MY talk in Singapore last week is one for the books.
Seven out of 10 questions that were asked by family members during the forum focused on why conflict persisted even after they drafted and signed a family charter (constitution). In the hundreds of talks where I am invited to speak every year, I have never experienced being bombarded with almost similar questions.
Why are relationships among family members still fragile or uncertain even after a family constitution has been signed?
To finally put to rest this dilemma, I ended up writing an article on my flight back to Manila. The gist of the article addresses the core reason why conflicts persist.
Family business is always about emotions
A family business is a business of relationships and relationships are at the heart of the family business. The potential for conflict is typically due to a clash between business and emotional concerns. How conflict is managed is a determinant of the degree to which a family and its business remains healthy and strong. Failure to manage conflict leads to the splintering of family business firms.
However, conflict can be seen as a challenge — or even as a positive driver for change. For example, a disagreement between family members on the strategic direction of the business may result in a much-needed rethinking of the business plan and a new agreed vision for the business.
Post-constitution goal: Activating the family council
One of the most effective tools in managing family conflicts is the organization of a family council. Its primary purpose is to facilitate free and open communication between family members in a formal and organized manner to minimize internal or interfamily conflict and hostility. It can also be a forum for discussing issues of continuity and succession. The key to the success of the family council are actual family business meetings, which falls under its main activity. A family meeting serves to resolve family business issues and help maintain social relationships among its members.
Families may encounter initial difficulty in engaging in open and candid discussion on sensitive subjects. Address relatively non-controversial subjects first to pave the way for talks on more difficult issues. It may be advisable to tap the services of a professional as facilitator.
The family council and the constitution
If a family council is activated, it is also mandatory to prepare a written and comprehensive family constitution, which is a critical requirement for it to succeed. Basically, the family constitution defines the family’s vision of the future and its core values and beliefs. It likewise spells out the purpose and responsibilities of the family council, the family assembly and the board of directors.
The family assembly and the family council can co-exist. Since only a select group of family members get to participate in the council to discuss more relevant business-related issues, it might be necessary to establish the assembly to provide a venue for other family members not included in the council, to thresh out conflicts and air their opinions.
There are various components of a family constitution such as a code of behavior and policies governing family members working in the company. Some components worth mentioning here are dismissal and retirement policies. There can be a rule such as “All family members should automatically retire at age 60 and can serve on the board of directors only until the age of 70.”
Changing of the guard must be a gradual and graceful exit
In my experience coaching family enterprises in Asia, in order for me to motivate the family member, especially the founder who still clings to his position even past retirement age, I would normally specify certain incentives and benefits for the retiring members. For the founder, he can continue to have an honorary title such as chairman of the board or something that would make him feel he is useful to the business, knowing that his expertise and experience are duly acknowledged and respected by all concerned.
I also request next generation leaders to prepare and present a business or strategic plan on how to attain positive income projections in the next five years to make him feel secured in the thought that the company’s profitability continues even after his retirement. In short, make the transition gradual and done with grace and style. The candidate for succession should be endorsed by the family council based on meeting certain meritocracy criteria and strong leadership.
Suspending or firing a family member
Dismissals are sensitive matters that should be addressed directly. One policy may state “The authority to fire a family member rests solely with his or her direct superior. Prior to dismissal, the general manager should inform the family council, so that the ramifications of the dismissal can be anticipated and properly managed.”
Establish a fair process to build safety and predictability. Put stock redemption policies, job descriptions, performance appraisal systems, non-competition agreements, etc. The constitution should spell out the specific process by which the successor is to be chosen.
Perhaps, putting up the above organizational tools will prove difficult for most Filipino and Chinese family businesses given Asians’ non-confrontational attitude. But if they are to achieve economic takeoff and maintain stability, the effort must be undertaken, otherwise the family constitution is just a piece of paper.