Monthly Archives: March 2018

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.


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.