Part 1: When generations collide

LET me begin my column by personally thanking all the family members and participants who attended my Family Business seminar last Friday, April 24, in Cebu. I also wish to thank Octopus Strategic Branding led by Prof. Danny Barrenechea, Sun.Star Cebu and all the corporate sponsors for organizing and supporting a very important and timely seminar meant to equip visionaries, next-generation owners, executives, board members, and key personnel of family businesses with the tools necessary to ensure their companies and organizations’ success and survival.

With the seminar over, it is my fervent wish that participants will share with their family members key values related to governance and transition, including managing the challenges of ownership and management of their businesses.

We all know that while many businesses that are owned and managed by families recognize the importance of ownership and management transition, few know where and how to start developing a governance and succession plan.

I hope the seminar gave the participants a better understanding of the complexities of family-owned enterprises so they can now start the process of formalizing governance programs to ensure the sustainability of the family business.

The presence and active involvement of family members in the first, second and third generations will continue to inspire me to share my advocacy and passion in advising family business leaders in Asia. Thank you again for participating!

This series of articles summarizes what I shared in my seminar in Cebu last week. “Before the multinational corporation, there was family business. Before the Industrial Revolution, there was family business. Before the enlightenment of Greece and the empire of Rome, there was family business,” William O’Hara, executive director at the Institute for Family Enterprise at Bryant University in Rhode Island, once explained.

However, less than three percent of all family businesses survive past the third generation.

Those that manage to endure credit their longevity to providing essential products or services, adapting offerings over time, and forging strong succession plans and governance strategies for family members to work together. But beyond a superior product or service, it’s still the good, old-fashioned values and governance plans that define these enduring and stable family businesses.

When generations collide

In the Philippines, most companies are family-owned. They compose close to 80 percent of businesses in the country. Unfortunately, 70 percent of first-generation businesses fail to reach the second generation due to sibling rivalries, fights over ownership control and personality conflicts that can tear families apart.

Another reason is that the goals and objectives of the founding generation are rarely the same as of those of the succeeding generation. We often refer to this natural conflict as a collision course between generations. Indeed, succession problems are the greatest threats to the survival of family businesses.

Neglecting governance and succession can be a costly mistake of the senior generation.

Family business leaders, particularly the entrepreneurial founders, often neglect the issue of governance and succession because they are so protective of the business they started. Although they want their ventures to survive them and to pass the torch of leadership on to their children, they seldom support their intentions with a plan to accomplish that goal. They just dream of continuing the business long after they’re gone but take no steps to make that dream a reality.

Succession triggered by illness or death: It is also a very common sight when succession planning begins in response to an external event such as illness, accident, death, marriage or divorce. Planning should not be undertaken only as a reaction to a major health emergency of the family business leader/founder.

For then, everything might just be too late.

One of the worst mistakes entrepreneurs can make is to postpone naming a successor until just before they are ready to step down. Sometimes, founders avoid naming successors because they don’t want to hurt the family members who are not chosen to succeed them. Yet, both the business and the family will be better off if, after observing the candidates as they work in the business, the founder picks the successor based on that person’s skills and abilities, early enough.

The best way to avoid deadly turf battles and conflicts is to develop a governance and succession plan. Without it, family businesses face an increased risk of faltering or failing in the next generation. Succession planning reduces the tension by gradually “changing the guard.”

My second article will introduce 12 powerful and time-tested steps to ensure the growth and sustainability of the family business.

(Professor Soriano is an Asean Family Business Advisor and Chair of the Marketing Cluster of the Ateneo Graduate School of Business. He is a National Agora Awardee and author of “Kite Runner”, a book on family business governance and succession.)

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