Monthly Archives: April 2018

Are Your Children Really Committed?

Or are they just working to please you?

When every family member is fully committed, it sends a strong message to everyone to put the interests of the family business first before their own. For founders/owners, family member commitment gives them a certain level of self-assurance that the business will be in good hands when the day the formal handover happens (an event like death or illness of the senior leader).

But how do we galvanize family member commitment? That is a tough question that continues to bother business owners especially those whose age ranges 60’s onwards. Here is a couple of disturbing statements coming from the next generation family members (31 and 40-year old) that my firm, W+B Family Business Advisory, researched and polled in 2017.

Next Generation 1

“My parents offered me future ownership even while I was in college. It felt good being an owner but years later I realized that having zero outside work experience became more of a liability. The only consolation I got was because I never went through the difficulty of applying for a job.  There was also less pressure in terms of going to work. But how I wish I had real work experience outside my comfort zone. It’s been a difficult 15 years managing the business with frequent disagreements with papa. It is a wake-up call and this made me realized that at 39, it’s time for me to make a full assessment of whether I am worthy to succeed my father. I am playing catch up by hiring professionals and doing advance courses on areas I am weak at.”

Next Generation 2

“I have the best of both worlds and couldn’t ask for a better job. Of course friends teased me as a COO (Child of Owner) but at 31 years old and managing 450 plus employees, it’s not bad. I also get to enjoy the benefits of a nice salary, an SUV and unlimited travel benefits. My classmates who are employed are still languishing with low salaries. I couldn’t ask for more!”

When they were asked about the following: future growth plans, managing complexities and balancing growth, how to confront the uncertainties of sustaining the business… their reactions showed serious reservations and self-doubt. Collectively, these were generally the responses of more than 100 next generation successors surveyed:

a. If they really have the skills set like their hardworking visionary parents

b. Their continuing struggle in the areas of decision making and people policies

c. Their concerns related to the pressures of expanding the business

d. Balancing the old and the new ways of managing the enterprise

e. Issue of business longevity, co-ownership with siblings, debt issues

f. Potential conflict among siblings that will predictably surface when their visionary father is no longer around

These are natural reactions that I encounter every day. Therefore, the real challenge for business owners is to confront these questions:

How will we know if those who are actively working in the business have the passion and sincere intention to grow the business? How will we know if they are just after the four P’s –– Pay, Position, Perks and the Potential windfall (ownership) the parents generously and wrongly offered them when they started joining the business.

If these questions remain unanswered or if there are no singular focus in creating powerful commitment initiatives now, these will result to many sleepless nights by the business leader. Expectedly, the road ahead will be less paved and difficult to navigate. Hence, governance should now be the way forward.

Advertisements

Family Commitment is Non Negotiable

Family values and business values are usually not aligned.

While a business exists to create customers and achieve financial success, families have an entirely different motivation. They typically bring a less profit-centered focus alternating financial gains with trust, relationship and a lifetime engagement. These non-financial goals represent the bedrock of the family business ecosystem.

For one, family-owned enterprises are more community driven. They go out of their way to help their trade area on various social advocacies. Internally, the employees see the enterprise as an extension of their family and vice versa.

One good example was when a Philippine based businessman (net worth US$3B) went out of his way to do a headcount of all his employees affected by Super typhoon Yolanda (Haiyan). He then secretly met and surprised each one of them with financial support under a “pay when able” scheme and encouraged them to go back to their hometowns so they can be with their loved ones while rebuilding their homes. As a PWC report stated in one of their studies, it “is the injection of this very human element into the mix that makes family businesses unique.”

I want to share another success story of how family and business governance can work for as long as the family remains committed.

Family Business A is a trading company I have been coaching for the past five years. It was founded in the 1970’s and now distributes its products across the Asia Pacific region. By industry volume alone, the business is ranked 8th in Asia Pacific.

The business is currently being run by second generation members composed of five siblings. Due to the lack of systems and internal structures, confusion and petty misunderstandings among siblings became more frequent. Even non-family members were always caught in the crossfire, unclear on whose instructions to follow.

Recognizing the need to overcome the generational curse, the family agreed that the eldest son would take the lead and address governance in the areas of family, business and ownership (shareholding) structures.

“We used to have heated, nasty disagreements, but because we have set some rules in place now, we can resolve problems in a more professional manner minus the emotion” said Johnson.

Jenny the other sibling also remarked, “The advantage of having a family council and being constantly reminded by a family governance coach is that our disputes have become less personal. We were made to realize that we were brought up under the same roof and our father always reminded us that when conflicts do happen, we should always hold on to our values like respect, honesty and unity.“

As in most of my engagements, my intervention with this family was never a walk in the park. In my first year, it was clear that my initiatives would solely focus on family governance. It is extremely important to galvanize family commitment first as a squabbling family will never progress to embracing business governance.  Forcing a disunited family to transition to business governance is a double edge sword.

In the course of a little more than a year, we finally signed the family agreement. Immediately after, I made them formulate business governance policies to include hiring of non-family key personnel, performance metrics including entry and exit rules.

With professionals in place, meetings became less emotional and family members saw it as a challenge to raise their performance standards.

When every family member is fully committed, it sends a strong message to everyone to put the interests of the family business first before their own.

esoriano@wongadvisory.com

 

Have Governance, Expect Real Family Unity

I received a deluge of frantic emails related to my previous articles (“What If You Died Tonight” and “Nothing Is Uncertain except Death”).  More than half of the messages came from next generation members desperately fearful of the dire consequences of suddenly losing a business leader. Additionally, most of them also felt a feeling of inadequacy and helplessness because of the patriarchal shadow enveloping their decisions.

On the other hand, the other half of the messages came from worried senior generation leaders expressing unhappiness with the way the children have managed the business. One patriarch in his 70’s even remarked that he felt great sadness because the children (and in laws) acted as if they owned the business even though they never experienced hardships.

Summarizing my email exchanges clearly points to the twin evils of family owned businesses:

1. The senior generation’s way of control or “patriarchal shadow”; and

2. The Next generation’s work attitude and sense of entitlement

Every family I coach all over the world is in agreement that good family and business governance go hand in hand with sustained benefits that can last for generations. The question is how committed are family members especially the business leader in initiating real change?

In my recent engagement in Istanbul, Turkey, a business owner shared a question: “Professor, we all know the importance of governance and succession and there is no question all of us in this room aspire to be 100-year old companies someday. However, with all the issues considered urgent, how can I worry about governance, succession and ownership transfer when I have a business to run, creditors to manage and bills to pay?

My answer is clear… always start the process with simple steps but make sure you position family governance and succession at the top of your priority list. There is a Chinese saying, “the journey to a thousand leagues begins with one step” and it holds true in creating legacy building measures. I need to reiterate that even the best family businesses work hard at relationship building.

To jumpstart governance, family members must understand what the company’s mission is, what its short-term goals are and how it relates to their individual job descriptions. They must also know their boundaries. To determine the latter, a system that encourages open communications must be fostered by the business leader.

Trust me, communication helps build good relationships enterprise-wide.

I must warn you, though – encouraging open communication has its temporary setbacks. You will expect siblings or cousins to raise memories of past hurts related to how they were treated differently and unfairly. That said, will you just sweep the issues under the rug? How would you confront these “elephants in the room”? Will you just suffer in silence and prefer temporary peace knowing that at some point, these forbidden issues can surface and create tension amongst family members? What if you are no longer around when tension erupts?

And if you choose to ignore these issues now, what is the likely scenario that these problems will escalate? The risk is just too high to set aside these problems!

So if you believe these issues can compromise family harmony and impede the operations of the business, they must be dealt with now, not later. I know these are not easy issues to deal with, so it is in the best interest of families to rely on family-business experts to help family members navigate through these difficult “terrain”. Let me close with this message, “Action may not always bring happiness, but there is no happiness without action”.

 

esoriano@wongadvisory.com