Family Businesses Must Aspire to Reach 100 years (Part 1)

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Ayala Corporation

Ayala Corporation is the holding company of one of the oldest and largest business groups in the Philippines. Ayala has leadership positions in real estate, financial services, telecommunications, water infrastructure, electronics manufacturing, automotive distributorship and dealership, and business process outsourcing, and new investments in power generation, transport infrastructure, and education.

Year started: 1834

Number of Employees: 35,073

Annual Sales: $4,194.97M (2016)

Net Income: $547.74M (2016)

In a disclosure to the Philippine Stock Exchange (PSE) on Friday, August 11, AC reported a net income of P15.1 billion for January to June this year, compared to the P13.8 billion in the same period in 2016.

“A journey of a thousand li starts beneath one’s feet” is a common saying that originated from a famous Chinese proverb. The “starts beneath one’s feet” in family business parlance is governance. And governance is all about rules, policies, systems and accountability. In short governance is all about institutionalizing control and decision making.  As the 8th Generation successor, Jaime Augusto Zobel de Ayala, Chair of Ayala Corporation puts it…

“It is important to teach each new generation, early on, the difference between ownership and stewardship. Ownership is a right of possession. Stewardship is a fiduciary role. It is holding the institution in ‘trust for’ the next generation. We feel, as a family, that this institution has been passed on to us for our care and not for us to dissipate or do what we will with it for our personal gain.”

Ayala Corporation (AC) was founded in 1834 and is the oldest family business in the Philippines. That makes AC 183 years old.

Governance is uppermost in everybody’s mind today. But governance can be a difficult and extremely challenging act for family business owners.

According to a PWC report, “no matter what their size, the unique—and often volatile—mix of personal family dynamics, business strategy and ownership criteria can create an emotionally charged environment that makes decision-making, not to mention day-to-day management, challenging. And as the founding generation ages, succession and power issues across an expanding family can create cascading concerns.”

In my previous articles, I narrated a number of highly successful Family enterprises in Asia and researched on their history as well as their transformation as Asia’s gold standard in governance and succession. Without any doubt, these companies exhibited remarkable parallelism worth sharing over and over again.

What made these businesses tick? What were the qualities of the leaders that made them endure family tension, betrayal, adversity and conflict? Was it pure luck that they overcame a bitter feud? What was their secret to longevity?

It is a fact that all family businesses struggle with governance and succession with some even facing untold hardship and survival. Take the case of the Eu Yan Sang Family Business that was established in the late 1870’s.

Before the fourth-generation Eu family members engineered a buyout what was originally their family business, the family had to endure a tumultuous period starting with the murder of the wife of the successor by her in laws in the second-generation, an escalating conflict in the third generation with 13 uncles fighting for the spoils of the businesses and a volatile fourth generation involving 72 cousins.

If not for the daring move of the fourth-generation cousins led by investment banker Richard Eu, who engineered a buyout, Eu Yan Sang would have ended in their generation. With rules in place, Eu Yan Sang is now managed by a combination of fourth-generation descendants and professional managers and the growth has been phenomenal.

It is also noteworthy to consider some high-profile families in Asia that got embroiled in senseless and unnecessary conflict. For many, they ended in failure. For some, they were able to overcome the bitter rivalry and went on to strengthen their organizations.  I have compiled a handful of cases involving conflicts so owners, who are currently feeling the tension pervading within the family and the business, will realize the need to seek immediate intervention from family experts.

a. Mayfull Foods Corporation of Taiwan by far is the most violent and tragic family conflict recorded in Taiwan and probably in Asia. Gunshots rang out after a regular corporate meeting where the topic of inheritance was being discussed. Six brothers of the late tycoon Huang Jung-tu were present. The shooting resulted in the death of the two brothers. When the police arrived, the gunman ended up killing himself before falling from the 7th floor of their company’s headquarters. In one fell swoop, three brothers ended up dead in what police investigators called a pre meditated murder-suicide.

To be continued…

(esoriano@wongadvisory.com)

 

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