Monthly Archives: January 2017

Causes of conflict: Arresting red flags (Last Part)

WHY do most family businesses fail? That is the gist of my family session here in the United States East Coast. And I have listed some of the most common causes:

The senior generation leaders ignore family dynamics, thinking that the issues raised are petty. They ignore basic business issues thinking that family members should have special privileges. I call this entitlement, and it’s bad. The senior generation leaders are tax-driven. They are fixated on day-to-day selling.

These businesses have very limited initiative on strategy, structure and human resource. The senior generation leaders rarely involve “the next generation.” Everyone wants to avoid confrontation.

When family members admit committing at least one of these causes, then you can expect trouble to start brewing. It is just a matter of time.

Role of the family advisor

Rey affirmed that his family committed some of the listed causes and admitted that he was lost and helpless right after his father passed away.

I told him that my role as a family business advisor is to create a program, starting with the education of family members on the interrelation of all three governance structures, whose members are expected to collectively coordinate the succession, continuity and leadership processes of the family, business and ownership groups.

Separate yet integrated, the three groups need both a sense of each structure’s importance and sense of what is best for the family business’ overall interests.

Education on governance is key

When the time to gather everyone to start my program came, the four things I reiterated to the family were:

Every family member involved in these governance structures is expected to have important roles and responsibilities during the transition process.

The death of the father triggered an avalanche of change in the family business system.

Everybody is expected to participate with an open mind so they can collectively pursue family unity, a shared vision, shared values, harmony and renewed competencies.

My role is to iron out a fair ownership plan for everyone. Wealth preservation, stewardship and legacy-building are primary objectives.

Nobody wins in a messy family conflict

I also pointed out the downside. Should my intervention fail and the family members refuse to cooperate, the likelihood of the family business failing is high and will result in a power struggle where all siblings will fight for every voting opportunity to assume control.

The result will be so messy that everybody will end up as losers. When discord happens, the family business will break apart and shares will be sold to very lucky non-family investors for a song.

The list of companies who suffered similar fates is getting longer, and among the family businesses I used as unhealthy examples in the past is the case of the Wong Family of the famous brand Cosmos Bottling Corp.

This family conflict stands out

The story of the rise and fall of Cosmos is an all-too-familiar tune for failed family businesses. The patriarch, Henry Wong, at the relatively young age of 54 was given six months to live after doctors discovered a tumor in his brain, leaving the family members unprepared.

With Henry gone and no anointed leader, shareholders and family members started to form alliances within the board. As they mustered voting rights by virtue of their shareholdings, the different branches ended up in skirmishes after constantly disagreeing on how the company would be managed.

Henry’s siblings ended up taking over management, and within a few years the frequency of clashes in and outside board meetings became so acrimonious that, eventually, cracks developed, relationships were strained, shouting matches became louder, and conflict erupted. And as if in unison, everyone in the board scrambled to look for buyers.

After a messy power struggle, the RFM group ended up acquiring Cosmos for less than P1 billion in the 1980s, made a sweeping turnaround, and flipped it to the San Miguel group for a cool P15 billion.

Who helped RFM grow the brand? The eldest son of the patriarch who was bypassed twice by his uncles and my WB colleague and Cebu Managing Director Professor Danny Barrechea.

(esoriano@wongadvisory.com)

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Prof. Soriano is an ASEAN family business advisor, book author and executive director of ASEAN-based consulting group, W+B Strategic Advisory. He is also an international business lecturer and professor at the Ateneo Graduate School of Business.
He is slated to deliver a talk to family business owners in Cebu on Feb. 18. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SME’s. Those interested to reserve a slot should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

 

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Causes of conflict: Arresting the red flags

WE all know that unhealthy family conflict can wreak havoc in the family and the business. At its worst, it can break both the family and the business apart.

We also acknowledge that there are always challenges and that failure to address the conflict can lead to troubled days, uneasy and sleepless nights, uncertainty in terms of the future direction of the business, traumatic effect on the next generation and the thought that at any time a confrontation amongst siblings can lead to physical violence and irreversible financial losses.

These factors are causing Rey so much stress and insecurity. Inevitably, this will affect his family and the people surrounding him. As a family business coach, I can tell you, family conflict is not just unwarranted, unnecessary, and a waste of energy but extremely debilitating.

The stress can take its toll on one’s health and it just consumes and deprives you of your right to enjoy a meaningful life.

My role is to resolve conflict, mitigate the damage that has been done, educate the undisciplined and entitled family members and encourage leaders to make the sometimes difficult transition from a family-first to a business-first model so they can all reframe their resources towards growth and legacy building.

A reflection of family members in a dilemma

Rey’s predicament is quite too common but extremely challenging and difficult to untangle. This problem should never be ignored and is not simply a matter of sweeping it under the rug. The problem will continue and persist and at some point, will escalate into a conflict amongst siblings, their spouses and children.

But for Rey, he has reached a point where he has to make a choice–to fight or take flight. And he knows that any of the two options have serious consequences.

There are options in resolving this impasse. But Rey has to fundamentally address two conflict situations first.

The first part is dealing with the unfocused siblings who all have shown no commitment and passion in helping the family business grow. To further complicate the process, the three siblings set up businesses of their own so their time is divided. This lackadaisical attitude appears to be deliberate and therefore must be addressed. This is where a family business advisor must step in and seek to resolve these pressing issues:

a. Why have these three siblings not been supportive of Rey?

b. Are their actions deliberate? Collective?

c. Are they sending a strong message that they disliked Rey’s management style?

d. Why have they continued to remain uncooperative?

e. Are these actions their way of protesting Rey’s brand of leadership?

f. Was there a trigger event in the past?

g. Did the siblings behave this way before the patriarch passed away?

h. Why is Raymond supportive of Rey? Is there a tacit alliance between the two?

The other part is in convincing Rey’s mother that having equal ownership is not fair and potentially has a far reaching impact on family relationships and the future of the business.

To be continued.

***********

Prof. Soriano is an ASEAN family business advisor, book author and executive director of ASEAN-based consulting group, W+B Strategic Advisory. He is also an international business lecturer and professor at the Ateneo Graduate School of Business.
He is slated to deliver a talk to family business owners in Cebu on Feb. 18. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SME’s. Those interested to reserve a slot should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

 

Real Causes of Family Conflict (Part 2)

FAMILY business in Asia is indeed a family affair, and the appropriate description will always depict a family tree with the next generation members and their spouses as branches connected all the way up to the founder or the generation that started the business.

A family affair carries with it a precarious decision-making process, where the criteria in most cases is heavily tilted towards equality, less on fairness and heavily fraught with emotion. Linking this scenario, I would like to continue the story of Rey below, as he narrates his disappointment upon hearing of the equal ownership scheme from his mother.

“All five siblings were not equal in ability and work attitude”

Modesty aside, I have always been the one initiating new businesses and maintaining relationships with our customers. Together with Raymond, Papa developed the habit of calling on me to implement the plans and not on Ralph, Rowen, Rochelle.

He would always remark that he failed as a parent in instilling the value of hard work on his three children.

Having worked with the three, it was obvious that they demonstrated a lack of maturity, leadership skills and poor work ethic. They report for work anytime of the day.

I often catch them on their computers doing something unrelated to their jobs. When I request for monthly meetings, they would either come in very late or not appear at all.

They have become so entitled that one time, Ralph told my mom that he will be out for a few days to do personal errands but came back 20 days later. He never bothered to inform us of his whereabouts. I only found out on Facebook that he went on a cruise with his wife’s family.

Recently, I discovered that the three siblings established their own businesses. This was a clear violation of what Papa told us when we joined the family business: that all members joining the business must work full time.

They obviously put up their businesses after Papa died.

I am turning 41 next month and my siblings are in their early to late thirties. To be burdened with so much work, plus the pronouncement of our mother regarding the equal ownership structure, I have reached a point where I have to decide if I am really cut out to be working for the family business or not. I feel I have been treated so unfairly!

The other thing that worries me is that once my mother is gone, the business might suffer.

After hearing my story, do you think I have every right to feel bitter and resentful against my ageing mother for not appreciating the work and commitment I put in the family business?

Should I just strike out on my own? Is stepping down the right thing to do?

By leaving, I also want to teach my unfocused siblings a lesson. And if I go, I am sure my youngest brother will follow. He has also expressed his disappointment to the equal ownership scheme.

                                                          ***********

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author, Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
Prof Soriano is slated to deliver a talk to family business owners in Cebu in February. The series of talks are part of W+B Cebu’s advocacy campaign related to Family and Business Governance for SME’s. Those interested to attend should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

Real causes of family conflict

Dear Prof. Soriano,

Happy New Year to you and your family!

I am a regular reader of your column for the last two years and I always look forward to reading your very informative weekly article.

It has been a habit of sorts to share your weekly article to friends who are also working in their respective family businesses. We even went one step further, we collated your articles and use them as self-help materials during informal gatherings. It has been a wonderful guide for all of us.

We hope and pray that you never stop sharing your wealth of knowledge to family business owners and exude the same passion and advocacy for many more years!

Sincerely,

Rey

THE letter was sent to me right after the holidays but I have observed that in the recent past, I continue to received countless letters bearing the same message but with varying degrees of fear, anger, agitation, anxiety, uneasiness and the feeling of hopelessness coming from the letter senders.

So instead of responding to each letter, I decided to consolidate and make a story with a similar theme using another industry, different names and number of siblings to hide the identities of the letter senders.

Modified story of Rey : A volatile conflict waiting to explode 


I have been wanting to email you since October but due to the pressures of work and the long holiday preparation, I never had the opportunity. Lately, through the advice of my friends and the stress this new problem has been causing me, I finally decided to email you about our current situation.

There are five siblings (Rey, Ralph, Rowen, Rachelle, Raymond) in the family and we are all active in the family business. The word active is relative though. You will find out in the succeeding paragraphs.

After heeding your advice (reading from your articles) related to aligning the ownership structure, I and my brother Raymond took the opportunity during the Christmas celebration to talk to our mother primarily on the need to start the process of working out an ownership transfer.

For your reference, my father passed away a year and a half ago and my mother suffering from various ailments, is in her mid-70s. With her weak condition, we thought it best to tell her about our plan.

Conditions for ownership transfer

When we explained to her about the ownership transfer, we were both surprised that she readily agreed to start the process subject to three conditions:

a. That I will be officially appointed as the successor, following the desire and wish of Papa. It was clear from the start when I was invited by Papa to join the family business more than 19 years ago. Being the eldest and the most experienced, Papa trained me in practically everything related to running the business. My siblings collectively acknowledged this and it was just a matter of time when I will end up taking over the mantle of leadership. My mother’s statement made it official.

b. The family business must continue and the next generation (second generation) will ensure that the legacy will transition smoothly; and

c. Ownership of the business will be divided equally at 20 percent per sibling. This last condition floored me and this is the very reason why I finally summoned the courage to write you a long email.

Being fair is never about equal ownership

My mother insisted that we each own 20 percent of the stock. Her insistence of equal ownership shocked me. I was unable to think nor react because I was so upset!

Raymond felt bad as well. He even tried to argue and justified why I should own more shares but she stood her ground and even reminded both of us that it was Papa’s dying wish with the hope that it will create harmony in the business.

To be continued.

(esoriano@wongadvisory.com)

***************

Prof. Soriano is a National Agora Awardee for marketing excellence, an ASEAN family business advisor, book author, and executive director of ASEAN-based consulting group, W+B Strategic Advisory. He is also an international business lecturer and professor at the Ateneo Graduate School of Business.
Prof. Soriano will be in Cebu in February to deliver talks to family business owners. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SMEs. Those interested to attend should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

 

Family business failures: A serious global concern

IN a well-written article in Vanity Fair, author Suzanna Andrews remarked that Jay Pritzker quietly built an empire of more than 200 companies, including Hyatt Hotels Corp., and a network of 1,000 family trusts.

But one of the patriarch’s final deals before his 1999 death, designed to bind his heirs closer, unleashed a torrent of anger, greed, and betrayal, culminating in a $6-billion lawsuit by his niece.

The death led to a battle among siblings and family members where lawsuits and accusations led to a public battle and the company eventually split up.

External Shock: Family business leaders unprepared for future events

Only a minority of wealthy families retain their wealth position over time. Out of 100 families in the Forbes list in 1999, 64 percent of those in the top lost their position. Of course, their where many external upheavals that took many businesses out of the market the past 15 years, starting with the technological shock in 2000 and the global financial meltdown in 2008 that practically decimated family businesses all over the world.

But the ill-equipped and unprepared successors contributed to the demise of these well-established businesses. The key, therefore, is for business owners to future-proof the organization and be highly innovative.

Changes in the marketplace and the rising global competition have created so much alarm bells for family businesses to start revisiting their business models. There is no other option but to stay relevant and highly competitive.

The numbers in Europe and the declining business succession

My visit to Europe this month to research on family enterprises was very enlightening. In a report by EFB, the umbrella federation of family businesses across Europe, family-owned businesses provides some startling contribution to the European economy:

They represent around 50 percent of Europe’s GDP.

More than 14 million business are classified as family-owned businesses.

They contribute 60 million jobs.

I also discovered that many family-owned businesses in the European Union are unsuccessful in managing intergenerational transmissions and vanish after the first generation. I am not at all surprised.

In one of my family business engagements in London more than a couple of years ago, I discovered that the continued drop in numbers of family businesses transitioning from the second to the third generation already showed worrisome figures.

Germany topped the list with 24 percent left in the second generation and down to single-digits in the third generation. Not a single family business survived the fourth generation.

Still reeling from its exit from the European Union, the United kingdom came in a close second with less than 30 percent left in the second generation and a mere 12 percent going into the third generation, with zero left in the fourth generation.

The trend was similar for French family enterprises but they fared better, posting an above average eight percent, somewhat overcoming the third generation curse. The single digit survival rate however is still bad news for family enterprises.

Sibling Rivalry: A fight for control of the $96-billion Empire

Acrimony and family conflict is a global concern.

Shin Kyuk Ho was born in the southern Korean city of Ulsan in 1922 and founded Lotte in 1948. The business grew from selling chewing gum in post-war Japan to becoming a major confectionery and diversified multinational corporation with overseas branches.

The bulk of its business is in Korea, where it has 80 affiliates in areas ranging from department stores to amusements parks and hotels, with an estimated $96 billion in assets. It is now South Korea’s fifth largest conglomerate.

The conflict started when the founder Shin Kyuk-ho and eldest son Dong-joo visited Lotte Holdings last year and ended up firing six board members, including youngest son Dong-bin.

With his back against the wall, Dong-bin called an emergency board meeting, reinstated the fired board members while declaring the ouster of his father and relegating him to honorary chairman. Having lost his board seat at the family-controlled conglomerate’s lodgings and duty-free sales unit Hotel Lotte Co., the 93-year-old founder filed legal action against Dong-bin.

With the vicious family conflict, the group has shelved a $4.5-billion Hotel Lotte IPO.

To quote Singapore’s Strait Times, “while succession battles are not unusual in South Korea, a son overthrowing his aged father is almost unheard of in a Confucian society where respect is valued.”

On a lighter note, my message to family business owners: the New Year offers new beginnings, fresh starts, reaffirmations of love and harmony so we can all work towards a brighter future!