Tag Archives: ASEAN

A 500-year old Family Business (Part 1)

What make some family businesses go on for centuries while others succumb and die early? My quest for corporate longevity continues.

In my last article, I glowingly talk about Lee Kum Kee’s 129 year run where they defied the third-generation curse but on the one hand, I have also written numerous articles about the 3rd generation curse and have highlighted statistics that only 3% of all family-owned corporations make it into the fourth generation.

In an insightful research material by Schwartz and Bergfeld, the authors pointed to one country that seemed to challenge the 3rd generation curse much better than others.

Japan has 7 out of the 10 oldest companies on the planet and also has the highest concentration of old family businesses by any measure such as GDP, population, and landmass. According to a 2008 study from the Bank of Korea, the world had 5,586 companies that were older than 200 years. In the same study, Japan was number one with 3,146 firms or 56 percent; the second was Germany with 837 or 15 percent; the Netherlands came third with 222 and fourth was France with 196 companies.

But it is not only the extreme cases of very old companies that are surprising, the overall life expectancy of a Japanese family business is higher in general. According to Professor Toshio Goto from the Japan University of Economics in Tokyo, the average lifetime of a Japanese family business in 2005 was 52 years, more than double that of its American counterparts.  What can the unique Japanese approach teach us about longevity?

If family businesses from around the globe strive for future prosperity and family survival in an increasingly volatile, complex and ambiguous world, how does a tradition-rich company like Japan’s Toraya Confectionery Company managed to keep pace with an ever-changing world?  Even with a great idea, thorough research and hours and hours of hard work, one rule still applies:  Nothing is certain in life and in business.  No one can unfailingly know if one will fail or succeed in life, how investors will receive a startup idea or whether a company will survive past the one-year mark.  So, how can one increase the odds of, well, beating the odds?

It’s a question asked often enough that it deserves an answer.

Toraya Confectionery Co. Ltd. is a Japanese confectionery company founded by  Enchu Kurokawa in early 16th century, Kyoto.   Toraya, a maker of wagashi (traditional Japanese confections), was a supplier to the imperial court during the reign of Emperor Goyozei, which was from 1586 to 1611. Toraya established a foothold in Tokyo in 1869, after the national capital was transferred there on the heels of the Meiji Restoration. At present, Toraya has three factories and approximately 80 shops throughout Japan, in addition to a boutique in Paris.

Running a business for almost 500 years is not without challenges, mainly in the form of disasters, change in society, economic transformation and several World War upheavals and Toraya  countered by shifting from being the imperial family’s purveyor to opening retails stores.

Steve Jobs once said, “You can’t connect the dots looking forward; you can only connect them looking backward.”   Even the Great Confucius explained that if we want to define the future, we have to study the past.  And so, let us study Toraya’s history for the past 500 years.  Indeed, for a small start-up company, to last this long is a testimony to its great history. Since its inception, Toraya has grown big and evolved into a well respected corporate venture that has become known in Japan, the rest of Asia Pacific, and the world.

To be continued….

(esoriano@wongadvisory.com)

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Rule No. 3 No Extra Marital Affairs

The rule definitely appears controversial and has raised many eyebrows every time I introduce the topic during Family Governance talks. Even my best friend who is a second-generation Chinese family member weighed in on the rule that it is very “un-Chinese”.  I leave the readers to interpret what my Chinese friend said.

Lee Kum Kee Policies

But for the 129-year-old Lee Kum Kee Group, the family edict related to extra marital affairs is one of the most powerful rules that the third generation and grandson of the founder, Lee Man-tat has required the next generation shareholders to obey especially those sitting on the board.

There are equally unique and governance rules that Lee Man-tat espoused as well and these are:

Rule No 1: No Late Marriage

Rule No 2: No Divorce

Rule No 3: No Extra Marital Affairs

Any family board member who contravenes Rules No. 2 and No. 3 are expected and required to leave the board automatically and will no longer have the right to speak and participate in the family council and business decision-making process.

Family Constitution and Family Council in 2002

For Lee Man Tat, these rules are important and crucial as the family members have grown in size, some have lost personal interest in the business, the market environment has become complicated, shareholder ownership are dispersed and owners have varying versions of where the future is headed.

After weathering through two major corporate battles, the Lees agreed to finally set up a family council and draft a family constitution in 2002.

In an article penned by Jeff Pao, he highlighted the different corporate governance systems set up by LKK and what came out of the initiatives, most notable was organizing the Family Council Board and the roles of the 29-member family assembly.

Pao further contends that the family council is in charge of the family business, family office, family investment firm, family charity fund and family training center.

I will share more initiatives that the Lee Kum Kee incorporated in their Family Constitution:

a. All family members have to work at least three to five years in other companies after graduating from college if they want to join the family business

b. Family members who violate rules do not just defy the values enshrined in their Family Charter but will also lose their moral and business ascendancy to implement, enforce and discipline erring or wayward family members.

c. Another powerful value worth repeating in this article is their strong adherence to “Si Li Ji Ren“, a Mandarin saying meaning “Put Other’s First, before yourself.”

d. If family members quit the board or company for personal reasons, they can sell their shares to the company and remain as family council members

e. The next generation are allowed to inherit shares even if they are not involved in the daily business operations.

These rules are the heart and soul of Lee Kum Kee’s flourishing existence and the foundation of their commitment to pursue business excellence and stewardship so the business can be handed to the next generation seamlessly.

Lee Kum is the name of the founder, and Kee is a Chinese word that means a new family business.

The enterprise will be celebrating 130 years in 2018 and there are no signs of the group slowing down. On top of their strict observance of protocols, the other critical and indispensable governance rule that the Lee family initiated was formalizing their succession plan.

The family believes that the plan is critical to sustaining a long-lasting family business.

(esoriano@wongadvisory.com)

Real Causes of Family Conflict (Part 2)

FAMILY business in Asia is indeed a family affair, and the appropriate description will always depict a family tree with the next generation members and their spouses as branches connected all the way up to the founder or the generation that started the business.

A family affair carries with it a precarious decision-making process, where the criteria in most cases is heavily tilted towards equality, less on fairness and heavily fraught with emotion. Linking this scenario, I would like to continue the story of Rey below, as he narrates his disappointment upon hearing of the equal ownership scheme from his mother.

“All five siblings were not equal in ability and work attitude”

Modesty aside, I have always been the one initiating new businesses and maintaining relationships with our customers. Together with Raymond, Papa developed the habit of calling on me to implement the plans and not on Ralph, Rowen, Rochelle.

He would always remark that he failed as a parent in instilling the value of hard work on his three children.

Having worked with the three, it was obvious that they demonstrated a lack of maturity, leadership skills and poor work ethic. They report for work anytime of the day.

I often catch them on their computers doing something unrelated to their jobs. When I request for monthly meetings, they would either come in very late or not appear at all.

They have become so entitled that one time, Ralph told my mom that he will be out for a few days to do personal errands but came back 20 days later. He never bothered to inform us of his whereabouts. I only found out on Facebook that he went on a cruise with his wife’s family.

Recently, I discovered that the three siblings established their own businesses. This was a clear violation of what Papa told us when we joined the family business: that all members joining the business must work full time.

They obviously put up their businesses after Papa died.

I am turning 41 next month and my siblings are in their early to late thirties. To be burdened with so much work, plus the pronouncement of our mother regarding the equal ownership structure, I have reached a point where I have to decide if I am really cut out to be working for the family business or not. I feel I have been treated so unfairly!

The other thing that worries me is that once my mother is gone, the business might suffer.

After hearing my story, do you think I have every right to feel bitter and resentful against my ageing mother for not appreciating the work and commitment I put in the family business?

Should I just strike out on my own? Is stepping down the right thing to do?

By leaving, I also want to teach my unfocused siblings a lesson. And if I go, I am sure my youngest brother will follow. He has also expressed his disappointment to the equal ownership scheme.

                                                          ***********

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author, 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.
Prof Soriano is slated to deliver a talk to family business owners in Cebu in February. The series of talks are part of W+B Cebu’s advocacy campaign related to Family and Business Governance for SME’s. Those interested to attend should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

Constitution on top shelf

CONSTITUTION on top shelf or perhaps rephrasing it to Governance on top shelf is probably my biggest frustration in coaching family businesses!

That is the crux of this week’s article. Statistics of failed family businesses that went through a constitution building exercise and missed out on the implementation is alarmingly high.

Failure rate at 60 percent in ASEAN

Six out of ten family agreements (constitution) are most often than not relegated to the top shelf and continue to gather dust. In my last two seminars in the country on family business governance, I saw a significant number of attendees in a bind.

One family member even courageously went up to me and in a sad, booming but almost desperate tone lamented that the family members are still at odds despite formulating a family constitution (done by another consultant) five years ago.

He went on to relate that the family members were herded into a hotel, went through a two- day session with the third and final day devoted to the signing. Family members went home happy and optimistic that finally they can envision a harmonious relationship among family members with the enterprise finally moving forward sans family related hiccups.

My reply was direct. Without activation nor compliance, developing a family charter is just a paper exercise.

The emotional effort and energy that goes into the process of drafting the agreement is extraordinary…well at least if I benchmark our W+B working model. The latter goes through an eight to 12 rigorous session process before a final agreement is signed and document.

The process is equally important

After the signing of the agreement, an additional two to three sessions should be devoted to drawing a shareholders’ agreement. This is critical as this last piece of aligning ownership among family members is a legally enforceable document.

A family constitution without a shareholder’s agreement is empty!

For most families, the process represents their most significant investment of vulnerability and openness as well as discussions related to very sensitive and often times personal issues.

If nothing comes out of the family discussion, the family will be reluctant to try again.

Families can become very cynical toward future attempts to revisiting the failed family constitution.

A constitution is not a “cure all” document

A constitution is never a quick fix. It is a product of session after sessions of discovering new things and uncovering concerns that are affecting family and business relationships. It is also a living document that seeks to provide solutions to future problems. And it can only work unless the family members who signed the dotted lines proactively pursue the fourth and critical requirement–implementation!

Implementing the Family Constitution is non-negotiable. Non-compliance is a recipe for a bigger conflict especially if the head of the family is no longer around to provide the leadership and decision.

Alarming statistics

Statistics culled from the Economic Intelligent Unit showed that in the Philippines, the biggest stress (and this is very disturbing) comes from major disagreements among family members over corporate strategy. The EIU rated it at 48 percent for local family owned businesses and 52 percent for its Indonesian counterparts. This particular issue can only be resolved if the family constitution is done right and implemented correctly.

Now you know why I frequent Indonesia.

I have listed below several reasons why family agreements fail:

-Lack of senior management belief and commitment to implement and activate the governance councils

-Time/resource commitment isn’t there to plan, unrealistic expectations

-Day to day growth and pressures too dominant

-Lack of willingness of family members to be proactive and creative

-Tough choices avoided, failure to set priorities

-Reactive, low risk, rewards mentality, low reinforcement for governance thinking

-Past history and mistakes in previous planning attempts

-No desire in pursuing the implementation process itself

-Frequently changing priorities and focus; not persevering on one track; inconsistent decisions

-Low commitment to the implementation

-Governance on Top Shelf, no formal implementation

-Failure to provide the needed resources–financial and personnel

-Conflict, politics, lack of interpersonal skills amongst siblings, cousins when working together

My personal advice to business owners (Last part)

SURABAYA – As this article sees print, I will be in Indonesia’s second biggest and most populated city with a population of three million and an extended metropolitan area with more than nine million inhabitants covering several cities.

Surabaya is a port city and was once the largest city in the Dutch East Indies and virtually the center of trading in Southeast Asia, competing with the likes of Singapore and Hong Kong. It is pretty much like Cebu and Iloilo as the local economy has a thriving Chinatown district.

Together with neighboring Singapore, which is a short two-hour flight, Surabaya and Jakarta form part of my regular coaching itinerary due to my numerous engagements with some of the country’s biggest family owned conglomerates.

Compliance after implementation

Allow me to complete the last part of the time tested formula that I strongly encourage every family member to embrace:

8. Compliance on business governance. It is essential that family members define and set boundaries, including drawing clear management lines in running the business. Mixing business, family and ownership issues every day can strain relationships, transforming the same into unnecessary conflict and disagreements.

Discretion follows conflict, so the best way to understand each other is to put in writing rules for participation in the business, qualifications, duties and accountabilities of each family member.

For senior generation leaders, there is no other time than now to initiate and document protocols and define roles and responsibilities to avoid hard feelings or miscommunication.

9. Require outside work experience. Children of owners desirous to join the family business should be required to get at least three to five years’ business experience elsewhere first, preferably in a related industry.

This will give them valuable perspectives on how the business world works outside of a family setting. Here, the child appreciates the value of discipline, competition and control. It is also in the outside world where he is humbled and challenged to perform by his peers and superiors.

10. Seek outside advice. The decision-making process for growing a family business can sometimes be too closed. Fresh ideas and creative thinking can get lost in the tangled web of family relationships. By having a non-family advisor, objective solutions minus the emotions are effectively laid out. The advisor’s entry can also be a good way to give the business a reality check.

11. Develop a succession plan. A family business without a formal succession plan is asking for trouble. The plan should spell out the details of how and when the torch will be passed to the younger generation. It needs to be a financially sound plan for the business, as well as a way for retiring family members to enjoy the quality years ahead. The phrase, “There is only one boss” is so appropriate when a successor is in place. Having a single leader does tend to be less complicated from the point of view of corporate decision-making.

The country’s biggest and most diversified family owned businesses like JG Summit Group and the Filinvest Group have already anointed next generation leaders to lead their billion-dollar conglomerates. With their succession plan firmly in place, mandates are established and the next generation leaders identified early so they can continue their stewardship role to the next generational phase.

12. Empower the next generation family members. Allowing the next generation of leaders to make contributions and introduce change is a major step in the right direction. Establish guidelines for competency, leadership and accountabilities for the next in line family business leaders.

The time to start the process is now

Applying these success formulas in the course of growing the business plan is like experiencing the seamless, graceful exchange of a stick between runners in a relay race. The new runner is fresh and has maximum energy; the concluding runner is decelerating as he has already spent his energy by running at maximum speed early on. The athletes never come to a stop to exchange the baton; instead, the handoff takes place on the move, almost effortlessly.

Good succession planning does not merely involve designating a family member and training him or her for the takeover. In fact, grooming the successor is the founder’s greatest teaching and development responsibility because it involves a long-term, continuing effort to balance competing interests and pressures that are integral in a family business.

With a clear strategy, growth is assured

SINGAPORE-I am back in Singapore to continue facilitating a strategic planning session for a family-owned enterprise with 7,000 employees. It is managed by second generation family members and engaged in several businesses (agriculture, real estate, investments and food). Just like any startup business with limited capital, the business that was started 40 years ago initially ventured into the trading of commodities like rice, sugar and corn.

Throughout its 40 years of existence, the patriarch has expressed his desire to retire. When he engaged my services as family business coach, he intimated two things as a pre-condition before he steps down–he wants to know where the business is heading (vision) and whether his children are capable of assuming a bigger role in managing the business (governance). I am on my third year as board advisor and this year’s thrust is to expand to Vietnam.

Before I was tapped by W+B to advise the enterprise, the patriarch admitted that these two questions keep him awake on some nights. Now he looks forward to a gameplan covering an expansion mode in ASEAN that he never thought was possible. After three years, his function is purely under an oversight mode now minus the day to day involvement.

Family constitution is a game changer

After helping the family craft a family charter (Constitution) which took a little more than a year to complete, the family and business relationships have been harmonized. Of course, there are occasional bumps on the compliance side but the governance process put in place plus the defined roles of the family members has dramatically eased the tension experienced prior to the constitution.

What has made the family members more focused now is due to the activation of the constitution into several councils (family and business councils), where I periodically attend and observe how the next generation family members behave during meetings and how they adhere to the governance policies enshrined in the agreement.

For now everybody’s gearing up to take the business to the next stage: ASEAN growth.

Your growth strategy must be competitive and relevant

A personal favorite that I use in most of my family strategic sessions is Harvard Prof. Michael Porter’s three “generic competitive strategies”. These are cost leadership, differentiation and focus.

Cost leadership strategy-a strategy of achieving leadership in an industry or line of business by offering products or services at a lower cost than your competitors.

Porter’s Cost leadership strategy requires a focus on efficiency, tight cost and overhead internal controls, and relentless cost minimization programs.

Differentiation strategy-a strategy of achieving leadership by creating a product/service that is perceived throughout the industry as unique. A differentiation strategy may take the form of design, brand image, technology, features, service, or other dimensions. Ideally, the company will differentiate itself along multiple dimensions. A focus on quality could be a key differentiator.

Focus strategy-a strategy of achieving leadership within a particular target market by serving that market more effectively or efficiently than competitors. This may enable the focused strategy firm to have cost leadership or differentiation within a tightly focused target market, or both.

What is your competitive and compelling strategy?

Your business growth requires a clear strategy. Your strategy could be based on cost leadership, differentiation or focus. So in my strategic growth sessions (which lasts two to three days) with family members and executives, I usually challenge them to get some pre work done and create a strategy go-to team to formulate and come up with a clear competitive strategy with a vision and an action plan that will cover the whole of 2017.

Family business leaders and professionals must not delay the strategic planning exercise. As what I highlighted in my previous article, everything you do now is meant for the future of your family business.

Watching out for the 3C’s

BOSTON — What do large family-inspired business conglomerates like the SM Group, Unilab, Jollibee, Ayala Corp., JG Summit andAboitiz Group have in common?

Every year, around the third quarter, the business unit heads of these companies are busy finalizing pre-strategic work plans for 2017.

Multinational corporations (MNC’s) are also abuzz with dedicated calendars all pointing to their much awaited strategic planning calendar.

ASEAN business advisors like us consider August to November as our busiest and most punishing four months facilitating strategic sessions in the region. August and September alone will take me to five countries! Work is more fun than fun.

Strategic plan as your compass

Most business owners or managers recognize that a strategic plan is a directional map for where their companies are headed and how they intend to get there. However, it is much harder for them to understand what goes into the strategic planning process. Why? Family business leaders belong to a transactional culture, meaning a very selling-oriented environment where the only discipline they know is sales and more sales year-in and year-out. To them, strategic planning sessions are a waste of time and will not result in any concrete and visible result in the immediate term.

Businesses must watch out for the 3Cs and the Real C

When doing Strategic pre-work planning, you must always focus on the three main C’s–competition, competitive advantage (company) and customers. But due to the volatility of the market, I deem it imperative to incorporate another C: complexity. The borderless competition and the complexities of the market have made strategic planning very crucial.

The latter is best done when a company looks at its past, present, and future in light of its changing environment. It is the process of thinking about the company and its related environment as an integrated whole. A process during which an executive “planning team” is organized to consider three key questions on a continuous basis:

What is our business?

Where do we want to go, and when?

How do we get from here to there?

Strategy is a continuation of a long-term plan of action designed to accomplish a desired set of goals. Your strategy relates to why and how your plan will work, relative to all the influences upon your company and its activities (in particular, its customers and competitors). I have seen throughout many consulting engagements that something has been missing.

Managing a family business is tough

A successful business is often the best thing that can happen to a family – and the worst.

“Keeping a family business alive is perhaps the toughest management job on Earth,” says John Ward. But without a clear management strategy, things could get even more awry for everyone – from the family patriarch who heads the business down to its members and staff.

It all starts with a vision you have for your company. Is that vision still relevant? Is it being accurately and concisely communicated throughout the company? If not, the outcome can be far from what you envisioned.

Vision Mission Values (VMV)

Jack Welch of General Electric fame accurately points to VMV as a powerful starting point and he says, “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.”

While reading this article, why don’t make a review :

1. Vision – Is the original vision still appropriate in terms of market trends, opportunities and threats?

2. Re-energizing – What is the best management structure for the future, especially in terms of outside advisers and non-family managers?

3. Values – Do the values, skills and ambitions of the next generation in the family match their wishes, abilities and views?

4. Continuity – What is the company ethos, family involvement and how are decisions delegated?

5. Governance – What strategies can be adopted by which the family can resolve conflict?

6. Resources – What actions, support and resources are required to maintain the business into the future?

For instance, if you plan to expand to another territory or introduce a new product or upon the prodding of your son (working in the family business) launch a social media marketing campaign to appeal to a broader, younger, Internet-savvy audience, did you initiate some form of survey for your marketing team whether they are familiar with social media?

How about your sales team? Do they have the experience in generating online leads? And most importantly, does your product make sense for this new audience?

To be continued…