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.