Monthly Archives: November 2014

Inside Family Business: Are in-laws in family business really out-laws?

ACCORDING to Dr. Steven Berglas, management consultant, psychologist, faculty of Harvard Medical School and author of “The Success Syndrome,” hiring in-laws into the family business can be a “kiss of death.” The reason? They become too familiar to the point that they believe the business is their own. They then proceed to prove their value to the company by changing the way it’s run.

If you even entertain the thought that a cousin-in-law, brother-in-law or niece-in-law can work for you without bringing twice the emotional baggage that your siblings and children bring to the table, you do so at your peril. Even in-laws with terrific ideas for the company will disrupt the business, the family, or both.

No one knows who their sons and daughters will choose as life partners. Not even the most controlling family business owner can determine his children’s ultimate choices for mates. Even with all the advances in medical science and psychology, no one truly understands the chemistry and dynamics of love in choosing a spouse. In-laws, for good or ill, will have a tremendous effect on the way your children think about the family company and life in general.

Risk of escalating conflict

No matter how hard families try, real differences remain between in-laws and offspring, especially while the parents are still involved. Sometimes in-laws, quite unfairly, are the brunt of emotional conflict. The most common seems to be a conscientious in-law taking “too much” leadership in the eyes of the siblings.

Common examples of conflict

By virtue of marriage, in-laws may be given responsible positions without consideration of their character. There was a case of an employee who married the sister of the company’s owner. As he was intelligent and given his business exposure, he was entrusted with the management of the firm’s finances. The business did grow, along with his greed. On the side, he secretly established his own company, producing goods in competition with the goods produced by his brother-in-law and using the company’s money to purchase raw materials for his factory. Not long after, his cheating ways were discovered and he was fired. Now this brother-in-law is openly doing business in department stores with exactly the same merchandise line and the difference was only in design variations.

In another case, the entrepreneur-founder hired his lawyer son-in-law to become the company’s legal counsel. However, his daughter and son-in-law later filed for legal separation. The situation became problematic since the son-in-law knew the company’s trade secrets and could not be fired immediately. On the other hand, his daughter was pressuring his father to let go of the husband’s services. A long talk and some money exchanged hands and the son-in-law resigned.

Defining rules for in-law participation

In my consulting work in the Asean region, I’ve come across (intervened actually) many family business “disasters” that were driven, fueled, or initiated by in-laws. In each case, I am certain that, left to themselves, members of the nuclear family would not have let matters get out of hand. Planning ahead and defining business protocols to avoid this particular issue is much less costly than spending huge amounts of cash on therapy. Here’s what I usually initiate in my coaching work:

Rule No. 1 Employment outside: The primary need of ambitious in-laws is self-esteem, and the best way a family member can help them earn it is to open doors to help them find employment outside of your business. That will give them an opportunity to manifest their competence allowing you to consider a future integration of the in law in the family business.

Rule No. 2 Project-based employment: Should there be a desire to really work in the family business, the next step is to offer a job with both a limited scope and rigid criteria–say, creating or making a new division profitable in two years.

Rule No. 3 Full employment with accountability: Then, in the presence of the family members, I usually have the in-law sign an undated letter of resignation. Then articulate to everyone that the first time the in-law misbehaves in a manner that’s a ground for termination, the letter will be dated.

Clearly, there’s no magic formula for controlling in-laws who work for you–only philosophies to guide you in your management efforts. The kiss of death article I wrote a few months ago related to in-law involvement happens when the senior generation does not put in place governance protocols around for in law participation. In fact, when I do coaching intervention, these protocols apply to all family members working in the family business.

Given these boundaries, In-laws can be wonderful assets to family businesses. I have seen and advised several in laws doing a fantastic job initiating best practices for family owned businesses. So let’s not treat them as outlaws; properly handled, in-laws can add tremendous energy and zest to the family and business.

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Soriano: The son rises: The business values of Anthoni Salim

“Don’t be afraid to hire professionals.”

The Salim Group

It is one of Indonesia’s biggest conglomerates with assets including Indofood Sukses Makmur, the world’s largest instant noodle producer, and Bogasari, a large flour-milling operation. The group was founded by Sudono Salim, also known as Liem Sioe Liong or LSL. LSL is the father of Anthoni Salim, the youngest son and successor.

The Salim Group also owns major oil palm plantations and logging concessions. Salim Group has been involved in property development and the leisure development and the leisure industry for around 30 years. Its businesses include hotel and resort development, golf courses, and commercial real estate.

First Pacific Company

First Pacific Company Limited is a Hong Kong-based investment management and holding company with operations located in Asia. It involves telecommunications, consumer food products and infrastructure. Its chairman is Anthoni Salim, an Indonesian Chinese entrepreneur.

The CEO and managing director is Manuel V. Pangilinan.

Anthony’s management principles

Anthony Salim is Indonesia’s third richest businessman with an estimated net worth of more than $10 billion. He started managing the Salim group in 1992. He was anointed as the successor at age 44. Like his father, he himself manages the business under certain principles.

He is the type of person who opts to learn by actually doing and by being involved.

Hands-on experience as what others put it, is indeed, the best teacher. To quote Anthoni, below are some of his management principles:

• Don’t be afraid to hire professionals;

• Have an open mind and heart;

• Try to create an environment based on your needs and principles; and

• You have to force yourself to learn new materials and make contacts.

Guided by a group of professional managers

The Salim Group’s board of executive directors is composed of professional managers who have been with the company for many years. Manny Pangilinan is one of his trusted professionals managing the Philippine and Hong Kong operations. These professionals receive very good incentives for their services. This only supports Anthony’s other principle of not being afraid to hire professionals.

Business first family business

So, how does a family like the Salims manage the business? They made a clear distinction. Family and business operations are two separate things. To them it is a MUST to do so. Anthony mentioned that, “We must keep business and personal matters separate.”

“Pick the right horses to run for you”

The Salim Group never rests on its laurels. The large conglomerate always seeks to take on the next big thing; always up and looking forward for something – “opportunity-driven” as how Anthony describes it.

The values, which father and son have, are complementary: trust and honesty. Anthony values trust as Liem Sioe Liong values honesty.

The current head of Salim Group, metaphorically compares getting the right people for the business to picking the right horses to run for you. He advises that once you have already chosen the people, trust them; but if you do not, do not choose them. While Anthony thinks that trust is good; on the other hand, he thinks that control is better.

For over 60 years, the Salim Group has expanded from trading to many other commercial areas and made loyal connections. After many years, we see through the living example of this business that grew from hard work, perseverance, planning, appreciation of others’ point of view, trust, honesty and many other positive qualities. Thus, it is a prime proof that success is born out of real values, reflecting how much a leader places importance to certain ideals.

If wealth truly does not pass three generations, at least these values were embraced and embedded in the hearts and minds of Salim’s third generation family members and the many other people who have worked for the Salim Group.

Business values of Sudono Salim: Manny Pangilinan’s boss

“To have lived a meaningful and productive life is such a wonderful thing, but to live a life that will be remembered for the wisdom it shared with others is admirable, and a blessing to the people it has touched.”

The late Sudono Salim also known as Liem Sioe Liong’s legacy remained for the world to emulate, and having been such an influential patriarch, the family members of the third generation remember his teachings. His grandchild, Axton Salim said, “He taught us to be humble, honest, disciplined, diligent, hardworking; also being wise, big-hearted, respecting of others and always keen to learn.”

Liem Sioe Liong (July 16, 1916 – June 10, 2012) was a Chinese Indonesian businessman. Also called by his initials LSL, Salim was born in Foochin, Fujian and emigrated to Kudus, Central Java in 1938.He was once considered the richest individual in Indonesia and was the head of the conglomerate Salim Group before turning over its management to his youngest son Anthony Salim (now number 5 of Indonesia’s 40 richest people) in 1992.

His first business was coffee-making and trading, then quickly moved to importing and selling cloves for the popular Kretek cigarettes. The company also ventured in the peanut oil business. In a span of more than 60 years, the Salim Group made investments in over 500 companies employing 200,000 employees.

It acquired several businesses as it moved to expand to greater heights. Industries like textile, cement, flour milling, distribution, hotel and resorts, automobile, infrastructure, food, agribusiness, chemical manufacturing, retail, telecommunications and banking are now included in Salim Group’s profile – Indofood, IndombilGroup, Gallant Venture, BCA, Indomilk, Bogasari, Nestle, TigaRodaIndocement, lonsum, SegitigaBiru and Hilton Hotels and Resorts.

Pangilinan described “Oom Liem” (Dutch for “Uncle Liem”)

In an email interview after learning of the death of LSL, businessman Manuel V. Pangilinan hailed the late Soedono Salim—his boss in Hong Kong-based First Pacific Group—as “Indonesia’s first industrialist” who never forgot his humble beginnings as an immigrant from China. The First Pacific Group is chaired by Salim’s son, Anthoni and Pangilinan serves as the firm’s managing director and CEO.

Pangilinan recalled that he first met the elder Salim in 1978 while working for the American Express Bank in Hong Kong. “I was then syndicating a term loan for Cement Line # 6 of Indocement—the Salim Group’s first foray in the international financial markets,” he said. “LSL was not embarrassed to admit that he has failed at least twice in his business, only to recover eventually,” Pangilinan said. “As a result of his large, asset-heavy businesses, LSL is considered Indonesia’s first industrialist.”

LSL’s deeply-rooted principles

A combination of connection, serendipity and personal charm propelled him to become the wealthiest tycoon in Southeast Asia. But without the glamour and all, the man himself was deeply-rooted in his principles – a great quality he possessed that brought his business into fruition and made it successful. He valued hard work, perseverance, planning, and appreciation of others’ point of view.

He explained that he had a strong management team that saw opportunities; however, his approach was to choose the right people who also practice professionalism. LSL believed in teamwork and not dictatorship. He also believed in honesty. He said, “In business, you have to be honest; don’t lie or cheat, if people are good to me, I will remember it, but I do not like if people are not honest to me. If you cannot be straightforward, it can be troublesome.”

Indonesia’s top conglomerate

With a market cap of IDR 172.03 trillion, the Salim Group is ranked among the top five biggest conglomerates in Indonesia as of July 2014. Some researchers have estimated the groups market cap at $32 billion to $40 billion. In the Philippines, the Salim group has majority interest in a number of blue chip corporations from telcos PLDT, Smart and Sun, utility provider Meralco and Maynilad, tollways, hospitals and media.

The Salim Group is headed by Liem’s youngest son Anthony Salim.His second son Andree Halim is the main shareholder of Singapore-listed bread maker QAF, which has a market value of more than US$350 M and makes and distributes Gardenia and Bonjour bread.

Part 2 will tackle the successor Anthoni Salim’s management principles.

(My sincerest thanks to a dear colleague, Mr. Rudy Balmater, ex SGV and AIM Alumni, and a 30-year finance practitioner/director in Indonesia. Pak Rudy, thank you for generously sharing your research material about the Salim Family.)

The end of a family business legacy

TIME is a variable for any kind of business. The test of the viability or feasibility of an enterprise depends on generational creativity. Business survival or leaving a legacy from generation to generation requires hard work and commitment. It means that successors believe in and live the vision of the founder.

Creating a family business legacy is a challenge for owners. The past and the present stature of a family business will determine its future existence or demise. Much, of
course, depends on business and talent management and stable or liquid cash flow.

External factors also count such as man-made global financial crisis as well as uncontrolled or unforeseen natural disasters.

James Olan Hutcheson’s article “The End of a 1,400-year-old Business” (2007) says it all: “The world’s oldest continuously operating family business ended its impressive run last year. Japanese temple builder Kongo Gumi, in operation under the founders’ descendants since 578, succumbed to excess debt and an unfavorable business climate in 2006.”

What were the factors that contributed to the success of Gumi and his descendants’ temple-building enterprise from 578 to 2006?

Construction of Buddhist temples is based on the stability or continuing presence of the Buddhist religion. Buddhism is a stable belief system that has millions of followers or adherents for thousands of years. The other key factors include a blend of flexibility and conservatism.

Rather than choosing the oldest son as successor, Kongo Gumi turned over the reins of the business to a woman, the grandmother of Masakazu Kongo. Masakazu Kongo was the last president of Gumi’s business empire. Gumi’s criteria for succession was based on “health, responsibility and talent for the job.” He did not succumb to the concept of gender divide in terms of business leadership.

In the article, which appeared in the Small Business, April 16, 2007 issue, Hutcheson says: “Another factor that contributed to Kongo Gumi’s extended ‘business’ existence was the practice of sons-in-law taking the family name when they joined the family firm. This common Japanese practice allowed the company to continue under the same name, even when there were no sons in a given generation.”

In essence, the Gumi case shows that the elements of conservatism and flexibility can be mixed to stay in the same business for generations. Variation from the principle of primogeniture is a must to stay afloat.

So, why the demise given the above success factors? What lessons can family business owners learn from Gumi?

Hutcheson explains, “Despite its incredible history, it was a set of ordinary circumstances that brought Kongo Gumi down at last. Two factors were primarily responsible. First, during the 1980s bubble economy in Japan, the company borrowed heavily to invest in real estate. After the bubble burst in the 1992-93 recession, the assets secured by Kongo Gumi’s debt shrank in value. Second, social changes in Japan brought about declining contributions to temples. As a result, demand for Kongo Gumi’s temple-building services dropped sharply beginning in 1998.

“By 2004, revenues were down 35 percent. Masakazu Kongo laid off employees and tightened budgets. But in 2006, the end arrived. The company’s borrowings had ballooned to $343 million and it was no longer possible to service the debt. In January, the company’s assets were acquired by Takamatsu, a large Japanese construction company, and it was absorbed into a subsidiary.”

‘Proper training and skills are vital to generational success…It also does not follow that belonging to a family business entitles the children to continue running the family business.’

Hutcheson summed up the lessons of Kongo Gumi’s long tenure and ultimate failure: “Pick a stable industry and create flexible succession policies. To avoid a similar demise, evolve as business conditions require, but don’t get carried away with temporary enthusiasms and sacrifice financial stability for what looks like an opportunity. These lessons are somewhat contradictory and paradoxical, to be sure.

But if sustained success came easy, then all family businesses would have a 1,428-year run.”

A combination of lessening demand for construction of Buddhist temples and bad investments spelled the demise of the Gumi’s generational business empire.

Multiple generational business existence can also fall into traps. A recent Harvard Business Review article identified some traps that can hamper generational success, such as: the mind-set that there is always a place for a family member in the business; that the business can’t grow fast enough to support everyone; and that family members can stay in silos according to bloodline.

Proper training and skills are vital to generational success. It means that the senior family business owner can have wrong expectations as far as business succession planning is concerned. It also does not follow that belonging to a family business entitles the children to continue running the family business.

There is an Italian saying, “Dalle stalle alle stelle alle stalle,” which means, “From the stables to the stars and back to the stables.” It is an indication that the challenge facing family businesses is universal across our world.