripherally involved in everything.
Business planning, though, was done on the fly – seemingly everything Newman did worked and worked quickly. The planning was always behind the success of the company. The estate planning was done over 28 years, Newman’s will was changed twelve times. The foundation – a great, obviously idea – was funded without regard to a potentially devastating IRS provision.
Coordination was essential and it was sorely lacking. The result: the last fourteen years between the Newman family and the Foundation has been one of “What Paul would have wanted” with the foundation always having the last word.
Paul Newman left plenty of clues over the years on exactly what he wanted but he never directly addressed it, wrote it out, broadcasted it, or in any way memorialized it.
The daughters saw the inconsistencies and looming problems almost right away. They waited, sure that things would work out, probably because things always ended up working out for Paul Newman and Joanne Woodward. They listened to a non-lawyer who was hardly unbiased when he told them, inaccurately, that if they contested anything they’d get nothing. They articulated their concerns in a lengthy Vanity Fair article in 2015 but, again, waited to see if that would change the Foundation’s approach.
The final straw was the realization that the foundation had “essentially eliminated awards focused on the arts, climate change awareness and environmental issues” . . . the “three areas of lifetime commitment,” the complaint states, “and the charitable sectors that Mr. Newman always felt warranted the most urgent support, second only (perhaps) to helping children in need.”
Is it too little too late for the filing? Probably. Would the family’s issues be prominently spread across the pages of Vanity Fair, the LA Times, Washington Post, New York Times, Bloomberg (our sources for this series) for the world to read if planning had been executed the way it should have? No.