Monthly Archives: December 2017

My Yearend Letter to Family Business Owners

HAMBURG, GERMANY. After 82 domestic and 51 overseas flights, I am officially signing off and temporarily setting aside Family Business Governance for a much deserved rest and recreation!

Welcome to the holiday season my dear readers- that whirlwind of gift-giving, marketing blitzes, parties galore that begins right after Halloween and continues to gain momentum through the end of the year.  While this season is meant to bring feelings of love and cheer, it’s also the harbinger of holiday stress for many.

The faltering economy has made the task of balancing family and business more difficult than ever. Family members work longer hours and are aiming for a final push in the last month of the year to increase sales.

I can only imagine the past 4 weeks was probably horrendous, with business owners spending hours cracking their heads on how to meet  production demands especially when their employees start filing their Christmas leaves and claiming 13th month pay and annual bonuses.

Being competitive requires intense focus too especially when year on year sales have registered a paltry increase.  People can begin to lose the balance that is essential for success, both as a family and in business. Your first line of defense from stress is to think about what it is about the season that has felt so stressful in the past. Ill name a few here with excerpts coming from an articled, The Business of Family Business, penned by Lee Mccaffrey:

Are you happy? There’s no use being in a situation where you’re not happy. It breeds resentment and anger, and nothing good can come from that. If you’re not happy, it’s a good time now to sit down with everyone to figure out why, and then take steps to fix it.

Address issues as they come up. Let’s say something small happened in March if you’re still holding onto it by the time November rolls around it’ll likely be starting to take on a life of its own. Issues and problems need to be addressed, worked on together and squared away, as they arise.

Doing Too Much All at the Same Time.   The problem with the holiday season is that we often experience too much of a good thing. While stress itself is necessary for our survival and zest for life, too much stress has a negative impact on our health, both mental and physical. Too many activities, even if they are fun activities can leave us feeling exhausted, rather than fulfilled.

There is no balance between Work and Family. For family members working together, balance is important because the business is part of the family and the family is part of the business. The ramifications of losing balance can have long-lasting and unpleasant effects.

Families should take advantage of the holiday season to re-energize or mend broken relationships and enhance the value of their time together, so that getting through these tough times is much easier.

a. Set communication ground rules. Family discussions during family time (holiday or not) must not include any talk about the business. Usually, the founder or the business leader is prone to violate this rule. The best way is to create a fun program that rewards those people who refrain from “talking shop” during family time and provides a friendly penalty program for those who do. For those who have set up a family council right after signing the family agreement, this activity is one of them.

b. Share one quantifiable goal with each family member. Ask each family member to identify one goal that the rest of the family can help that person achieve in the coming year.

Tough times do not have to upset the balance between family and business. To quote Richard Eu, the great grandson of the Founder of the Eu Yan Sang Group, Asia’s largest TCM (Traditional Chinese Medicine) Retailer:

“Good governance in a family business starts by putting the company and the family first – each in its own time. “

So in the spirit of the holiday season, I encourage family members to set aside business and enjoy family time!

From my family to yours, I sincerely wish you had a great Christmas and definitely a prosperous New Year in 2018!

(esoriano@wongadvisory.com)

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When parents reward bad behavior (Part 3)

The “Fredo” behavior manifests as early as when a child confronts a major dilemma: the crossing over from a healthy family where unconditional love, inspiration, encouragement, equality and full support are ingrained during the child’s growth years.

Instinctively, parents tend to further extend care and nourishment on the more fragile child expending and nurturing him or her until the child bounces back and intermingles with the other siblings. While the parents demonstrate the handholding process, the family is also expected to care for one another especially on someone who needs it the most.

Full of Inconsistencies

The danger is unmasked when this “culture of love and equality” is carried over to the business. Here lies the inconsistency! Let me articulate why?

Business represents a huge contrast to the norms and culture embedded in the family. While family nurtures love, feelings and equality regardless of behavior, business singularly focus on key metrics like meritocracy, profits, results and accountability.

On one hand, family encourages the family to compensate for the weaknesses and failings of family members and to forgive indiscretions but on the other hand, business in its truest form can be unforgiving on matters related to under performance and mediocrity. Aggravating this paradox is the natural tension between two or three generations working together. You don’t just have a sandwich generation but the gaps between a baby boomer and the millennial generation is far and wide.

Allow me to list down a number of contradictions and divergent values that have created a confused mindset among family members as they cross over to the two other circles (as managers and or owners).

The weakest family member will inevitably end as a likely “Fredo” candidate.

If the family breeds feelings emotion, entitlement and equality plus a slew of varying C’s like confidentiality, culture, career, control and conflict, the business on its own pursues a totally different approach bereft of any emotion. As the family member moves on to the more difficult and measurable metric like profits, policies and plans, you can almost conclude the makings of a full blown conflict.

In an article penned by Kimberly Eddleston, she highlights a critical part in the transition of the child.

“When a child joins a family business expecting the same treatment he or she experiences in the family, where resources are allocated based on equality and need, trouble can result. Patriarchs that treat family employees as children encourage immaturity and dependence, and lead family employees to see them as responsible for their well-being. Moreover, well-meaning family patriarchs often feel they must reward their children equally in the business realm, without regard to their contributions. Their altruism ends up hurting them and costing the business.”

In a very recent family governance engagement assigned to me by our family business advisory firm, Wong+Berstein, a son (sibling A) actively working in the family business was given a house by his parents right after he got married. On hearing the news, his only sibling (B) known to be lazy and underperforming, demanded a house of his own with the same number of bedrooms! Sibling B felt it was not ‘fair’ that sibling A received a house and he did not.

Situations like this as Eddelston opined “are very common in family businesses and demonstrate how family members often expect resources and rewards to be allocated based on the family norm of equality rather than the business norm of merit.”

“Fredos” Are Certified Trouble Makers Part 2

According to Wikipedia, Frederico “Fredo” Corleone is a fictional character in Mario. There are real-life “Fredos” working in Family Businesses out there.

While the Corleone’s of the Godfather movies are fictitious, I have seen many examples of Fredos who are disruptive, dangerous and have wreak havoc on their family’s business.

Family Case 1

A restaurant chain, majority owned by the eldest brother Rey (not his real name) with contribution from his other siblings, repeatedly suffered at the hands of a Fredo named Rodney (not his real name). The latter was Rodney’s first born son. Barely straight out of college, Rey insisted that his son work for the family business.

However, Rodney was lazy, performed below expectations and showed poor human relations skills. His abrasive behavior drew complaints from colleagues and customers. He also had a penchant for sitting on major decisions, reports to the office as he pleases and displayed a very bad temper.

To hide Rodney’s incompetence, the father helped him with his work but over time, the son relied more and more on his father to do his work.

Things came to a head when a cousin discovered that Rodney was making a cut (commissions) on his preferred suppliers. Because of the overprice in the purchase of raw materials, the company struggled to compete in the industry they once dominated. While all the cousins wanted Rodney suspended, his father refused and continued to make excuses. When the animosity escalated into regular skirmishes amongst cousins, several key non family employees opted to resign instead of being caught in the crossfire. Soon after, the family business suffered a decline. The other founders then decided it was time to step in.

Family Case 2

This is the case of a leather retailer chain that had to deal with multiple Fredos who felt entitled to the products for their personal use. Two brothers would often shop at the stores, taking merchandise without paying or documenting what they took.

When an in law was hired as part of the accounting team, things got even worse since she had access to the cash registers. The brothers and the in-law started to take cash out of the registers to pay for their personal expenses. Eventually the business went bankrupt because the older generation looked the other way and never lifted a finger to put an end to the children and the in laws’ misbehavior.

Such dilemmas are so common in family firms that I have advised in Asia. Fredos are a different breed. They sincerely feel they are deserving of rewards and privileges even without earning it. They also have the temerity to demand an equal share of the business’s wealth, simply because they are part of the family and their last name is their birthright.

With the two cases presented, the message is clear…when you are contemplating in hiring a family member, watch for a Fredo behavior or better still before inviting a family member to join, make sure the family has already set in place the governance infrastructure.

Kimberly Eddelston in her research accurately observed the issue of a Fredo feeling entitled… “Research has shown that children with a strong sense of entitlement may be more likely to engage in theft because they see the business’s riches as compensation for their poor and neglected childhood during the firm’s early-year struggles.  No wonder that those who study family businesses have found that 85% of them go from “shirtsleeves to shirtsleeves” by the third generation.

Who Is “Fredo”? (Part I)

According to Wikipedia, Frederico “Fredo” Corleone is a fictional character in Mario Puzo’s novel The Godfather.

He is the second son of the mafia don Vito Corleone, younger brother of Sonny and elder brother to Michael (portrayed by Al Pacino) and sister, Connie. In the films, Fredo’s feelings of personal inadequacy and his inability to act effectively on his own behalf are character flaws leading to greater consequences.

With so much insecurity starting in childhood, Fredo exhibited poor coping mechanism and would always complain how he was ignored by his siblings and deprived of parental love during his adolescent years.

Eventually, his selfishness led to serious problems for the family, which ended when his own brother (Al Pacino) disowned him. In short, “Fredo” Corleone was known for his incompetence, bad business ideas, heavy drinking and betrayals. If you watch Godfather II, you will discover what happened to Fredo.

Do you have a “Fredo” in your family?

In a well written article by Kimberly Eddelston, Fredo is described as “the kind of sibling who just couldn’t get it right, no matter how hard he tried. But because he was family, Fredo was involved in some of the family’s business ventures.  Due to his weak personality and below average intelligence, he was constantly failing at even the simplest tasks he was given.”

In Asia, Fredo is often compared to a “black sheep” in the family. They display similar patterns of behavior and end up as a disgrace to the family. They are known as trouble makers, often left out, branded as outcasts because they choose to do other things than live up to their parent’s standards.

A Fredo in the family business is likely to be the least capable amongst siblings so when the family patriarch coddles him and looks the other way, he will do whatever possible means to take advantage of the family business for personal gain.

Like many family businesses with Fredos working, their presence in the business poses a serious hindrance to the enterprise. In a 2012 study by Kidwell, Kellermanns, Eddleston, they revealed that approximately one-third of family businesses admit to having a family employee who is an impediment to the business and only has a job because he or she is ‘family’.

What are the most common traits of a Fredo working in the family business? I have listed a handful of attributes below so family members are aware of the potential dangers that lie ahead.

Fredos can be any or all of the following:

  • They are irresponsible and consistently performs poorly in the family business
  • They disrupt the work of colleagues including business decisions initiated by family members
  • They strongly resent their parents especially with the way they were treated when they were young
  • They are naturally demanding and expect parents to support them especially when they experience setbacks or misfortunes
  • They misuse company resources and continue to commit conflict of interest
  • They are selfish, quick to blame others except themselves
  • They have no sense of responsibility nor accountability
  • To compensate for their failure, they usually engage in get rich quick schemes at the expense of the parent’s (and the business’) financial support.

In dozens of family businesses in Asia where I was tasked to intervene, I would always come across “Fredos”, either male or female, responsible for causing unnecessary pain and conflict in the family and the business.

In Mario Puzo’s The Godfather novel, Fredo nearly destroyed the first and second generations of the Corleone dynasty.

To be continued…

(esoriano@wongadvisory.com)