Sibling rivalry opens rift at Chattanooga-based Kenco

Sibling rivalry opens rift at Chattanooga-based Kenco

March 30th, 2014 by Ellis Smith in Business Around the Region

In this 2009 photo, trucks wait to be filled at Kenco Transportation Services near Shallowford Road and Hwy. 153.

Photo by Staff File Photo/Times Free Press.

In 2000, the year Kenco Group marked its 50th year in business, then-president Jim Kennedy III, then-executive vice president Sam Smartt Jr. and then-chairman Jim Kennedy Jr., from left, consulted inside the company's West 31st Street warehouse.

Photo by Staff File Photo/Times Free Press.

Jane Kennedy Greene

James "Jim" Kennedy III

James Kennedy Jr.

Sam Smartt Jr.

Gerald Perritt

Gary Mayfield

Sheila Crane

The co-founders

* James Kennedy Sr.

* Sam Smartt Sr.

* James Kennedy Jr., 89, now chairman emeritus of the board

The next generation

* James "Jim" Kennedy III -- fired CEO, son of founder James Kennedy Jr. and nephew of Sam Smartt Sr.

* Jane Kennedy Greene -- sister of James Kennedy III, daughter of James Kennedy Jr. and niece of Sam Smartt Sr. Greene replaced her brother, Kennedy III as board chair and CEO, and is the company's majority owner.

* Sam Smartt, Jr. -- son of co-founder Sam Smartt Sr., nephew of James Kennedy Jr. and cousin to James Kennedy III and Jane Kennedy Greene; fired by Kennedy III but brought back when Greene took over.

Outside leaders

* Gerald Perritt -- current president and CEO of Kenco

* Gary Mayfield -- Now retired, Mayfield is the former CEO of Kenco who was fired by Kennedy III but brought back when Greene took over.

* Shelia Crane -- vice chairman of Kenco board, 42-year veteran at the firm

* Andy Smith -- former COO of Kenco, left in 2012 after Kennedy III was fired

Kenco at a glance

Founded: 1950

Headquarters: Chattanooga

Revenue: $442 million annually

Warehouse space: 100 facilities; 31 million feet nationally; 4 million in Chattanooga area

Employees: 4,000 nationally, including 600 full time in Chattanooga

Subsidiaries: Kenco Management Services, Kenco Logistic Services, Kenco Transportation Services, Kenco Material Handling Solutions, JDK Real Estate

Source: Kenco Group, court filings

About the plaintiff

* Name: James "Jim" Kennedy III

* Positions: chairman of board at Kenco since 2001, CEO since mid-2010

* Bio: Worked at family company from age 14, staying 35 years before he was ousted

* Ouster: Dec. 15, 2010

A battle is raging over the keys to the kingdom at one of America's biggest logistics companies, after a sibling rivalry boiled over into the court system and tore a family apart.

At question is the legality of a 2011 coup involving the ouster of Chattanooga-based Kenco Group's top executive and two sons from the helm of Kenco. The answer could determine the future of one of the Scenic City's most well-known businesses.

The mounting pressure from overthrown CEO James "Jim Kennedy III" to be reinstated as chairman comes as Kenco took steps this month to elevate an outsider as head of the company, appointing Gerald Perritt as president and CEO of Kenco.

The strife stems from the decision to remove Kennedy III, who had worked at Kenco since the age of 14, during a secret meeting at the home of his father and company co-founder, 89-year-old James Kennedy Jr., his son claims.

Kennedy III, who was apparently not invited to the meeting, says a group of former executives and family members engineered his termination and concocted a plan to loot his stake in the business behind his back, turning on him without warning.

But company officials and family members dispute those claims, alleging that Kennedy III violated Kenco's nepotism policy by hiring his two sons and failing to control their behavior, resulting in internal turmoil. They're counter-suing him for millions, saying Kennedy III has tried to smear the family-owned company and its executives.

"I don't know what's going on, obviously, but my speculation would be that he did something wrong and someone is so upset about it that they are willing to incur damage to the business by making it public to embarrass their son," said Henry Hutcheson, a family business consultant who helps companies create smooth succession plans.

Hutcheson did not advise Kenco, but said that 66 percent of family businesses fail when family members can't get along, or at least disintegrate into a series of suits and counter-suits.

"Once the attorneys are in, sometimes the bridges are so burned up that you can't get back together," Hutcheson said."I've never heard of a deal where somebody pulls the attorneys out."

It was initially unclear in 2011 why the family's chosen heir, a chairman of the board and CEO of a family dynasty, suddenly disappeared from view, replaced by another family member from another state with little explanation. Kennedy III helped grow the company from 300 workers to 4,000, expanded to more than 100 facilities and more than 31 million square feet of storage space in 30 states and Canada, and the firm today boasts $442 million in revenue.

But disappear is just what he did. In 2011, Jane Kennedy Greene, an advertising executive from Dallas and sister of Kennedy III, was announced as the chief executive, a shuffle explained at the time as being in line with "succession planning."

At the time, the family didn't say what incited Kennedy III's removal. However, succession typically involves passing the torch from one generation to the next rather than from one healthy sibling to another. Two years later, Kennedy III filed a lawsuit claiming that succession had nothing to do with it.

"Jim Kennedy III hasn't seen a reason they ousted him at all, other than his sister got his father's ear and convinced Daddy to push Jim out and bring her in," said Mike Richardson, who filed a lawsuit on behalf of Kennedy III.

The first hint of his imminent firing was on Dec. 15, 2010. That's the day when Kennedy III was handed a letter both immediately terminating him and physically barring him from the property, he said. His desk would be cleaned out and the contents delivered to him at a later date, he said he was told. Kennedy was never informed why he was fired, he has alleged.

Though Kennedy III technically remained chairman of the company's board, he was no longer allowed access to the Kenco's finances, and both of his sons -- representing the fourth-generation of the family business -- were fired as well. Kennedy III was asked to turn over his shares in the company for an "unreasonably low value" set by a newly-formed executive committee of the board, he said.

The letter offered him severance of $180,000 and a 2004 Lexus 4-door sedan.

The unexpected excommunication, which Kennedy III says left him "stunned," appeared to be the handiwork of his sister, Greene.

"This is a total facade," said Kennedy III's attorney, Richardson. "We don't think there is a rhyme or reason or rationale for dumping Jim Kennedy or his sons. We strongly deny that Jim Kennedy and his sons were doing anything other than giving 110 percent to the family business. They fired fourth-generation Kennedys, and this is a fourth-generation business."

Greene, a third-generation Kennedy who remained a resident of Dallas, Texas, had previously pursued a life in the advertising and fundraising field away from the family business.

But that all changed when she teamed up with two executives who Kennedy III had previously terminated -- Gary Mayfield, former CEO; and Sam Smartt Jr., son of co-founder Sam Smartt Sr. -- along with board member Shelia Crane.

Kennedy III had earlier fired Mayfield for purportedly causing $8 million in losses at Kenco, and fired Smartt Jr. for losing between $4 and $6 million, as well as for "his overbearing style and his inability to manage his area."

As for Greene, his sister, Kennedy III has claimed that she is a "sociopath," "disturbed," and that she "stole" Kenco's business from him, according to legal documents filed by Greene.

Greene, with the apparent blessing of Kennedy Jr., company co-founder and majority owner of Kenco's voting shares, formed an "executive committee" of the board with Mayfield, Smartt and Crane to determine the fate of the company -- a fate that would not include Kennedy III, then-chairman of the board.

What happened next is unclear.

Kennedy has said he wasn't at the meeting of the executive committee, and that records were falsified to reflect his involvement in his own firing. The others claimed he was there. One way or another, that meeting split the Kennedy family apart.

For their part, Kennedy III's replacements filed a counterclaim, alleging that Kennedy violated Kenco's nepotism policy by hiring his two sons and failing to control their behavior, resulting in division within the company.

Based on a report by business consultant Charles Cowart, Kennedy III lacked the capacity to lead Kenco, but had been "given more opportunities to lead Kenco than his skills merited, because he was one of Kenco's founder's sons," according to the counter-suit.

Cowart found that Kennedy III was "was "detached, distant and under-communicating."

"The judgments he made as CEO with regard to his immediate family, and his subsequent judgments made during the changes in leadership, governance and ownership, remove any doubt that he was unprepared for the demands of the role," Cowart said in a statement emailed to reporters by a Kenco spokesperson.

In their counterclaim, Greene, Crane, Smartt Jr. and Mayfield denied that they held a secret meeting without Kennedy III, and alleged that he has subsequently engaged in a smear campaign against Kenco with the aid of other unknown co-conspirators.

"Beginning in or about March 2013, Kennedy III began an intentional, malicious and defamatory campaign designed to destroy counter claimants' reputation in the Chattanooga community, the greater business community, Kenco's industry, Kenco customers and Kenco shareholders," the four said in a court filing.

They're suing him for $3 million for allegedly false statements that included Kennedy III's assertion that he had previously fired Smartt Jr. and Mayfield for costing the company millions of dollars, as well as statements he made about Crane and Greene. Kennedy III stands behind what he said.

The family feud is still ongoing, four months after Kennedy III filed his lawsuit. With the recent enactment of a protective order that will keep important case documents under seal, there's no indication that the parties are willing to settle.

Family squabbles aside, Kenco has soldiered on in Kennedy III's absence.

Since the departure of Kennedy, III, Kenco has achieved three years of record operating and financial results, culminating in a compound annual growth rate of 9.25 percent in revenue and a 36 percent increase in net income over that period, the company said.

Kenco as a corporation is not named in the suit.

Greene, Crane and Smartt Jr. still serve on the company's board of directors, though Mayfield has retired. The company has grown from 25 million square feet of warehouse space to 31 million square feet of storage. And a new president and CEO, Gerald Perritt, has taken the reins from Greene over day-to-day operation of the business.

"We're a team here, and everyone contributes," said Smartt, Jr. in a 2013 video commemorating the company's 63rd anniversary. "We all are the Kenco family, and everything we accomplish is all done together."

Contact staff writer Ellis Smith at 423-757-6315 or esmith@timesfreepress.com with tips and documents.