Monthly Archives: November 2016

My advice to business owners (Part 3)

TO continue with the time-tested prescriptions that I stated in my earlier column, I will cite several important techniques below:

5. Educate family members that family and business goals are fundamentally different. It is a unique system fraught with emotions that has fundamentally different and often incompatible goals. I will highlight a few examples of conflicting goals that usually take up centre stage in any family conflict.

The dilemma of having a dividend policy can be a cause of conflict. Non-active family members may need high dividends to secure their personal interests but for active family members, the expectation and bias to have ready capital for reinvestment would always be on top of the priority list.

In the area of employment where parents want their children to lead the business but the business needs to operate based on meritocracy. This now presents a dilemma of sorts—employing or continuing to employ less than stellar performing family members to run the business and in return compromising the viability of the enterprise.

In the absence of any governance policy, how then can you reconcile family needs and business goals? Whether they are shareholders or not, the key is to educate family members early on in their careers.

6. Change Matters. Family businesses must realize the importance of pushing for change. We are seeing the internationalization of businesses where sourcing, selling and buying are all happening in a borderless economy.

For family businesses to succeed, family members must be encouraged to embrace change as a core value while protecting the family legacy. Investing on the education, competence and the skill set of family members (preferably before they join the enterprise) must be an absolute requirement. Technology must be part of any business plan and drawing a business continuity program to determine where the business is heading will allay any fears of the senior generation when they gradually start the succession process.

7. Align ownership agreements. Conflicts arise when there is no solid and documented agreement. I understand the practice of the founders verbalizing shared ownership based on a simple formula that family members absolutely trust each other. But for as long as issues, concerns, and polices are only verbal in nature, it would not have much power and impact and naturally could easily be forgotten, neglected or ignored.

My advice is to avoid relying on verbal promises. It is not actually only about trust. It is about keeping the family business running successfully and getting everyone on the same direction.

So to avoid a future conflict, the senior member must take the lead to formalize matters in writing. A word of caution though: do not procrastinate any longer! So much energy and senseless accusation have been hurled amongst family members already.

The time to initiate ownership agreements should be made immediately so that everything is clear and formal.

To be continued.

A successful governance seminar in Cebu

It was a truly wonderful feeling to be warmly accepted by first, second and third generation family members who participated in my governance talk last Saturday at the Cebu Parklane International Hotel!

The audience was an eclectic mix of business owners and senior executives from Visayas and Mindanao. There was also a sprinkling of consultants belonging to the legal, tax and finance profession.

Overall, my talk with fellow colleague Prof. Dickie Gonzalez, the corporate governance specialist at W+B Advisory who took the morning slot, was not just a success but a personal boost to further my advocacy in educating family members in pursuing authentic governance in the family enterprise.

Notwithstanding the long and delayed 20-hour flight from JFK New York on a Black Friday, arriving 1 a.m. the following day and making it to Cebu by a hairline just in time for my afternoon slot, I can say it was well worth it!

Thank you to the organizer, Octopus Events & Branding, to the Sun.Star Cebu team for supporting and promoting the event and to all the sponsors who contributed their time and resources in making this seminar possible.

My last seminar in Makati

For those who missed my Cebu talk, you can still attend my last seminar in Makati on Dec. 2, a Friday. Octopus Events will organize this one to be held at Makati Sports Club in Salcedo Village.

The week after, I will be delivering a series of governance and succession engagements in Indonesia and Singapore to complete my ASEAN lecture series for the year.

My personal advice to business owners (Part 2)

LOS ANGELES – After a series of meetings that took me to Osaka, Dubai and Madrid covering a brief 10 days, I am almost done with work here with the successful launching of Organique Acai, a world-class health supplement manufactured in California and proudly owned by the well-loved Cebuano couple Elton and Cathy Salimbangon.

Their story of faith and courage in the face of adversity makes every Fil-Am here beam with pride! TV and print organizations flew from Manila to cover all the events and I am deeply honored that I was invited to share the expansion plans of the group.

I salute Elton and Cathy, as they have intimated to me early this year their desire to pursue governance while the three children, Luisa, Martina and Nathan, are still in school.

Right after my US engagement, with or without jet lag, I will fly to Cebu on Nov. 26 for my talk on family and board governance at the Cebu Parklane International Hotel. I look forward to exchanging notes with family members and participants.

The three-generation curse

Most companies in the Philippines 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. Indeed, succession problems are the greatest threats to the survival of family businesses.

The Jollibee formula

What made Asia’s biggest quick service restaurant (QSR) food chain Jollibee Foods Corp. hugely successful? The founder, Tony Tan Caktiong, provided the vision and leadership, hired the best professionals, formulated five to 10-year game plans and empowered them to deliver results.

To make sure governance is sustained, each active family member is aware of the programs rolled out. By 2020, Jollibee is poised to gain significant entry to the untapped European Union. With the success of Jollibee in Vietnam, where 95 percent of their patrons are Vietnamese, the group will seek to replicate this success by tapping EU’s mainstream market

I will now continue with the time-tested tips successful senior business owners employ to ensure the enterprise’ growth and sustainability:

2. Never stop communicating with family members.

Talking is the most obvious prescription and the most relevant. When family members stop talking, they stop solving. In a family business, issues never stop. Family members must establish clear and regular methods of communication. The key is to keep on talking and develop a system dedicated in having these important conversations one on a regular basis. In my coaching work, I encourage and often times impose that family members come together at least every month to talk.

These gatherings can cover family issues or business issues. The key is for the lines to be open for every adult member of the family, whether involved in the business or not.

A simple governance model that works

In my recent trip to Japan for my regular coaching work on a ninth generation family, part of the governance rules that every family member must abide by would be regular monthly meetings for active family members and twice a year social-cum-business meetings for non-active family members.

Every two years, those above 50 years old must meet and every three years, every family member must gather for socials and business strategy. This rule applies to all active and non-active family members.

For a 200-year-old family business with more than 100 family members, with a third actively working in the business, it has been a fairly organized and canorous chorus of family members focused on a singular objective of growing the business.

3. Formulate a five-year business plan.

Effecting real change in a family business takes longer. Change, especially related to strategic initiatives in a family business environment, is very sensitive, especially when it involves two or three generations and several branches of the family. By default, families don’t like to recognize the need to change and so they delay the recognition and pressures build up.

The key to effect change is by initiating a process that preserves the dignity of family members and allows them to feel well-regarded throughout this change process.

4. Prepare family agreements.

It is hard to create agreements within the family because things change. And the fact that siblings are good partners now means that they should respect each other enough to have good shareholder agreements or buy-sell agreements. Getting family members to sit down and craft agreements that can be guide posts when it is needed and doing it in advance before they need it is your most valuable gift to the next generation.

To be continued.

My urgent advice to family business owners

THE late great Peter Drucker immortalized this statement: “The final test of greatness in a founder is how well he chooses a successor and whether he can step aside and let his successor run the company.”

I have used this quote many times and I will continue to resonate this line to stress the importance of codifying governance and succession in family businesses.

My passion to coach family businesses all over the world

It has been an incredible week of flying with several time zone changes that started in Japan last week then Dubai and Madrid.

As this article sees print, I am on a plane heading to Los Angeles to do a series of exciting talks related to the expansion of the highly coveted brand Organique Acai Group owned by the well loved enterprising Cebuano couple Elton and Cathy Salimbangon. But this is another topic that I will readily share in the near future.

So why am I passionate despite my incredible calendar this November? The answer is simple and requires no scientific explanation. I love my work because family members experience visible results when governance is embraced by everyone.

My coaching work revolves around the most fundamental but often neglected elements:

1. Establishing rules and code of conduct

2. Making sure each family member complies and is made accountable

3. Providing oversight and, when necessary, do intervention to mitigate conflict among siblings/branches

4. Helping source the right talent through our executive search network

5. Singular thrust toward growth and expansion

Coaching work can also be frustrating

Frustration can come in many sizes and shapes. One of the most common drawbacks is the patriarchal shadow continuing to loom large over the next generation members, thus preventing or clipping their desire to perform to the detriment of the family enterprise.

Family business leaders, particularly the entrepreneurial founders, often neglect the issue of 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 by 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.

It is also a very common sight when succession planning begins in response to an external event such as illness, accident, death, marriage or hostile separation.

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.

Succession is a precarious event

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.”

I have identified several time-tested tips to ensure growth and sustainability of the family business:

1. Decide if the enterprise will follow a family business or Business family model.

While many businesses that are owned and managed by families recognized the importance of ownership and management, few know where and how to start in developing a governance and succession plan.

The key is determining what model or template to follow. Family managers must make a very important choice…should you prioritize family over the business or vice versa?

The Gokongweis, the Aboitizes and Ayala families decided generations ago to pursue a business family model and no one can question their dramatic growth, not just in the Philippines, but all over Asia.

To be continued.

Cousins: United we stand, divided we have nothing

MADRID–I started writing this article when I was on the plane en route to Dubai last Thursday to grace an international event related to my other vocation as a book author.

After a brief three nights in UAE, I flew back to Manila Sunday midnight and flew to Spain the following day to attend the board meeting of Gruppo Emperador in Madrid.

I sit as independent director of the listed liquor firm.

As most of my readers are probably aware, Emperador acquired Spain’s largest and oldest iconic brand Fundador Pedro Domecq in an “all-cash” deal worth 275 million euros around the same time in November last year, thus it was appropriate for the board to meet in Madrid to plan its global business initiatives for 2017. The Fundador Group is a family owned business that dates back more than three centuries ago.

Sharjah International Book Fair 2016 in UAE

The prestigious fair is the third biggest book fair in the world and is expected to generate more than 1.5 million visitors during its 10-day run, slated to end on Nov. 12.

I was privileged to be one of only 150 book authors handpicked from all over the world to present my two books on family business governance and succession and be a resource speaker, sitting alongside some of New York Times’ international best-selling authors/novelists like Eric Van Lustbader of the thrilling Bourne Identity fame.

It was both an honor and a unique experience as Wong + Bernstein’s continuing efforts in advocating best practices in family-owned enterprises are now beginning to bear fruit. Countries are now slowly realizing the significant contribution of family enterprises to their respective economies.

A family branch in a dilemma

I want to share a common dilemma involving a family business enterprise engaged in logistics and trading. This is a third generation business that I have been actively helping for the last two years. During my monthly sessions with the members of this branch, I would always hear the family patriarch assert, “Our family started the importation of our products, so we sure have to be the ones to decide on whether or not our company should expand on it”.

That statement appears harmless but in reality, it is a red flag and a future source of conflict amongst different branches with common ownership.

The entitlement of the branch laying claim to the business assigned to them during the startup stage can pose serious consequences if rules are not cascaded to the cousins, both active and non-active.

On my end, I took the opportunity of explaining to that branch that the enterprise is still commonly owned by different branches. I also reinforced the notion that corporate governance and stewardship should be the overarching principle that should pervade in the enterprise.

Making the branch patriarch understand his role in the whole organization diffused the tension that was quietly building up.

In retrospect, regardless of the business context, when the concept of the family would be inserted into the argument, divisiveness would start to emerge. This is why the support from non-family business experts would be highly recommended (see my last two articles).

The neutral advice of these professionals coming from their many years of corporate and senior level experience implementing best practices could provide the cousin consortium stage with the needed guidance to set aside their biases and become proactive.

Guideposts are wonderful pillars to start governance

A good starting point for family members would be to collectively ask themselves the following questions:

Vision:

What goals do we want to set for the next three/five/10 years for their shared assets?

Mission:

Who are we as a family?

Why do we have to be in business together? And own shares together?

What does the business want to accomplish?

What do we want the enterprise to offer to its stakeholders?

Values:

What are the philosophies that define how the business should act in the ownership and management of the business?

When these most basic and purposive issues plus a myriad of other daunting and emotionally charged issues like control, leadership, entitlement, sustainability and stewardship are addressed, then the likelihood of a conflict will be minimized.

On the other hand, ignoring the red flags can eventually result in a conflagration. As a family member reading this article, the choice to do something is really yours.

Will the business end when the cousins take over? (Part 3)

THIS is the third article in a four-part series related to the cousin consortium stage. The SME Toolkit and the Business Families Foundation defines the cousin consortium as a stage where at least two cousins or more share ownership of a joint enterprise, generally those belonging to the third generation members of a family in business.

Unlike other stages, this particular phase carries with it more challenges due to the presence of many nuclear families (branches) and numerous family owners, some of which are majority shareholders, others minority owners, some actively involved, and others inactive or passive shareholders.

As the number of family members multiply, there is a pressing need to formalize agreements in all fronts, including the alignment of the family and business visions.

Instituting changes should be a top priority by the senior and next generation leaders

Passing the responsibility to the cousins solely to address governance issues is never a good option. Senior generation members must provide the inspiration and must be present in all governance-initiated programs. These policies do not just guide decisions inside the business, but guide decisions about the relationship between the family and the business.

Below is a list of my recommendations for family members to immediately put in place:

a. Engage qualified professional/non-family members (refer to my last article).

b. Create a communication and conflict resolution mechanism (refer to my last article). Policy development on how best to communicate and manage conflict cannot be put off forever. Family members must formalize and set down on paper the structure and guidelines under which the family will own and operate their business.

My best advice is for the family members to meet and set up a sound governance structure early starting with the formation of the family council and the business council.

c. Set up a family council. Among the many functions of the family council is the setting up of an adequate grievance committee that intervenes against an erring family member. This council must be proactive and unbiased and must be able to manage and temper misunderstandings and irrational behavior among cousins before it escalates into a major disagreement where all parties become emotional. Examples of some questions that will be tackled by the family council are:

  1. How do we go about fixing a petty argument amongst siblings or cousins who are also shareholders?
  2. When will our parents empower us to make decisions? We have been in the business for more than 10 years!
  3. Who has the final say in accommodating cousins interested to work in the business?
  4. What is the protocol in filing a complaint against a disrespectful cousin or senior generation member?

d. Set up a business council. This governance structure, when done with the family member’s/shareholders interest in mind, will be the company’s best bet against unnecessary confusion in the way the company is managed by the cousin consortium. Addressing business related issues like conflict of interest and allowing only qualified family members to join the business will make it easier to maintain peace and harmony as well as cohesion amongst owners. Common questions that the business council usually take up and resolve:

  1. Can we seek your help in pushing for our company vision and values? There is disagreement as to what and where the direction of the business is.
  2. There are many bosses in the company. We do not know whom to follow. Succession is unclear.
  3. Can we review the current compensation policy? The next generation family members have growing needs and we do not know if the senior generation members are aware.
  4. Is there a mechanism to gauge the performance of siblings/cousins? I sometimes feel it is unfair. I work more than my other siblings/cousins and yet we receive the same pay.
  5. Can we regulate the entry of in-laws and relatives?
  6. If and when I decide to pursue my MBA, will the family business pay for my tuition? Will it be the entire amount?
  7. I am a non-active shareholder but would want my son to join the business, is that possible?
  8. There has been no dividend policy for a long time and it has affected my family’s cash flow. I am based overseas. What and how can I air my complaint without being tagged as a greedy cousin?

e. Have the discipline and commitment to abide by the rules. To spur growth in the family business under the cousin consortium stage, a major factor would be to strongly push for the approval of the governance rules and the subsequent implementation by the different governance councils. The key is to impose discipline against family members found violating the agreement. Having agreed policies in place and abiding by them reduces the chances that family conflicts will haunt and destroy the family enterprise.