Monthly Archives: March 2018

Nothing is Certain Except Death

It is a Volatile, Uncertain, Complex, Ambiguous (VUCA) world out there! I am constrained to add that on top of the uncertainty of business, the demise of a family business leader can cripple the enterprise overnight.

The sudden death of a colleague in 2015 was a stark reminder that life is fleeting.

A year earlier, we were exchanging notes and quite excited about our planned collaboration to “gain a beach head” by setting up businesses in emerging ASEAN member economies. Then suddenly, I received news that he became terminally ill and given a few months to live… six months to be exact. In a blink of an eye, his health deteriorated and went downhill. He was gone at 64. Death came so swiftly like a thief in the night. He left behind a wife, three children and a 2,700 plus workforce.

My friend passed away without preparing any leadership transition and as the family grieved, the children struggled to consolidate his estate comprising assets, liabilities including the three core businesses. And as if on cue, worried creditors swooped down like vultures, naturally demanding for answers on how loans will be repaid.

For the three children (all in their 30’s), they were obviously unprepared, untrained and used to the good life generously provided for by their visionary father. With the death of the patriarch, they were now fearful of an uncertain future and the “what’s next”. I realized that the family needed help so I volunteered any assistance but my offer was politely turned down.

When the youngest child was diagnosed with a certain form of mental disorder and had to be hospitalized, the other siblings continued to manage the business but their apparent lack of training and limited skills worsened the situation. Sensing a bleak future, employees started to leave the company.

The business suffered its biggest setback when their credit lines were discontinued. Clearly, everyone where at a loss due to the sudden void left by the demise of their leader.

Four months after, the children pleaded for help and requested my intervention.

The six months that followed was probably one of the most challenging times the family members experienced under my brand of governance… and a test of patience for me and my team as well. I almost gave up on a number of occasions. The family members were stubborn, indecisive, arrogant and distrustful of our turnaround initiatives. Worse, they were incredulous and hardly contributed to the efforts.

I felt helpless when they could not decide on critical issues and in my quiet moments I would lay the blame on their deceased father for overprotecting and raising entitled children. Their actions were extremely frustrating and a disservice to the values of hard work and tenacity that the father displayed when he was alive.

At the onset, the only way to appease troublesome creditors was to install a management committee primarily tasked to manage a tight cash flow.  We also brought in specialists to “hold the fort” until the situation normalized. My title was “caretaker CEO” but in reality I played a conductor role by making sure alignment of plans continued without disruption.

After 2 years of playing catch up, the firefighting became less frequent and the business showed signs of recovery.  When we finally saw steady growth, we knew a turnaround was in sight. We also saw creditors renewing their commitments after cash flow and new investments were already showing favorable results.

It was a close call and for year three (2018) to five, the enterprise is now geared for growth and expansion.

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Nothing is certain in Life and in Business

Geoffrey Gaberino, the 1984 Olympic Gold Medalist once remarked, “The real contest is always between what you’ve done and what you’re capable of doing.  You measure yourself against yourself and nobody else.”

If family businesses around the world strive for future prosperity and family survival in an increasingly volatile, uncertain, complex and ambiguous (VUCA) world, how did the next generation business leaders of dominant conglomerates like the 184-year old Ayala and 130-year old LKK managed to keep pace with an ever-changing VUCA world?

Even with a great idea, leadership and many hours of hard work, one rule still applies:  Nothing is certain in life and in business.  No one can unfailingly know if an enterprise will fail or reach a century or whether a startup will survive past the one-year mark.  So, how can one increase the odds?

To dream and aspire in becoming a 100-year old enterprise, the business must be relentless in staying relevant. But how?

Firstly, the business leader must create a clear vision of where he or she wants to take the business in 10 to 20 years. Next is future proofing a succession plan. It is important that this shared vision must be well-defined, replete with measurable objectives and supported with very clear lines of communication and accountability, especially with the natural entry of next generation siblings and cousins.

I was in Boston last week for strategic coaching work and in between engagements, pursued collaborative studies at Harvard on how to create a resilient and dynamic organization of the future. Expectedly, VUCA is here to stay and family businesses must evolve to overcome these dramatic changes!

So beyond the perks, entitlement and glamour of being an SOB (Sons and daughters of Business owner), successors must fully embrace the commitment, the hard work, the long hours and the pursuit of a strategic “big idea” that goes with the succession plan. This is what strategic planning is all about.

Jane Hilbert-Davis, a Boston based consultant, defined strategic planning as “simply creating a plan of action. Originally from the Greek roots, ‘STER’ which means to spread out, usually in a military sense, and AG to drive or to lead, the word ‘strategy’ conjures up images of preparing for battle, or competition.  It’s different from ‘vision’ which is a future imagined, a hope of how things can be in the ‘farther into the future’ horizon, 10-20 years from now. “

A strategic plan describes how you can get there. It’s about making decisions in the present for the future and usually involves a 3-5-year time frame. It is both written and lived. It cannot be pieces of paper stuck in a drawer and forgotten, but must be thought through carefully.  It should reflect a flexibility and readiness to whatever the future may bring.

So I pose this challenge to business owners: What is your vision, your shared values—and your mission? What strategies should you follow to reach your goals before passing the baton? What structures and people do you need for the business to succeed? What is your succession plan? What are your contingency plans in handling a business crisis? How about a death in the family? Sibling rivalry? Questions related to ownership, management of shares, who are qualified to own, inheritance, entry of in-laws, extended family members?

Many business owners recognize the importance of ownership and management transition, but few know where and how to start in developing collaborative leaders that will take the business to the future.

To be continued…

Family Businesses at their Best

In my last article, I warned about the dangers of ignoring and abetting the red flags in family owned businesses and the natural confusion the dual role family members play both in the family and business ecosystem.

In today’s article, I will cite family businesses at their best and how they continue to remain resilient after overcoming generational challenges and family conflict.

The strengths of a family business are plentiful. In terms of organizational metrics, family owned businesses outperform non-family owned companies in sales, profit, and other growth measures by a mile. Some of the inherent characteristics unique to family members are their high commitment as business owners, their willingness to work long hours and their natural instinct to reinvest profits into the business that will enable long term growth.

Indeed, family businesses provide a good opportunity for wealth creation and the secret lies in a well-structured governance system that promotes harmony, improves communication and promotes accountability.

The reality is this, as the family and business become more complex, effective governance structures increases. Unfortunately, as the business leader continues to generate wealth for the business, governance and succession takes a back seat.

So when a major event or risk happens (Illness/death of key family figure, major fight among siblings, among generations) the business goes into a free fall. For some businesses that I have helped, it can be a daunting task to reverse the tide. For a handful, it has become irreversible.

To quote the 8th generation successor of the Philippine’s oldest conglomerate, Jaime Zobel de Ayala, when asked how they have managed to survived two world wars and still came out stronger, he said:

“Ensuring the continuity of a multi-generational business is not easy. It is a challenge in itself to run a business successfully, while family dynamics and relations can often be very complex. Each generation introduces new challenges. No family leader can plan beyond one or two generations, but if each one values continuity and the legacy that has been passed on, they will always look for ways to strengthen the foundations for the next generation.”

Without any question, the Ayala model of governance is something every family enterprise must strive to emulate. They have stayed the course and relentlessly pursued governance through the years.

Today, Ayala is a preferred brand by investors promoting “shared value”. As Jaime succinctly puts it, “Promoting shared value means aligning company success with social progress.”

Another Asian model for governance is the 130 year Hong Kong based Lee Kum Kee Group (established 1888), the world leader in sauces and condiments. Misunderstanding on the way the business was run, unclear succession plans, greed and power almost took the life out of the LKK family business in the 3rd and 4th Generation.

After two successive buyouts, the next generation leader finally decided to exact governance and raised compliance and accountability standards by introducing unorthodox rules like prohibiting members from sitting in the board if they married late, engaged in extra marital affairs, etc.

With more rules introduced, the group extended their longevity streak. Undoubtedly, one very important value that is at the core of LKK is their concept of “Si Li Ji Ren” or “Put others First Before Yourself”. The traditional and overseas Chinese also refer to this powerful value as “Xian Ren Hou Ji”.

These rules, safely embedded in their family charter and reinforced by a Family Council continues to educate, regulate and inspire the 5th and 6th generation family members to be stewards rather than owners of the LKK Group.

esoriano@wongadvisory.com

What If You Died Tonight? Part 2

march 6

I am challenging the family members to heed my call on the importance of preparing for a future event like death or disability.

Procrastination as they say is a thief of time and has no place in any organization.

Let me be straightforward. Are the issues below happening? If left unresolved, any one issue can trigger an avalanche of conflict among family members that can spillover to the next generation.

Family members have limited communication skills and are unable to handle a future conflict especially when you are gone

  • There is a brewing conflict
  • There is an urgent need to establish harmony within the family
  • The goals and values of the family are unclear
  • There is no clarity on Roles and Responsibilities
  • There is no accountability
  • There is no Formal Succession Plan
  • There is a huge gap between generations in terms of work attitude, mindset, and values
  • Senior generation control is triggering tension
  • Next Generation sense of entitlement is triggering more tension

Planning the family’s business future is a process and there are several stages that must be initiated.

Firstly, the patriarch or matriarch must address critical issues related to family involvement in the business.

Family members wear many hats all at the same time. How does a business leader distinguish between his or her role as president of the enterprise and his or her role as mother or father?

How can a parent distinguish between his/her unconditional love over his/her children and a parent/business leader exacting performance over them?

The same question goes for the younger generation. Do they expect special treatment because they wear son or daughter hats?

To address the dilemma, the family must develop a family constitution or a charter that highlights shared values and vision as the cornerstone of the family agreement.

A constitution can only be effective based on two areas: it should have specific policies governing family-business relationships and it is activated immediately right after signing lest it becomes a useless piece of document. Sadly, every month without fail, my firm in Asia, the Wong + Bernstein Family Business Unit has been approached by family members complaining why their family constitution prepared by other consultants remain ineffective.

Thirdly, a constitution reinforced by a shareholder’s agreement should be prepared. The latter is a legally and enforceable document that regulates shareholder behavior and act as a deterrent for erring family members/shareholders. Without a Shareholder’s agreement, the constitution is empty!

And lastly, the senior leaders must prepare a 5 to 10-year succession plan that can prepare the next generation members to assume leadership based on a future event.

Why are these interventions non-negotiable? Even the best family businesses that I have coached must work hard at governance and relationship building. It does not end with the signing of the agreement.

In many instances, next generation members appear confused and cannot reconcile why I would always advocate a shift in owner mentality to a professional manager mentality when for many years the parents have ingrained ruinous statements such as “someday this business that I built from scratch will be yours”.

An understanding of what the company’s mission is, what its short and long term goals are, and solid job descriptions can be a good starting point for businesses that are going through some form of “natural tension”.

When done right, the transition from parents to young children entering the business phase can be a wonderful opportunity to embed governance and define the boundaries of family and business. Good, open communications fostered by the parents can help build good relationships throughout the different phases.

esoriano@wongadvisory.com