What If You Died Tonight?

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When you’re dead, you’re dead. 

What happens to your business, however is another story… if you planned the leadership and ownership transition, I congratulate you! In your memorial service, you will be remembered fondly!

Wait a minute!  No plan? That can be chaotic for your family, children, employees, partners and the business itself — a completely avoidable mess. Don’t expect to be remembered fondly!

It is not only scary but too daunting to think of a likely scenario where the founder or patriarch dies without planning the future of the enterprise. In my recent family business coaching engagement in the US and Canada last month, the death of a patriarch was just too much to bear for family members who were caught unprepared.

During our first session, I was peppered with so many questions coming from practically all family members and creditors!

  • What would happen to the business?
  • What would happen to the ongoing projects?
  • Who will take care of the family members?
  • How would this affect our respective families?
  • Will there be conflicting priorities and future plans for the business between other shareholders and the deceased’s family?
  • How do we make decisions amongst us siblings?
  • What will happen to Mom with Dad gone?
  • How much is the total value of our business?
  • Do we need to sell some properties to pay for Dad’s estate taxes?
  • As heirs, how do we go about getting our inheritance?
  • How much and how do we settle our total liabilities?
  • Where will we get the money to pay creditors? Are our loans secured?
  • Where are the list of assets? Who is in charge of safe keeping the Titles?
  • Who will assume the leadership role?
  • Will suppliers and creditors extend the same credit and terms of business they always have or will they begin to pull back?
  • Will customers maintain their confidence in our products and services?
  • Will key personnel suddenly begin to leave?

It is difficult to imagine, especially after working so hard and then all of these questions are raised because you never planned your death or disability. In unfortunate events like this, businesses are liable to fall apart if the proper planning and agreements are not in place.

Sadly, you are not alone though. In a Wong + Bernstein Advisory internal research, fewer than 30% of business owners have a succession plan in Asia!

You can prevent losing all that you worked so hard with a good and enforceable plan.

The key is preparation! Founders, second generation leaders, patriarchs or matriarchs always think of themselves as superheroes and take the inevitability of death lightly until one day he or she discovers something that will forever change his or her perspective about life and living.

And then in a blink of an eye, the mortal faces death and reflects on the family and the family business and the “what ifs” and the ” what should have been done”.

But in all likelihood, it will be too late.

Thus, it is no surprise that the Chinese saying, “Wealth Shall Not Last Three Generations” will continue to consume and haunt families in the event that death suddenly occurs in the family.

Any death can disrupt a functioning family and can mercilessly cause the family business to jolt and veer off course. At worse, the lack of preparation and the entitlement of the family members can cause the family business to fall apart and disintegrate.

How then should family businesses deal with such a powerful emotional event?

esoriano@wongadvisory.com

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Without Communication, There is No Relationship (Part 2)

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“Without respect, there is no love. Without trust, there’s no reason to continue.” This was the overarching message in my last column.

Today’s article will highlight the importance of communication.

In a growing multi-generational family similar to the “A” family featured last week, communication is no longer a benefit, it is mandatory!

This coming June, a timely and very important topic where family members are eagerly looking forward to is the topic related to M&A’s (mergers and acquisitions) and IPO or Public listing. I personally handpicked the topic to create awareness on the need for the family business to understand the concept of enterprise value and also to raise the bar on performance and accountability.

The topic last December was also relevant as the subject focused on the Tax Reform Law and its effects on the enterprise.

And as a fitting finale, being the family’s business coach and growth advisor, I intend to conduct a 30-minute session that focuses on three important areas related to governance.

Three C’s (Communication, Compliance, Commitment), three R’s (Roles, Rules and Responsibilities) and three G’s (Governance, Goals, Growth). 

It is also a wonderful venue in addressing possible questions many families wonder about. How do we educate our family members so that they can be effective owners and contributors to the family legacy? How can family members’ voices be heard if they have issues within the business? Who can work in the family business?

Sometimes, the family decides on a certain philanthropy, foundation or service (community project) to support as well as acknowledge accomplishments and milestones of family members. The last part is spent sharing wonderful stories together.

The meeting usually wraps up in less than four hours. When there are no more issues or topics raised, the whole clan is treated to a sumptuous buffet lunch, the much awaited raffle of travel certificates and their honorarium or per diem for attending.

What the family is employing is a process that prepares and plans the family business’ future. It is called communication. Communication also brings to the table openness and transparency. When these meetings are properly managed, it breeds goodwill, trust and respect both for those active and non-active in the family business.

After helping reverse an emotionally charged conflict among Richard’s children that lasted four years, I felt that creating a communication platform with regular Family and Business council meetings plus a middle of the year gathering was the best “fire wall” approach to deter and eliminate any possibility of renewed conflict.

Additionally, the discipline to meet on a regular basis and the opportunity to embrace “take home values” or new knowledge has positively reinforced their commitment to protect the business.

With a stewardship mindset slowly being embedded among family members, the culture of long term thinking has effectively discouraged personal interests to take root.

Expectedly, while the family continues to experience “rough patches” in terms of their relationships, the fact that they can address the issues in a safe and open manner has given them a certain level of maturity and closeness that was not evident before the meetings were initiated.

For the “A” family, open and honest communication during meetings was the foundation for a better future.

As a final message, do not underestimate the importance of good communication — among members of management, among family members, and particularly between the generations. It is an investment in the future!

esoriano@wongadvisory.com

Without Respect, There is No Love

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“Without respect, there is no love. Without trust, there’s no reason to continue.”

This is a powerful quote from Paul Chucks that must resonate to all family members torn by strife and conflict. It is also a timely reminder as we celebrate the month of hearts!

For the past six years after its founder Richard’s passing, the “A” family typically gathers for their mid-year family and business council meeting every third Sunday of the sixth month. The family calls it Code 36 representing the third Sunday of the sixth month. It is an event combining family and business performance review with a segment on ownership alignment. I normally add flavor by injecting governance, strategy and growth during the session.

This activity is separate from their regular family and business council meetings. In the Family Constitution that my advisory firm, Wong Advisory drafted six years ago, the members of the Family Council must meet for a total of 20 hours a year spread over five to six meetings while the Business Council members are required to meet every month.

My firm added Code 36 together with the other governance councils before the founder passed away primarily because the family and the business almost fell apart due to major conflicts on many areas (entitlement, in law participation, decision making, power struggle, conflict of interest). The infighting was so intense that it grounded the business to a halt for several years and caused so much heartbreak for the founder. 

In this year’s forthcoming gathering, a total number of 23 members of the second and third generation are expected to attend. Their age ranges from 61 to 15 coming from the founder’s five children and their families. Those below 15 years old can join but are not obligated to be in the function room.

Relevant topics are sorted months before but the objectives are four fold:

  • Evaluate the state of family and the business
  • Review mid-year performances of the operating units
  • Develop long-term goals for the business
  • Evaluate policies to govern family- business relationships

The overarching core messages remain the same and revolve on five powerful values handpicked by the founder himself: Communication + Respect + Trust +Unity = Growth

Just like the last gathering in December, the meeting usually starts with the clan’s Gen 2 anointed leader reiterating the family’s shared vision and values and a story about the growth of the business since its humble beginnings in the 1960’s.

The objective is to remind the younger generation and the extended family members how their grandfather Richard and his wife jointly founded the business through hard work and honest dealings with customers and suppliers. Then a short seven-minute video of the family history will be played. The emotional video instantaneously reconnects the deceased founder to all the members of the two generations and reminds everyone that through regular and open lines of communication, the family enterprise can overcome temporary setbacks.

After the talk, a Gen 3 member usually in charge of finance will report how the business performed over the last quarters and the outlook for the succeeding quarters.

Then the legal counsel, a non-family professional will then provide a quick review of the ownership structure by way of educating newly inducted family members on the importance of stewardship as well as shareholder qualifications and responsibilities. Recently employed family members are those who were invited, signed the constitution and are now full-fledged family assembly members.

To be continued…

esoriano@wongadvisory.com

Unlocking Your Full Potential

In one of my coaching engagements for a mid-sized family business last year, I recall censuring a next generation business leader in a QBR (quarterly business review) for failing to deliver on his performance targets.

The results were dismal and instead of owning up to the debacle, he ended up pointing fingers at his subordinates. While he was trying to absolve himself of any responsibility, I stood up and showed him two slides.

Slide 1 came from Tom Landry

“A Coach is someone who tells you what you don’t want to hear, who makes you see what you do not want to see, so that you can be who you have always known you can be.”

Slide 2 came from lightboxleadership.com

“Accept Responsibility for your actions. Be Accountable for your results and Take Ownership of your mistakes.”

The role of a Business Coach is to challenge business owners by way of visioning, accountability and encouragements. It also helps organizations enhance their operations, sales, marketing, management and so much more. Most importantly, just like a sporting coach, a Business Coach will make you focus on the game.

Business coaching is extremely effective in creating successful actions designed to move the business owner in a positive direction.  It is the partnering of client and coach in an extraordinary relationship aligned towards achieving big goals set in milestones. In my years of experience coaching organizations all over the world, a good example of a focused plan is to align organizations and its executives toward a possible listing in the stock exchange in the immediate future.

So, what exactly is business coaching?

Business coaching is for clients who are READY to make changes and improvements in their business. It gives the entrepreneur a business partner who doesn’t necessarily share in the business profits.  Anyone who’s ever had a business partner knows that partnerships are rarely equal. With a Business Coach, you’ll receive unbiased strategic advice for a retained monthly fee usually covering a number of hours, not 50% of your profits.

Business coaching is about SPEED, ACTION and ACCOUNTABILITY. Think about all the workshops and conferences you have attended where you learned a new technique or strategy that was never implemented. Your Business Coach will help you get it done and hold you accountable, but you must be ready to take action. The client does the work, not the coach.

Business coaching CHALLENGES the status quo and exact GOVERNANCE. Your Business Coach asks, “What are your challenges?  What are you NOT doing?  When are you going to do that?”

Business coaching promotes CLARITY OF ROLES between the owner and the professionals consistent with corporate as well as personal values.  When your values are aligned with your business, greater success is possible.

Business coaching helps the business owner create a SHARED VISION AND MISSION for the organization.  A business owner with a Vision is much more likely to succeed than one that doesn’t know where he’s going.

Business coaching helps the business owner identify OPPORTUNITIES.  A Business Coach can help you to see an opportunity you may have passed up.

Business coaching helps the business owner see his business through a DIFFERENT PAIR OF EYES.  A Business Coach can see what you don’t see.

Business coaching brings out the BEST in the entrepreneur.  Have you ever had someone truly interested in your success? Business coaching will push you out of your comfort zone, take you to your limits and in the end you will embrace it!

The Role of an ASEAN Business Coach

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TORONTO, Canada. A Harvard University news material articulated it clearly… “The demand for business coaches has never been greater. With business moving at breakneck speed, frequent job shifts, and limited in-house training, professionals of all levels are often grappling with changes. As a result, organizations are in dire need of leaders who can guide their colleagues through workplace challenges, help them improve performance, and lead them through career decisions.”

Business Coaching is critical in the life of an organization, more so of a family enterprise. Companies engage them to purposely challenge senior executives to raise the bar and partner with the CEO or business owner to exact standards of performance on everyone. They are also referred to as change agents that are sticklers for “best practices” standards.

An experienced business coach is an enabler and offers the organization with a very clear picture where they can pivot and boost profits. They can also help in untangling certain dynamics amongst owners and executives so they can make better decisions about everything related to human resource, operations all the way to accomplishing the annual and three year strategic plans. In the same breath, if the C-suite executives underperform, the business coach can also be unforgiving.

Business coaching is regarded as one of the fastest growing industries in the world, following the technology industry. As reported by IBIS World, an online market research outfit, it is estimated that 88,000 people work as business coaches in an $11 billion market. The industry is forecasted to grow at an average of 18% per year.

The first use of the term “coaching” to mean an instructor or trainer started around 1830 in Oxford University (slang for a tutor who “carries” a student through an exam).  The first use of the term in relation to sports came in 1831.

Historically, the evolution of coaching has been influenced by many other fields of study including those of personal development, adult education, psychology (sports, clinical, developmental, organizational, social and industrial) and other organizational or leadership theories and practices.

And because of the booming market in Asia including the emergence of unifying trading blocs like ASEAN and APEC, business coaching has developed into a more independent discipline that is focused on enhancing the skills set of the owner/entrepreneur, the preparation of a three-year growth plan, relentlessly getting the family business to transition to a governance driven organization and the education of the next generation leaders to become stewards more than owners.

The key ingredient in making the coaching work effective between the owner and the coach is when the values of the family and business are aligned and the shared vision is unequivocally communicated to all the family members and professionals.

Business Coaching is very similar to sports coaching. In sports, a coach pushes an athlete to achieve optimum performance, provides support when he/she is exhausted and teaches how to execute plays that competitors do not anticipate.

A sports coach will make you run more laps and make you work harder than you would on your own, even when you don’t feel like it. A sports coach will tell it like it is.

Fortunately, a Business Coach does many of the same things, but in a way that is focused on creating a successful business minus the challenges or conflict among family members. An effective coach uses simulations, models and various platforms suited to the organization’s ability to adapt to external events as well as regulatory challenges.

To be continued…

Taming the Black Sheep

When parents are not united in their words and actions, display conflicting messages and continue to tolerate the black sheep family member’s damaging actions, Prof. Eddelston correctly painted two scenarios:

  • The black sheep or “Fredo” will either withdraw from the family business and/or;
  • Lash out with selfish behaviors in an effort to gain compensation for their circumstances

Another aggravating scenario that will further add strain to the family is the tendency of the children to pit parents against each other.

On one hand, a parent, usually the mother, has the natural tendency to coddle underperforming family members by way of covertly supporting the children (financial and advice) often against the wishes of the father who in most cases is the disciplinarian.

Unknowingly, the actions of the coddling parent (rewarding/reinforcing bad behavior) will eventually lead to more problems effectively undermining an already strained relationship among family members.

On the other hand, the children who have communication issues with the stricter parent will gravitate to the coddling parent resulting in real conflict and constant clashes between parents and the children.

To mitigate the tension, the family will “sweep the issues under the rug”, ignore the tension and for most family members, would rather just “suffer in silence.”

This unstable “ceasefire” will allow a semblance of numbing peace but it will only be temporary. When a sensitive topic is raised and a raw nerve is touched, expect an avalanche of problems to come out in the open and a new round of discord is activated.

With the “elephant in the room” becoming so big but deliberately ignored, stress levels will continue to surge and one trigger, just one, can discharge another round of infighting. This event, if left unresolved, becomes a vicious cycle that consumes and zaps the energy of every family member.

At this juncture, the family is in a state of helplessness and on the brink of finally “throwing in the towel.” When left unresolved, this negative energy spills over to the business.

Unfortunately, when the parents are already old or are gone, you can expect the children (and in-laws) to slug it out, employing higher levels of relationship conflict. With their newly inherited ownership rights, the problems are compounded and another bruising conflict awaits the siblings. This highly charged situation becomes a precursor for family members to sell out and marks the beginning of the end of the family business.

Do you want to have a united and harmonious family? Do you want family members to become responsible owners and stewards? Eddelston offers some advice in dealing with black sheep and underperforming family members.

First, confront the child, either one-on-one or through an experienced advisor. Sometimes children do not realize the harm they bring to the family and the business so articulating the family’s clear position is important. Show that the bad behavior has major consequences and expulsion, suspension or demotion are options available.

Second, give the child another job – one that better suits his/her interests and experience. Sometimes an otherwise “good” family member can seem like a black sheep because the person is ill-suited to the industry and business.

Third, consider firing or buying out the child’s shares. Unfortunately, in reality, there are also situations when firing him/her is not practical since the person does not have career options and needs to provide for a family.

You are not alone. Having a black sheep family member is universal. Initiating these actions are unpleasant but in the end you just have to do what is best for the family and the business.

Dealing with a Black Sheep

I highlighted in my last column the word “elephant” suggesting that the issue or problem is so big and so heavy that no one wants to confront it or try to move it.

These “elephants” eventually become embedded in how the business operates and how family members interact at all levels. When ignored, a very large problem will continue to shadow whatever successes the family business has achieved and when the issues become emotional and highly charged, they can compromise the business and split the family apart.

For this article, instead of a black sheep, I will use “Fredo” as the “elephant in the room”.

Having a “Fredo” in the family is a result of inconsistencies that are far and wide. Fredo as a family member grew up with values such as unconditional love, being nurtured and equality among siblings while expectations of “Fredo” as a business manager or employee centers on performance, meritocracy and accountability.

Prof. Kimberly Eddleston explained it succinctly, “When this logic (of love and equality) transfers to the business, however, it can be dangerous since it encourages the family to compensate for the weaknesses and failings of family members and to forgive indiscretions.”

While it is indeed difficult for a family business leader to initiate change, it will always start with a firm resolve of separating the family and the business.

As part of my governance advocacy, every next generation family member interested to join the family business must demonstrate that they have something of value to contribute to the business. In short, the family member must apply just like any employee and be deserving of the employment.

We are aware that not all family members are capable, therefore I encourage leaders to resist the urge of including all family members in the business. Guaranteed employment may have been the practice of the founding generation but the growing complexity and the increasing number of family members have made it unwieldy to manage the family and the business.

To operationalize these initiatives, the enterprise must also invest in HR consultants and professional managers so they can formulate “best practices” policies and introduce an environment that promotes accountability, transparency and consequences for bad behaviors.

I am suggesting a few rules to avoid or deter a “Fredo” from creating problems for the family business:

  • Avoid hiring a “Fredo”
  • Develop and communicate rules of entry and exit for family members
  • With the guidance of an HR consultant, establish minimum standards for entry such as education level and years of experience. The rule of “No Nepotism” must apply
  • Do not create jobs for relatives. Avoid becoming an employer of last resort
  • Don’t force family members into the business if they are not interested. You are compromising the business by having demotivated, unfocused, dispassionate employees who happens to share your bloodline and last name
  • Do not reward bad behavior

Kim Eddelston also pointed out several points worth mentioning, “if you feel you must hire a family member with questionable abilities and drive, place him or her in a job where the rewards are based on commission, such as sales.

She also added that “having clear job requirements tend to decrease the prevalence of “Fredos” since they know what tasks are expected of them and how their performance will be evaluated.

And finally, Eddelston cautioned business leaders by raising the alarm bells regarding this issue: “do not allow family employees to have special privileges. This creates an us-against-them mentality with non-family employees, spurring feelings of injustice. It also encourages a sense of entitlement among family”