Monthly Archives: October 2017

Hope Alone Will Never Heal Family Conflicts

oct 16

Lotte: Family Feud

Founded in 1948 in Tokyo by Shin Kyuk-ho, the Lotte Group started off as a chewing gum distributor to children in post-war Japan. Nearly a decade later, Shin expanded the company to South Korea and became the country’s largest confectionery manufacturer. Lotte group engages in several industries, such as shopping, entertainment, finance, hotels, and food.

The feud began on July 27 2015 when the 92-year-old Shin dismissed his younger son Shin Dong-bin, the chairman of Lotte Group, along with six board directors. According to the Korea Herald, Lotte Group lost billions of dollars from its operations in China over the past four years, and Dong-bin had reportedly failed to report the losses to his father. Dong-bin held an emergency board meeting and staged a coup to remove his father as general chairman of the company’s holdings. The younger son kept both of his executive titles. The move angered Shin Dong-joo, who called his father’s demotion unlawful. In January 2015, Dong-joo himself was fired after his father discovered that he had overstepped his role by meddling in the management of Korean operations.

Lotte chairman clinches ultimate victory against brother

The long-running family feud between Lotte Group Chairman Shin Dong-bin and his older brother Dong-joo has apparently ended after the latter disposed of a large stake in the group’s key affiliate. The nation’s fifth-largest conglomerate said Thursday that former Tokyo-based Lotte Holdings Vice Chairman Shin Dong-joo sold a 6.88 percent stake in Lotte Shopping ― 1.73 million shares ― through a block deal for 391 billion won ($342 million).

Group founder Shin Kyuk-ho’s oldest son now holds just 7.95 percent of Lotte Shopping, while his younger brother has 13.46 percent.

The siblings have been fighting for control of the retail giant since July 2015, engaging in a fierce legal battle. But the older brother appears to have accepted defeat in the uphill battle for now, according to industry watchers.

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NEW YORK. NY. On September 3, 2008, at the Republican National convention, former New York City Mayor Rudy Giuliani was the first to use the phrase “hope is not a strategy. Specifically, his convention speech included these words:

“Because ‘change’ is not a destination, just as ‘hope’ is not a strategy.

What Does It Mean? When Mr. Giuliani used the quote in late 2008, he was saying that Obama – and any other president – needs to act.

I am connecting this message to family members who are suffering in silence because of deep conflict within the family and indecision.

Hope Supported by Action

You cannot just hope and wished that the issues will just go away. As a family member, you need to muster enough strength to initiate and act on the problems that are causing tension within the family and have likely spread to the business.

The patriarch/matriarch must act to mitigate the problems. Just sitting around thinking about how the current situation could be better is not going to change anything.

The fact remains that the following problems will never be resolved by just merely hoping for the best:

  • Hope will never address the confusion as to where the business is heading
  • Hope will not reduce misunderstandings among siblings/cousins
  • Hope will never resolve personality differences
  • Hope will not cure the incompetence nor can it terminate unqualified/ dishonest family members
  • Hope can never manage frequent power struggles among siblings/cousins
  • Hope will not create ownership alignments/agreements
  • Hope will not mend emotional outbursts and constant finger pointing and cursing
  • Hope can never cure greed nor will it fix a slew of conflict of interest or self-dealing activities by family members
  • Hope will not remove from the business entrenched inept but entitled in-laws
  • Hope cannot heal a scarred relationship
  • Hope can never promise nor offer solutions to a mismanaged enterprise nor will it help correct a bad P&L (Profit and Loss) financial statement
  • Hope cannot prevent a family member from selling his or her shares to a competitor
  • Hope cannot prevent a catastrophic failure of both the family and the business

Just hoping is plain and simple procrastination!

I can list more issues but one thing is crystal clear, hope is not a strategy. Without any means to address these deep and frightful issues, it will be a bruising struggle for power that will result into more disputes, further antagonizing members and weakening the very foundation of the family business.

If there is continued inaction, these problems can cause entropy and will scar the family and the business forever. The consequences of inaction are irreversible.

Objective Intervention Is Important

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 facilitator who will propose initiatives leading to the creation of mutually agreed governance policies defining the roles and responsibilities of family members active and not actively working in the business.

The good news is that most family related problems are predictable and initiating policies before they happen or morph can eliminate or reduce further tension and will de-escalate a brewing conflict when the founder or patriarch is no longer around.

Do not get me wrong, hope and prayer can work in the face of a difficult situation, but family members need to act and do their part now. There is still time.

(esoriano@wongadvisory.com)

*****

LINK:

http://kore.am/a-breakdown-of-the-lotte-family-feud/
http://www.koreatimes.co.kr/www/tech/2017/02/694_224573.html
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Why Banks Love Governance

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Corporate Governance

Outstanding Performance, Higher Profits, Expanded Market Reach and the like FAILS to protect a company which has put good governance & ethics at the back burner.

Only the culture of strict adherence to good compliance can keep a company ahead on sustainable basis, bring in larger profits.

Corporates should act like honey bee which suck the nectar of the flower without effecting its fragrance and produce honey for the well –being of society.

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SAN FRANCISCO, CA. Governance is everywhere. I am slated to deliver a talk related to Ownership and Succession today to the students, faculty members and business owners at the Community College of San Francisco Ocean Campus (CCSF).

This will be another interesting exchange of ideas with business owners and the academia similar to the one I did exactly a year ago when the University of San Francisco College of Business (USF) core faculty invited me to lecture on a topic as diverse as the ASEAN Integration and Its impact on the US Economy.

Next month, I will resume my family business initiatives in Africa organized by the World Bank/IFC Group and then proceed to Southwest Asia to run another governance campaign in collaboration with the country’s stock exchange.

If I get “unlucky”, I will end up doing another North American engagement before or after the year ends. It will be winter so advisory work can get really challenging.

Just as I thought my business coaching engagements will taper off as the year is almost at the tail end, in comes invitations to actively promote governance and succession in emerging economies like Kenya, Ethiopia, Rwanda in Africa and India, Sri Lanka and Bangladesh in South Asia.

Governance is a Top Lending Metric

There is no doubt that creditors, lenders, VC’s and financial institutions are clearly biased towards businesses that are devoted to best practices or whose business and operating model revolve around corporate governance.

The Asian and Global financial crisis in 1997 and 2008 revealed severe shortcomings in corporate governance. Quoting an OECD report, “when most needed, existing standards failed to provide the checks and balances that companies need in order to cultivate sound business practices.”

Right after the 2008 debacle, the OECD and several global institutions launched an ambitious action plan to develop a set of recommendations for improvements in priority areas such as remuneration, risk management, board practices and the exercise of shareholder rights.

The changes happening now is a result of the global wave of governance standards put in place especially in the most vulnerable sector, the start-up businesses and family-owned enterprises.

Hopefully, the collaborative and active intervention efforts will encourage founders of businesses to step up to the plate not just in their profit strategies but in establishing a structure where sound business practices can become the norm.

It is a fact that one of the major hurdles for business owners is the issue of transitioning from an owner mindset (where there is weak governance structures and systems) to the new model of stewardship management (where governance is written and there is compliance of best practices).

Why Creditors/Banks Prefer Businesses that Espouse Governance?

The answers point to a very important ingredient in lending money… the ability to use the fund for the right purpose and the responsibility to pay the creditor-bank on time.

Corporate governance structure builds a strong family foundation and banks are naturally receptive in lending capital to a stable enterprise especially if they see a family constitution in place that captures the following:

  • Vision-driven and values-based that prepares the family and the business for the future
  • Aligning the family’s relationship with the business by way of meritocracy
  • Defining the family member’s rights and responsibilities
  • Ownership alignment covering the next gen leaders are well-documented
  • Effective plan for ownership including key family leadership role and succession
  • A Communication platform to minimize conflict and misunderstanding for active and non-active owners
  • The creation of Family Council to manage Family and personal issues

(esoriano@wongadvisory.com)

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https://www.slideshare.net/pkvijay/corporate-governance-39555679

 

Why Am I Passionately Espousing Family Governance?

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Samsung

Samsung Electronics, the crown jewel of the Samsung group, has reported record profits despite Lee’s arrest in February and a damaging recall for Galaxy Note 7 phones that were prone to battery fires. The financial success was largely thanks to events set in motion by Lee’s father in the 1990s. The elder Lee made the decision to break into the memory chip industry and followed up with massive and risky investments that rivals could not match every year.

Those investments are paying off. Samsung, the world’s largest maker of memory chips for servers, mobile devices and computers, was the biggest beneficiary of supply constraints and explosive demand for mobile devices that pushed up prices.

Longer term, however, some analysts see risks for Samsung and its flagship Samsung Electronics.

“South Korea’s chaebol system is similar to monarchy,” said Park, the Seoul National University professor. “In the monarchy system, you need a king.”

There is also potential for a destabilizing family feud over inheritance when the elder Lee dies.

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Over the past seven years, our firm, W+B Family Business advisory has been spearheading family and business governance in Asia.

Most of our alliance partners in the business sector and the academe in North America, Indonesia and Singapore have referred to our vigorous campaign as “relentless”.

In our head office, we modestly refer to our work as the “W+B Method”.  International clients have acknowledged our method as best in class and we solely look at it as our compelling value proposition.

Why is W+B vigorously campaigning to promote Governance?

It is a race against time. We have witnessed first-hand, emotionally charged families being torn apart because of rivalry, greed, envy, vengeance and sometimes senseless loss of human lives.

There have been quite a number of cases where family members would “kidnap” a parent allegedly suffering from dementia in order to prevent an asset sale or overthrow a sibling in power or seeing siblings conspire in forging documents so they can surreptitiously sell assets.

I have experienced several cases where I had to enforced disciplinary action and initiate expulsion of family members engaged in self-dealing, conflict of interest transactions and in rare cases absconding with large amounts of money.

These are unfortunate but live cases of family conflict! When the battle lines are drawn, you can expect discord among family members, sometimes violent confrontations, parents inconsolable and confused, and the business on the brink of a major setback or at worse, imploding.

Without any doubt, as Family business advisors, we have the herculean responsibility to intervene and affect the governance process because it is the way forward and the right thing to do.

To quote a Bloomberg report related to the never-ending family drama unfolding at Samsung:

“Sabotage, espionage, succession battles, and sibling rivalries — it sounds like a season of “Game of Thrones.” But it’s the real-life drama of the Lee family, the Korean dynasty that founded Samsung with wealth equal to 17% of the country’s GDP.

It’s a fragile situation. If successor Lee Jae doesn’t navigate this right, there are family members waiting to take his spot.“

Currently, Lee Jae is in jail and family members and non-family shareholders are allegedly plotting separately to let him stay in jail for good.

Governance Intervention Must Be Holistic

Our coaching interventions are straightforward. As a Senior Advisor, my role is to articulate very important and purposive set of ideas and beliefs before any actual engagement. The key is to educate and prepare members for the journey toward corporate governance.

Educating family members is critical. The willingness and readiness of every family member to go through the process is equally vital.

Finally, the advisor’s role is to underscore the importance of embracing pre-work rules before starting the process of change. These are the following:

a. Governance and Succession is non-negotiable.

b.Size of the business is immaterial.

c.The bigger the number of family members, the more complex it can become.

d.Intervention should be on the 3 circles (Family, Business and Ownership). Each circle has its own unique characteristics so a tailor-fitted approach must be in place.

e.Procrastination is like a thief of time. Delaying governance further can increase the volatility of the family and the business.

f.Age is a factor. As the founder and the business leader ages, succession and related issues in a multi generational family can offer more challenges.

g.Compliance of the rules and activation of the Governance Councils as enshrined in the constitution is non-negotiable.

(esoriano@wongadvisory.com)

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http://www.chicagotribune.com/business/ct-samsung-prison-qa-20170825-story.html