Two Enemies That Threaten Family Businesses

In an interview with Family Business Advisor Harry Martin, he was emphatic in stressing that “the two main enemies that threaten the very survival of family businesses are the controlling patriarch/matriarch and the next generation sense of entitlement!”

Those two factors are working against a family business that is why it is estimated that close to 70% will not survive into the second generation and 90% will never make it to the third generation. The average lifespan of a family owning business can be as short as 24 years. That number also coincides with the average time that the founder is associated with the business.

Martin went on to advise owners to “treat family members joining the business like you would treat non-family employees. Be sure they would have to live to the same standards of work and performance.” 

Clearly, Martin’s statement hit home especially in the context of the Asian culture where family relationships are deeply interwoven in the business. The overlapping of Family, Business and Ownership breed natural tension and when left unmanaged, can lead to real, emotionally charged conflict.

The challenge is to confront this predictable danger and reverse the current situation. Unfortunately, a good number of owners do not know how to start the change process.

Therefore, I am sharing a list of initiatives to guide business leaders to do what is best for the family and the business:

a. Business owners must primarily focus on being good parents that espouses values such as love, God fearing, respect, integrity, hard work and being fair to everyone

b. Never handover and never promise your children ownership on a silver platter. To be future and qualified shareholders, they must deserve to be one and must exhibit full commitment and a work attitude that exemplifies hard work.

c. My advice to a parent/business owner is to stop behaving like a father or mother on business related matters involving the children. Never ever reward bad behavior.

d. Compensation must be commensurate to credentials and must be based on what the child can contribute to the business. Equal pay among employed family members breed resentment and is an unacceptable business practice.

e. Continue to ingrain in your children the importance of separating the concept of being an owner and an employee. Children would always fall into the trap of choosing an owner rather than an employee mindset.

f. If your children are still in college and have shown interest in joining the business, make sure that (as parents and business owners) you impose strict conditions on their employment before they are accepted. Pre-employment requirements include an Employment Contract stating their Job descriptions and Performance metrics. Employment means qualifications, commitment, performance, meritocracy and accountability

g. Discard the “Eldest Child Syndrome”. Family business owners who don’t appoint the most competent leaders available—be they family or non-family members—are also taking a great risk

h. Business owners must enforce the rules of employment (entry and exit polices) of any family member interested to join the business

i. In anticipation of any future conflict, a Family Constitution, Shareholder’s Agreement and the activation of the family council are necessary governance tools to manage and mitigate any future tension

To effect a seamless handover in the future, it is necessary for parents to spend more time in molding their children so they will learn the value of hard work and fair play.

Undeniably, the objective is to embed the right values so they can become solid, decent, responsible people before they assume the mantle of succession and leadership.

esoriano@wongadvisory.com

 

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