Dick Smith and General Cinema

The prepared heir and the courage to sell

My professional insights · Lyudmil Karaulanov · 8 min read

Published: 29 October 2026 · Version 1.0

Preparing an heir involves gradual participation in decisions and the assumption of responsibility while the previous generation is still active. It also presupposes that the heir may change the business he receives.

The story of Dick Smith and General Cinema develops the theme of the analysis “Raising a successor” in the section Succession and generations. It shows how accumulated experience supports a sudden change in management and why even a prepared successor needs a team that can disagree with him.

Philip Smith arrived in Boston from Russia in 1908. He started work in cinemas, held various positions and in 1922 opened his own theatre with money borrowed from friends and relatives. Over the following decades he built a chain and took part in the development of drive-in cinemas. [1]

In 1961 the company went public to finance its expansion. A year later the founder died suddenly. His son Richard, known as Dick Smith, took over management. [1]

He already knew the business from the inside. He had worked in it at weekends and during holidays, graduated in engineering from Harvard and returned to the family company. Thorndike notes that in 1956 his father made him a full partner. So six years before the sudden change in leadership, Dick already had a recognised role in the business. [1]

After taking over management he developed cinemas in suburban shopping centres and used rental and leasing arrangements that reduced the need for the company to acquire its own property for each new site. Gradually he also began to look for other activities in which to invest the cash generated by the cinemas. [1]

In 1968 General Cinema acquired American Beverage Company, described by Thorndike as the largest independent Pepsi bottler in the country. Later an investment in the retail group Carter Hawley Hale led to a controlling stake in Neiman Marcus. In 1991 the publisher Harcourt Brace Jovanovich was also acquired. [1]

These transactions changed the composition of the family wealth. The company no longer depended solely on cinema attendance. Smith, however, was also ready to sell large businesses when he judged that the conditions for an exit were better than the prospects of continued ownership.

The bottling business was sold in 1989. The acquisition of Harcourt General by Reed Elsevier was completed in July 2001, and the sale of Neiman Marcus to an investor group led by Texas Pacific Group and Warburg Pincus closed in October 2005. [1, 2, 3]

The way decisions were discussed also mattered. Around Smith worked a small leadership team called the Office of the Chairman. It included the chief financial officer Woody Ives, the chief operating officer Bob Tarr and the lawyer Sam Frankenheim. They met every week and argued about the proposed actions. [1]

According to the accounts collected by Thorndike, Smith allowed the others to reject his proposals. When entering the cable business was discussed, he let Ives present his disagreement to the board, which did not approve the project. Key executives were also given opportunities to participate in ownership through options and a share purchase programme. [1]

The original business had a different fate. The cinemas were spun off into GC Companies. Under growing competition, the company closed some sites, modernised others and invested in equipment. These actions did not prevent financial difficulties. On 11 October 2000 GC Companies and related companies filed for protection under Chapter 11. [1, 4]

Thorndike presents this result as a rare failure in Smith's otherwise exceptional business record. The source does not establish that the reason for keeping the cinemas was emotional attachment to the origins of the family business. Such an explanation would be an assumption.

The analytical lesson is that Dick Smith took over management suddenly, but his preparation had begun long before. He knew the business and already had a recognised place in it. This gave him a foundation on which to take his own decisions after his father's death.

The mere fact that an heir works in the company or holds a stake is not enough. What matters is what decisions he has taken, for what consequences he has been responsible, and whether the people around him are used to working with him as a leader. Smith's story points to these questions, without providing a detailed model of all the powers he had before 1962.

The second lesson concerns the next generation's freedom to change the composition of the business. Smith created value through development, acquisitions and sales. Continuity in family ownership proves compatible with exiting significant businesses.

The third lesson concerns the team around the owner. The ability to object has practical meaning when disagreement can change the decision. The rejected cable project shows exactly this.

The practical check begins with the question of what decisions the heir can take today without prior approval. Does he have his own responsibility for a budget, a team or a business line? Do partners and employees know him as a person who decides and answers for the result?

Who can object to the owner, and how is that objection considered? Have there been cases in which the team's position actually changed his intention?

For every significant asset one more question is useful: under what conditions would the family sell it? How do future opportunities, the necessary investment and the cost of continued ownership compare?

The counterpoint is that Smith's preparation does not by itself explain the results that followed. His personal judgement, the quality of the team, access to capital and the specific market opportunities all mattered. The success of one successor does not prove that the same approach will lead to the same result in every family.

The financial difficulties of the cinemas also show another limitation: knowing one business and having a long history in it do not remove the risk of market change. Spinning a business off into a separate company does not by itself make it economically sustainable either.

Where is the point of instability?

What this concept means →

The point of instability arises when the future successor has a place in the organisation chart, but has not yet gained experience in taking decisions independently. While the founder is active, this dependence may go unnoticed. When he is suddenly absent, it shows itself at once in management, in relations with the team and in the trust of partners.

Another point of instability is the lack of criteria for continued ownership and exit. When the family does not discuss under what conditions it would sell a particular business, decisions are easily postponed until the opportunities narrow. This is the question the fate of the cinemas puts to the reader, without proving what personal motives guided Smith.

This material is of a general analytical nature and does not constitute individual legal, tax, financial or investment advice.