End of the Cosmos family business: Where did it go wrong?

I AM back in Manila after a dizzying week of family business coaching work mixed with several conference talks related to governance and business strategy. How I wish there was another day between Saturday and Sunday!

This half year alone, I have been a witness to so many family owned enterprises (FOEs) in Asia groping in the dark on how best to start the governance process. Most of these FOEs are facing challenges in working through their ownership and management transition.

Some would ask the extent of my coaching work in the Asia Pacific, but modesty aside, it’s really not rocket science. It is more of a series of interventions where my goal is to equip visionaries, next generation owners, in-laws and other stakeholders with the tools necessary to ensure their companies’ success and survival.

My role as a family business coach

In a more detailed form, my role is to provide family members a clearer perspective on what option the family business will operate. Will it be business first or family first? Second, I help define the roles and responsibilities of owners, directors, board chairs, the executive team and the family council. This particular task introduces corporate governance amongst family members working in the business.

The third task is to educate family owners by highlighting the importance of aligning and perpetuating the family and business values. These values when embraced by family members will be the glue that will harmonize relationships amongst family members.

My fourth and last intervention is to create clarity and build trust among family owners through governance and ownership. The latter requiring a process of documenting agreements covering family, business and ownership governance.

When all of these four areas are covered and the family members are fully compliant, then I happily exit from the engagement and move on to help the next family business.

Death of the Cosmos patriarch

Such is not the case with the Cosmos Group. The patriarch of the Cosmos Bottling empire, Henry, suffered a stroke due to a malignant tumor in his brain and left him incapacitated until he died a few months after. He was 53.

According to his eldest son Danny, the death was the main trigger leading to the collapse of the mighty Cosmos Group.  But the much bigger issue was the unpreparedness of the family to handle the death of the patriarch, the dynamics of having family members and different branches working in the family business and managing the transition/succession process to the third generation. Henry’s death created that leadership void in the organization.

RFM acquires Cosmos

In Danny’s own words regarding the sell off, “Cosmos was sold for the wrong reasons and for the wrong price!”

The eventual transfer of ownership to the RFM Group concluded the end of the Wong family’s ownership of the Cosmos Bottling Company after only three generations.

Danny went on to pose several regretful questions with the hope that FOEs currently facing their own internal conflict must continue to be determined and unyielding in pursuing governance. No matter what the challenges are, every family member must seek ways to promote harmony.

Where did we go wrong? Why didn’t we see the signs? What should we have done? What can we do? Who can help us?

In my conference talk last week, I purposely highlighted studies that addressed the inevitability of the death of the patriarch and the numbers are alarming. Most family enterprises are highly dependent on their current leader – as much as 80 percent of the business.

But major leadership change in family businesses is forthcoming:

Forty percent of family business leaders will retire in the next five years.

Twenty-eight percent will retire in six to 10 years.

Twenty-two percent will retire in 11 to 15 years.

To this day, most have no contingency plan covering the death or the disability of their leader and only 29 percent have a succession plan. Family business owners see the generation of wealth as the primary role for the business. Preservation of wealth and business succession in the family is a lower priority. These are sad numbers but empirically true.

My advocacy is to reverse this trend.

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