Stop Suffering in Silence!

How can I tell my son that he has to be at the office early and be a good example to our employees?

I have been giving equal compensation to my children and I know it is not fair to my other son who works very hard. What is the right compensation for my children?

I am extremely worried why my children gave shares to their spouses? What if they passed away and their spouses remarry?

How can my son work in our family business and manage his personal business at the same time?

Shouldn’t the business buy supplies from me?  After all, I am part of the family?

What happens if my brother thinks my nephew (his son) should be promoted and his salary increased, but I disagree?

How do we terminate a family member for incompetence or dishonesty?

How do we prevent a sibling from selling his shares? What if it is our competitor?

How do we deal with shareholders who are based overseas and yet have the temerity to always question the way the business is run?

Volatile Brew

These are just some of the nagging questions that I regularly hear from family business owners. And if left unresolved can be real nightmares!

Without any means to address these issues, it will be a bruising struggle for power that will result into more disagreements, further antagonizing family members and weakening the very foundation of the family business.

Tolerating these serious concerns and sweeping them under the rug and “do nothing” will result to entropy. The consequences of inaction are irreversible.

Policies help avoid problems and conflicts

The best and only option is for family members agreeing on solutions and subsequently formulating family agreements. To avoid making the issues less personal and ensure greater objectivity, it is imperative for the family to engage the services of a third party family business facilitator who will propose initiatives leading to some form of family and business governance.

Problems are predictable and initiating policies before they happen can eliminate or reduce future tension and will de-escalate a major conflict when the founder or patriarch is no longer around.

Family Protocols

Family protocols or agreements, if done right, can minimize or avoid a potentially damaging conflict and prevent unnecessary misunderstandings.

The objective is to mitigate the conflict by establishing very clear guidelines and promote the goals of the family and the company towards a joint and collective interest to grow the enterprise. Additionally, it will also strengthen the communication process amongst family members.

When a family protocol is unanimously accepted by the whole family, it tends to be strictly applied and, in most cases, helps to ease tensions that may arise between family members.

A Fair Warning

According to a study published by IESE’s Josep Tàpies and Lucía Ceja, if the protocol is not broadly accepted by family members and its stipulations seldom applied or if the code of conduct is not explicitly made clear and put in writing, the process of trying to implement it will further cause confusion and ultimately render it useless.

The key therefore is a fair process of formulating rules where family members are engaged  and compliance without fear or favor.  

(esoriano@wongadvisory.com)

*****

Prof Soriano is slated to deliver a talk to family business owners in Cebu on March 20, 2017. The talk this month is part of W+B Cebu’s advocacy campaign related to Family and Business Governance. Seats are limited. Those interested to reserve a slot may call Octopus Events at 09159108686 and look for Ms. Cherryl.

Role Confusion Can Lead to Disastrous Results

I am now sharing the last half of Benny’s email (the 37 year old grandson and eldest 3rd Generation family member), that he sent to me together with his Easter Sunday greeting:

“Prof, despite our imperfections and the family members’ stubborn nature (it is in our DNA), we are grateful that you never gave up on us. Collectively as a family, we are more than determined not to let this governance opportunity pass and we are absolutely committed to pursue our role as stewards aiming for 100 years or more!

So, in behalf of the family, our second-generation leaders and my third-generation cousins, we sincerely thank you for believing in us. 

We look forward to the next Family Council meeting next month!”

Positive feedback like this one I received on Easter Sunday lifts my spirit and emboldens me to continue my advocacy of helping family businesses in Asia.

The Goal of 100 years is Unfolding

Now the C Family is united in its vision of becoming a family-inspired enterprise. The family is now on its way towards fulfilling the founder’s dream in building a legacy that promotes harmony, growth through strategy, professionalism, free from petty conflicts, supported with mutual covenants and a powerful set of values reinforced with legally enforceable shareholder’s agreements!

Governance work is about compliance and it is challenging. There is no guarantee that the ride will be smooth.  As a matter of fact, it will have its twists and turns but their journey to becoming a world class family enterprise will no longer be elusive.

The C Family Crisis mirrors 90 % of the World’s Family Enterprises

Without any form of proper mentoring related to governance and role definition, these next generation family members will end up managing non-family employees with disastrous results.

Additionally, family member entitlement is oftentimes a result of a confused role when these children crosses over from a purely family member role to a family member employee or shareholder role.

By observing how the patriarch (matriarch) or other senior generation family members gives out orders and discipline subordinates, the new family member employee will naturally imitate these behaviors and the senior leader’s management style. Good thing some of the family members realized that an intervention was needed so a looming crisis was averted. It would have been the beginning of the end for the C Family Business.

Solutions Must Be Long-Term

A non-executive Shareholder or family member who is active in the business but with an “owner mentality” mindset is naturally unreasonable and may demand the use of company resources or to impose his or her will on employees in how to behave.

Such role confusion can often be clarified by conducting a series of educational forums initiated by a Family Business facilitator in which the boundaries of appropriate and inappropriate shareholder behavior are clearly explained. Depending on the planning area where intervention is urgent and immediate, I am suggesting critical planning areas to choose from:

1. Family Governance and Succession Planning as a prelude to the Crafting of the Family Constitution where the topics covered will be the natural transition to the next generation members and the predictable problems that goes with the transition

2. Business and Growth Planning entails the formulation of a Strategic Plan that will serve as the family business’ 3 to 5-year vision and growth plan. The option to do an IPO, if the family members are receptive, can be discussed in this forum.

3. Ownership Plan addresses key topics that clarifies the roles of owners, management and the board level family members

(esoriano@wongadvisory.com)

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.

Role confusion is dangerous

The C Family Business is a 52 year old manufacturing firm with operations in Southeast Asia and currently being managed by three branches belonging to the second generation.

There are a total of fifteen second and third generation family member employees-managers actively working in the business and their positions range from the President all the way down to the operating business unit managers.

My engagement was particularly challenging as the active third generation family members (cousins) were already on the brink of a major conflict. The only glue that held the family together then was the closeness of the second generation siblings.

In the course of my initial assessment, I felt that the way to move forward was to transition the enterprise from a family first to a business first mindset while addressing a slew of predictable problems related to entitlement, conflict of interest, envy and a sense of “owner mentality”. In-law participation was also slowly emerging as an added source of acrimony.

A Culture of Apathy and Indecisiveness

To avoid addressing these numerous conflicts head on, the three siblings chose to “sweep these problems under the rug” and looked the other way. This feeling of apathy made my intervention very difficult.

On the one hand, it was a tug of war of sorts between my role as family business coach and my singular resolve to put systems and accountability in place guided by the family’s dream of someday becoming a professionally-run, publicly listed and family inspired enterprise.

On the other hand, I was also confronted by every family members’ dilemma and reluctance to cut loose from the entitlements and perks they have gotten used to for many years! It took me all of two years to finally gain some headway.

Successful Intervention must be processed-driven

So what was the formula for success? Fundamentally it centered on eight crucial areas:

a. A collective decision to stop procrastinating and finally move forward to engaging a third party family business coach;

b. Established Rules and getting everyone to come to the table and agree on Governance;

c. Created a Shared Vision with the same set of values espoused by the founder

d. Initiated the implementation of the Agreed Principles immediately right after the signing of the Family Constitution;

e. Activated a working Board Level Governance;

f. Pursued Accountability where any breach by any family member will mean disciplinary consequences;

g. Educated everybody (Family and Non Family Employees) that ownership is different from management

h. A lot of patient capital from all stakeholders

To quote a portion of the email that Benny (the 37 year old grandson and eldest 3rd Generation family member) sent to me together with his Easter Sunday greetings a few days ago:

“Happy Easter Coach! We remain thankful for your continued guidance in making us realize that yes family is family, but business is business. At the onset, we disliked you for insisting that we all focus on governance and pressuring the family to comply but over time we eventually appreciated what you have done.

The realization happened when you insisted that we go through the process of several sessions in crafting the family agreements. The next change was when you asserted that the family council be activated right after we signed the family constitution as it squarely addressed family member roles and entry policies in joining the business. In short, everyone without exception understood that we needed to adhere to the same rules as anybody within the company.

To be continued…

The impact of having entitled children

TORONTO, CANADA. I delivered a talk here a few days ago and was asked a valid question by a worried business owner participant on the impact of family member entitlement to the business, and my answer was frank and candid.

I said,  “There is absolutely no doubt the business will suffer. It is just a matter of time!”

Let me expound on my answer: 

1. No Value.The entitled family member employee does not bring any value to the business.

2. A likely liability.The entitled family member employee is likely to be a liability. He or she may cause divisiveness.

3. Two types of Employees. Non-family employees frown upon entitled family members.

4. Professionals are Averse. Non-family employees have little or no respect for family member-employees whose only claim to fame and passport to employment is his or her last name.

Then I was asked with a follow-up question…”Professor, who is to be blamed for creating entitled family member-employees? My answer was equally swift and straightforward, “Of course the founder-parent-business owner!”

I then articulated why founders commit this grievous mistake:

1. The natural instinct of parents or founders of businesses to “shelter” their children from the hardships that they went through during the startup years.

2. A form of guilt for being an absentee parent.These visionaries who where rarely present during the child’s formative years will try to make up for lost time by showering their children with material wealth

3. Nine out of ten business owners make the mistake of repeatedly assuring their children that “someday this business that I built will be yours” or “everything I do and own will eventually be passed on to you”

4. Employing Children without any work experience will translate to the child-successor emulating the autocratic style of his or her visionary parent

Business Owners Continue to Struggle

When business owners commit any of the behaviors mentioned, we can naturally expect the twin evils (entitlement and “owner mentality”) to manifest when the children crosses over from being family members to family member-employees.

Everyday the business owner will continue to struggle, hold on to the business out of fear, resist initiating a succession plan and try to understand why their children never display the work ethic or exhibit the same commitment as they do.

How Do We Deal With Entitlement

To conclude my Q&A portion, I was asked a question by a 65 year old founder that many business owners in the audience were very interested to know.

”Prof, I must admit that I belong to the nine out of ten business owners/patriarch you mentioned. Moving forward, what should we all do to address this “sense of entitlement? Can this problem be reversed?”

I replied with an emphatic yes but the process can be daunting as it entails firm leadership that must be exhibited by the patriarch or senior generation leaders and a strong commitment to pursue governance by the next generation family members.

Working for the Family Business is Not a Gift

The first step is to educate the family members on the need to embrace governance.  Initiating Governance and best practices will require the removal of the sense of entitlement. One effective way to impose accountability is to create a family charter/constitution which clearly outlines how and when a family member will progress within the business.

It also incorporates a powerful family code of conduct that outlines a set of policies that will address predictable problems that are currently happening and may likely occur in the future.

In the end, next generation family member-employees must understand and realize that their way into and through the business should always be based on merit and never through their birthright.

Trust Fund Babies (Part 2)

Entrepreneurs struggle with entitlement so I want to start with a quote from Jeff Faulkner as he warns business owners of the evils of entitlement:

“Entitlement issues are rampant in family owned businesses. It is a stealthy and dangerous disease that can have a widespread and prolific impact on our business culture, as well as at home. How do we keep it from becoming an epidemic in our business and family lives?”

The Twin Evils

Entitlement and the next generation “owner mentality” are the twin evils that every parent or senior business owner has an obligation to resolve. This apparent role confusion is a real danger and must be nipped in the bud before it goes out of hand.

If this behavior is not rectified and managed immediately, it can become a major source of conflict. I am connecting this article to the previous two columns I wrote about a father and son conflict (Fighting for the Throne Part 1 and 2) where the issue of entitlement reared its ugly head.

The Untouchable Red Bull Heir

Almost five years have passed and the heir to the Red Bull fortune, Vorayuth “Boss” Yoovidhya, 32, has remained scot free and continues to stonewall prosecutors.

According to news reports, shortly before the break of dawn on September 3, 2012, a black Ferrari driven by Vorayuth allegedly slammed into a motorcycle cop, dragging his mangled body along a Bangkok street, before speeding away.

It only took just hours to locate him as investigators followed a trail of dripping brake fluid into the gated estate of one of Thailand’s richest families.

Within weeks of the accident, Vorayuth was back to enjoying the kind of lifestyle he has gotten used to. He flies around the world on Red Bull jets, cheers their Formula One racing team and keeps a black Porsche Carrera in London with a custom designed plate: BO55 RBR. Red Bull Racing.

Vorayuth’s grandfather co-founded the energy drink with his Austrian partner in 1987. Today, Red Bull is sold in 170 countries and has race cars, jets and sponsors extreme sports. Vorayuth’s father, Chalerm is estimated to be worth closed to US$10 billion.

The Thai people have criticized the delays and the privileges enjoyed by Thailand’s wealthy class. Vorayuth continues to evade charges to this day and still flaunts his playboy jet set lifestyle.

He personifies what parents fear when they hand over the business to the next generation family members…heartless, spoiled and nary any accountability.

What is Entitlement?

The first step is to understand the meaning of Entitlement. Merriam-Webster’s defines it as:

▪ The condition of having, to have, do, or get something

▪ The feeling or belief that you deserve to be given something (such as special privileges)

That last definition, the feeling or belief that one is deserving of or entitled to applies to family members joining the family business. Another similar definition refers to a sense of being “owed” such benefits as: wealth; employment; and status without having to work to achieve these benefits.

Some children who grow up in a successful family business can be inclined to this feeling of entitlement and most often than not do not contribute anything positive to the business. They have a tendency to “lord” it over the employees and often expect employees to “live to work” – while they (family members who are employed) take a lot of vacation days.

To be continued…

Trust fund babies

THEY are referred to as children of wealthy parents who have lots of money set aside for them and often feel entitled. Everything they spend is paid for by their trust fund.

When you think of trust fund babies, you immediately think of socialite Paris Hilton, the celebrity great granddaughter of Conrad Hilton, the founder of Hilton Hotels.

In a Wikipedia article, critics and admirers have said that Hilton is “famous for being famous,” a celebrity not because of talent or work, but through inherited wealth and lifestyle.

I was in Singapore last week for my regular family governance work and was introduced to a business owner who narrated how his unprepared, ill-equipped eldest child mismanaged and almost caused the downfall of their 40-year-old business.

As the old man was talking to me and a colleague, he was shaking, groping for words and trying to make some sense out of the irreversible damage inflicted by the son’s entitlement. It was heartbreaking to learn that the assets were dissipated because of the son’s faulty judgments and his self-fulfilling prophecy that he should not be made accountable for his actions.

I finally got to meet the western-educated son over lunch, and as expected, he was cocky, abrasive and showed no traces of remorse for his failed actions. No doubt, he was, pun intended, an SOB (son of the business owner).

To conclude our lunch, I told him that he will no longer report to his father but to a functioning board comprising three members (his father included) and two independent directors. And that in my next session, a full audit report must be submitted to the board for review. Lastly, the son will also transmit all his initiatives and henceforth will strictly follow corporate governance policies.

To regain investor and creditor confidence, the son will also be required to sign an employment agreement that will monitor his performance based on financial metrics and qualitative variables.

Non-compliance of these rules and targets will result in his replacement by a non-family CEO within 12 months. He was still stunned with disbelief when I excused myself to catch a flight back to Manila.

The term trust fund baby is more of a stereotype for entitled kids who love to party but don’t even know the value of hard work. Having entitled and confused children in the family business is fraught with danger. When they are made to join the family business and there are no rules defining their participation, entry and exit, you would typically expect these children to act like spoiled brats and bully their way by demanding power without accountability.

Consultant Rick Johnson correctly stated that “an attitude of entitlement that is displayed openly can create major challenges for even the most successful family business.” This attitude is often displayed by the family member’s work ethic expecting every employee to “live to work” and give of themselves unconditionally while Junior takes off every Friday afternoon or goes on extended vacations.

Johnson further expounds that these children often manage with an autocratic style with little empathy for employees and leaving the impression that they can do whatever they want because they will run the company someday.

What Johnson highlighted is a very common sight among family members working in successful family businesses in Asia and the next generation “owner mentality” is causing a lot of sleepless nights for parents, founders and business owners.

The fear and paranoia are real as the sense of entitlement feeds into the child’s last name as a birthright then degenerates into a mindset of an owner mentality.

To be continued.

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.

Fighting for the throne: A father and son conflict (Part 2)

FOR almost 20 years, Jonathan devoted practically all of his waking hours working for the family business.

But the last two years was different and the wife knew that the cause of her husband’s sudden change in behavior toward his family and friends was a result of the tension building between Jonathan and his father.

With pressure from work and the frequent skirmishes with his father aggravated by declining revenues, Jonathan was now in a situation where he had to make a difficult decision.

For several weeks, the thought of leaving the business for good entered his mind. After seeking advice from friends, he listed several options:

a. Resign and look for work elsewhere or put up his own business.

b. Initiate discussions with his younger sibling to take over the day-to-day function.

c. Use Option B and request that he be given a non-executive function.

d. Take a long vacation with the family and think things clearly.

e. Confront his father and tell him not to intervene anymore.

f. Request for early retirement upon reaching his 20th year, several months away.

g. Advance his share of the business.

He also thought long and hard that the option to resign would certainly spark more discussions and worsen the already strained relationship with his father.

Reflecting on the story of Jonathan makes you conclude that the patriarchal shadow never really left the scene even if the father officially signified his intention to step back and let his son run the business.

But why did the father come back? Was it due to some major decisions made by his son that triggered his “return”?

I have outlined a list of possible “triggers” that may have caused the father to reclaim power.

– Father has worked all his life so leaving a position of power is like dying a little.

– He is experiencing a personal loss of identity and the fear of losing significant work activity compels him to interfere.

– Jealousy towards the son or his lack of confidence in Jonathan.

– Father’s interference could also be due to the perceived “lackadaisical” attitude of Jonathan towards work. He thinks the son lacks the drive to run the business.

– Jonathan’s penchant for reporting for work at 10 a.m. goes against the grain of the father’s unblemished record of going to the office at 7 in the morning without fail.

– The business has registered flat growth since Jonathan assumed the leadership role, prompting the father to set aside retirement.

– Some employees that used to report directly to the father have resigned, citing their difficulty in adjusting to Jonathan’s style of management.

Complex and dynamic relationship

– Why the father’s inaction and reclaiming control or power may work against the successful transition

– Father consciously facilitates son’s entry but subconsciously needs to be stronger than his son.

– Son seeks increased responsibility and authority but finds that his father refuses to cede authority, or continues to call the shots from behind.

Acrimony

This father and son conflict is a natural event, but if left unresolved may lead to a slew of more predictable problems that can cause serious implications on the state of the enterprise.

Therefore, it is extremely important that a third-party advisor look deeper into the conflict before it further escalates. He must immediately clarify the roles of both father and son and make the family members realize that when mixing family and business, several overlaps will get in the way. These overlaps, especially the family component, if left unmanaged, tend to feed on each other. As the business matures, you can expect conflict and confusion.

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.