Monthly Archives: May 2017

The Lee Kum Kee Family Secret

Hong Kong sauce giant Lee KumKee Group is one of a handful of Chinese family owned enterprises in the world that has not only managed to survived for more than a century but has thrived after 129 years of steadfastly holding on to some unique and time tested values reinforced with a powerful succession plan model.

Established in 1888, the Lee KumKee group has a remarkable history built over five generations. Yet, despite its market leadership and being a world-renowned brand offering an assortment of Chinese sauces, the group has not been spared of her share of family conflict as a result of business disagreements and buyouts.

Major Shocks

In 1972, the third generation heir, Lee Man-tat and grandson of the founder suggested to its shareholders the importance of creating additional product lines for its oyster sauce business to reach a bigger market. But the idea did not sit well with his uncles, so the following year and with the backing from his father, Lee Man-tat ended up buying all the shares of the company.

Another setback happened in 1986 when Lee Man-tat proposed the idea of expanding the factory but ended up being rebuffed by his younger sibling who at that time owned 40 percent of the business. Due to differences in management style, Lee Man-tat offered to buy his brother’s shares.

After going through these two major corporate hiccups, Lee Man-tat ended up gaining control of the business. His five children then joined the company one after another.

The two shocks made the Lee family realized the vulnerability of the enterprise to internal conflicts, so in 2002, the family agreed to set up a family council and draft a family constitution.

Family First, Business Second

The core value of Lee KumKee is “family first, business second,” there other values according to writer Alan Lee Ka-Fai that are worth emulating by family business owners and these are the following:

a. Entrepreneurship is Key: The family requires the successors to stay as entrepreneurs as “it does not believe one would succeed in keeping the business without instant innovation and thinking out of the box.” The family business will not be able to stay on long unless it always maintains the mindset of entrepreneurs.

b. Governance System must be in Place: Apart from family values, the family constitution and family council are two key elements of family governance. These elements would help build trust among family members and cement family ties.

c. The family motto also underlines achieving a win-win situation

Additionally, I have included some of the powerful values I mentioned in my article last week namely:

d. Put Other’s First, before yourself

e. Pragmatism

f. Integrity and

g. Benefiting the community

According to Dr. Amen Lee, President of Legacy Academy, developing a long-term vision is a key element. He goes on to espouse the five dimensions that includes the practice of family values, continuation of family relationship, passing on of family knowledge, management of family wealth and succession of family business.

Inevitably, for family enterprises aspiring to become legacy bearers, the key is to pass on the values of the first-generation entrepreneurs, including their core concepts and life wisdom.

For writer Allan Lee Ka-fai, he concluded that “Family businesses which have lasted more than 100 years usually have a very unique understanding of family, business and relationships, and pass it on to the next generation as the family legacy.”

(esoriano@wongadvisory.com)

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Lee Kum Kee: 129 years and Growing

Lee Kum Kee International is a Hong Kong-based food company that manufactures oyster flavored sauce and a wide range of Chinese and Asian sauces. It is a popular fixture in most Asian dining tables. It is also loved by Filipinos.

The brand was founded in 1888 by Lee Kum Sheung, a chef working in a small eatery that sold cooked oysters. He eventually formed the Lee Kum Kee company to market what has now become a staple sauce, seasoning and condiment sold in more than 100 countries.

Today, the Lee Kum Kee (LKK) group continues to run as a family business under the leadership of the 5th Generation family members. I shared this inspiring family business in my workshop last Saturday.

At the center of LKK’s corporate culture and existence is a Mandarin saying:

“Si Li Ji Ren” which means “Considering Other’s Interests or Put Other’s First, before yourself.”

Si Li Ji Ren is the heart and soul of the Lee Kum Kee’s very existence and the foundation of their commitment to ingrained values such as Pragmatism, Integrity, Constant Entrepreneurship, and Benefiting the community.

Today, family enterprises that are haunted by a multitude of daunting challenges related to succession battles and sibling rivalries may do well by learning powerful insights from LKK’s success formula as well as its preference over family embracing the business.

I espouse business first in my coaching work to dramatize the need to grow the business in a highly complex and competitive environment but the case of the LKK family business’ endless pursuit in espousing best practices under a family first model is equally inspiring.

Quoting a well written article by Jeff Pao… “Family first before business,” company chairman Charlie Lee Wai-chungonce said in an interview. “If family members work together, the business will thrive naturally.”

“As a family business, we’ve gone through several transitions within our family. And the two key transitions in the 1970s and 1980s have exerted huge shock on our family governance,” he said.

In 2002 the family decided to set up a family council as part of their efforts to bolster business growth.

Lee Wai-chung, the fourth-generation heir, said involving all family members in the business may not necessarily be a good thing.

“It’s a common belief that you are a part of the family unless you join the family business, or you become an outsider. But that idea is outdated and has to be changed,” he said.

A traditional family embraces harmony and tries to avoid infighting. So even if there are issues, they tend not to confront them for fear of causing disharmony in the family.

But those issues have to be tackled, Lee said, adding that it’s normal for family members to have different views.

In Family businesses that my advisory firm, W+B assists, the family leaders have the habit of sweeping the problem under the rug and totally ignoring the underlying problems. It should not be that way.

My model of coaching work is simple… when there is conflict make the family members internalize the values. Values are like glue that keeps the family together.

Values inspire people to do things that are sometimes difficult, to make commitments that require discipline and to follow certain behaviors that will redound to the benefit of the greater good. An enduring commitment to values is the greatest strength and competitive advantage family ownership can bring to any enterprise.

The Lee Kum Kee model is a glowing example of what family businesses should be.

(esoriano@wongadvisory.com)

Are Business Owners Doing It Right? (Part 2)

  • Do you think your children are dedicated in pursuing business continuity?
  • Are your children qualified to assume leadership roles?
  • Do you have rules for in-law participation?
  • Have you already identified a successor?
  • Do you have a succession plan in place?
  • Do you honestly believe your eldest child is the most qualified? 
  • Are your children entitled? Were there rules when they joined the business?
  • Did you require them to work outside the family business before joining?
  • Are you compensating your children commensurate to their skills and annual performance?
  • Does an HR policies cover family members? Does your HR Manager have the power to discipline family members?
  • Have you established criteria for family members owning shares? For selling shares? Assigning shares? Encumbering shares? Selling to siblings or other branches?

If you answered “NO” to just a handful of the questions above, sadly your family and the business may be headed to a bruising conflict.

If you sense the undercurrents and tensions building amongst family members now, it is wise not to disregard them. As their leader, do your family a big favor, fix the problem. If you cannot fix it, find someone who has the competence, experience and objectivity to help.

Let me take this opportunity to say that this extremely sensitive subject will be highlighted and discussed in my one day workshop in Cebu on Saturday, May 20 at City Sports Club.

The simmering tensions are telltale signs of a “baby elephant in the room”. Ignore these issues and the family and business will suffer. You might think that these issues will heal over time. It will not. As a matter of fact, the conflict will manifest in many forms and through time, implodes as you start losing your grip of the business due to advancing age or when you are no longer around to make important decisions.

It is obviously clear that these problems surfaced many years ago and you brushed them aside. These problems relate to entitlement, sibling rivalry, generational conflict, conflicting interest, in law and cousin participation.

When you procrastinate, the problems are magnified, emotions takes center stage, entropy pervades and battle lines are drawn.

Emotion and entitlement

At this juncture, legal intervention assumes a more active role and my capacity and influence as a family business coach diminishes. As family business advisor, our governance intervention is more effective if lawyers are kept out of the conflict.

Immediately right after helplessly watching his children bitterly fought for ownership and control of the business he started 50 years ago, a client confided to me:

“Prof, I failed as a parent. How I wished I were poor again. I never expected that the wealth I created has cause so much pain and misery amongst my children…we used to live simple lives but things have changed, all because of greed and pride!”.

If I hasten to add, emotion and entitlement remained as aggravating circumstances to any conflict.

With no policies in place, it will be overwhelmingly tough for the family to move forward in one direction.

I can go on and on with more nagging questions but inarguably, it will still reflect on the most fundamental question for family business owners…

“Are you doing it right? If you think you are not doing enough to ensure your legacy, do you plan to urgently do something to create harmony amongst family members?”

It is not too late though. There is still time to do something right but you must start the process now!

(esoriano@wongadvisory.com)

*****

Prof Soriano is slated to deliver a talk to family business owners in Cebu on May 20, 2017. The talk this month is part of W+B Cebu’s advocacy campaign related to Family and Business Governance. Seats are limited. Those interested to reserve a slot may call Octopus Events at 09159108686 and look for Ms. Cherryl.

 

Are business owners doing it right? (Part I)

ANY relationship between the family and the business must be governed by policies.

If you are like most family business owners, you probably have initiated very informal rules with little or no compliance. That said, the likelihood of a future family business conflict is high.

Examples of undocumented policies that you established are rules related to your next generation family members being assigned to manage their respective departments, their compensation and equity percentage that are likely to be equal and setting weekend lunch gatherings to discuss business opportunities.

It is also likely that you have prepared a will that only your lawyer is aware of or an insurance policy ready to be monetized when an emergency strikes the family and the business.

As to investments and liquidity, I am certain that you also have set aside a significant amount of cash in a number of bank accounts and some assets like real estate to distribute to family members, as well as future liquidity for the business to cushion the impact when you are no longer around.

If you have extended family members due to past indiscretions (having children outside of wedlock), you have most likely set aside properties or trust accounts for them too so they will not be financially burdened when you are unable to provide their monthly allowances as a result of a debilitating condition or worse death.

Article 887 of the Civil Code enumerates the list of compulsory heirs, including illegitimate children.

Additionally, providing for their future support as mandated by law will also serve as a deterrent against future claims against your estate.

Finally, for a select group of senior employees (non-family employees, relatives and cousins), I am also confident that you have incorporated (Last Will) a financial package that is sort of a reward or incentive for their long years of service.  The gesture is meant to reciprocate their commitment and dedication when they supported you during the startup years. And with the entry of the next generation members, documenting their rewards is important.

I just enumerated a significant part of what a typical family business owner has been doing or planning to do for the family and the business. But in a talk I shared recently in Singapore, I ended up exchanging notes with a participant who appeared to be confused and worried.

”Prof I am not sure if I am on the right track. Despite the initiatives I put in place like buying insurance, real estate, etc, I am still bothered with the thought that my business might not last when I am no longer around. Am I doing it right?”

To provide clarity of purpose, I raised a slew of tough questions to business owners. Some of those questions I have listed below:

a. Are your past initiatives on policy making sufficient to ensure your legacy will continue?

b. Will your current actions cultivate harmony and improve relationships among family members when you are no longer around? Can you sense trouble ahead?

c. Does the next generation members have what it takes to bring this business to a higher level? Do they share the same values and mission?

d. Do you honestly believe that some of your children will sell their shares when you are no longer around? Do you think money will be a primary source of conflict?

e. Do you want in laws to actively participate in decision making?

f. Have you put in place conflict of interest policies in place?

To be continued…

*****

LINK: http://www.sunstar.com.ph/cebu/business/2017/05/08/soriano-are-business-owners-doing-it-right-part-1-540761

Prof Soriano is slated to deliver a talk to family business owners in Cebu on May 20, 2017. The talk this month is part of W+B Cebu’s advocacy campaign related to Family and Business Governance. Seats are limited. Those interested to reserve a slot may call Octopus Events at 09159108686 and look for Ms. Cherryl.

Stop Suffering in Silence!

How can I tell my son that he has to be at the office early and be a good example to our employees?

I have been giving equal compensation to my children and I know it is not fair to my other son who works very hard. What is the right compensation for my children?

I am extremely worried why my children gave shares to their spouses? What if they passed away and their spouses remarry?

How can my son work in our family business and manage his personal business at the same time?

Shouldn’t the business buy supplies from me?  After all, I am part of the family?

What happens if my brother thinks my nephew (his son) should be promoted and his salary increased, but I disagree?

How do we terminate a family member for incompetence or dishonesty?

How do we prevent a sibling from selling his shares? What if it is our competitor?

How do we deal with shareholders who are based overseas and yet have the temerity to always question the way the business is run?

Volatile Brew

These are just some of the nagging questions that I regularly hear from family business owners. And if left unresolved can be real nightmares!

Without any means to address these issues, it will be a bruising struggle for power that will result into more disagreements, further antagonizing family members and weakening the very foundation of the family business.

Tolerating these serious concerns and sweeping them under the rug and “do nothing” will result to entropy. The consequences of inaction are irreversible.

Policies help avoid problems and conflicts

The best and only option is for family members agreeing on solutions and subsequently formulating family agreements. To avoid making the issues less personal and ensure greater objectivity, it is imperative for the family to engage the services of a third party family business facilitator who will propose initiatives leading to some form of family and business governance.

Problems are predictable and initiating policies before they happen can eliminate or reduce future tension and will de-escalate a major conflict when the founder or patriarch is no longer around.

Family Protocols

Family protocols or agreements, if done right, can minimize or avoid a potentially damaging conflict and prevent unnecessary misunderstandings.

The objective is to mitigate the conflict by establishing very clear guidelines and promote the goals of the family and the company towards a joint and collective interest to grow the enterprise. Additionally, it will also strengthen the communication process amongst family members.

When a family protocol is unanimously accepted by the whole family, it tends to be strictly applied and, in most cases, helps to ease tensions that may arise between family members.

A Fair Warning

According to a study published by IESE’s Josep Tàpies and Lucía Ceja, if the protocol is not broadly accepted by family members and its stipulations seldom applied or if the code of conduct is not explicitly made clear and put in writing, the process of trying to implement it will further cause confusion and ultimately render it useless.

The key therefore is a fair process of formulating rules where family members are engaged  and compliance without fear or favor.  

(esoriano@wongadvisory.com)

*****

Prof Soriano is slated to deliver a talk to family business owners in Cebu on March 20, 2017. The talk this month is part of W+B Cebu’s advocacy campaign related to Family and Business Governance. Seats are limited. Those interested to reserve a slot may call Octopus Events at 09159108686 and look for Ms. Cherryl.