Chinese New Year and the family constitution

KUNG HEI FAT CHOI! to our Chinese friends and clients in the Philippines and elsewhere in the world.

Dragon and lion dances are common during Chinese New Year. It is believed that the loud beats of the drum and the deafening sounds of the cymbals together with the face of the dragon or lion dancing aggressively can evict bad or evil spirits. Lion dances are also popular for opening of business offices.

The biggest event of any Chinese New Year’s Eve is the reunion dinner where members of the family, near and far away, get together for the celebration. This meal is comparable to Christmas dinner in the West.

It is customary to serve dumplings as it is believed to symbolize wealth because the shape resembles ancient Chinese gold ingots. Glutinous sweet cakes (tikoy) are eaten and given as gifts to relatives and friends to maintain harmonious relations. After dinner, some families go to local temples hours before midnight to light incense and pray for a prosperous new year.

Chinese are business-minded and entrepreneurial

The Chinese in the Philippines are mostly business owners and their life centers mostly in the family business. These small or medium enterprises play a significant role in the Philippine economy. A handful of these entrepreneurs run large companies and are respected as some of the most prominent business tycoons in the Philippines.

Chinese Filipinos attribute their success in business to frugality and hard work, Confucian values and their traditional Chinese customs and traditions. They are very business-minded and entrepreneurship is highly valued and encouraged among the young.

Chinese family businesses have a high mortality rate

Although family-owned businesses can generate and significantly improve the financial wealth that stems from the family’s original fortune, most Chinese family businesses are relatively short-lived, rarely extending beyond one generation. The high mortality rate in family businesses points primarily to a myriad of challenges.

Examples of these challenges point to sibling rivalry, entitlement, senior leaders reluctance to let go, conflict of interest, undefined role of in laws, and clearly the absence of a management transition and succession plan. There is recognition that inter-generational succession is essential for both the profitability of Chinese family businesses and the welfare of the family as a whole.

As I write this column I am in Singapore preparing my slides related to the crafting of a family constitution. The 78-year-old visionary/patriarch of a family-owned enterprise incorporated in the 70s requested me to facilitate and prepare a family constitution for all active family members in the business to embrace and follow.

He is ailing and he has confessed that there are nights that he could not sleep worrying about the family business’ uncertain future. He blames himself for creating “monsters” out of his children.

The dilemma of the patriarch is the escalating conflict among his children that has affected not only the relationships among family members but also the business has continuously taken a beating due to accusations of mismanagement among the warring siblings. Naturally, employees especially the good ones have started their exodus to outside employment opportunities

Their core business is in trading but they have since shifted gears to real estate development. The children and their spouses are all in their 40s and early 50s. If we include the grandchildren and the in laws active in the business, the total number of family and extended family members in the business would be 16.

Never, never ignore the warning signs…it might be too late!

At first the patriarch thought that the best solution was just to ignore the conflict.

As the misunderstanding intensified into a shouting match with a lot of finger pointing and threats upon counter threats of going to court, the old man decided to act. This is very typical for Chinese family business leaders. More often, they neglect a myriad of issues particularly if they are entrepreneurial founders, until it is too late.

What can a family constitution do?

A family constitution is sometimes called a family creed, family charter or family agreement. Whichever country you are in, it has essentially the same meaning and serve the same purpose.

The objectives are straightforward and primarily focus on the following:

a) It formulates and documents the values and vision that of the family business. This include the family values and the corporate values of the firm

b) It defines and measures (monetized) the strategic objectives of the business. It answers a most fundamental question…” Where Do you want to be in three, five even 10 years?”

c) It aligns family policies and provides governance in the way in which the family will make decisions affecting the ownership and management of the business.

Depending upon the circumstances of the family and the business, the constitution can be either short and concise or long and complicated.

Developing a family constitution is never a guarantee that it will prevent conflict among family members. But through my years of experience, it is as clear as day that formulating a family constitution can help minimize and significantly lessen much of the potential conflict that a typical family business will face.

Finally, the family constitution does not only provide a process or a solution by which conflict can be successfully managed and resolved, it also compels and imposes discipline on family members to consider important and strategic issues about the future of the family business that might otherwise be neglected.

Next column: The family constitution: do we really need one?

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