Tag Archives: entitlement

Founder Inaction Can Cause Business to Fail Part 2

With tension escalating and family members demanding for more entitlements, Mr. C, the founder, no longer had the passion to grow the business he started in 1973.

Unless there was real intervention, it was obvious that the family business was on a downward trajectory.

In the course of our assessment, there were instances we hit a brick wall.  We discovered that the gap was so wide and the acrimony between siblings so deep.

There was a time in my advisory work that every meeting I attended would always end with a virtual confrontation punctuated with a shouting match that can be heard by employees and visitors in the executive floor. And as if on cue, assistants would immediately disallow visitors from entering the floor. Mr. C would then just quietly leave the boardroom, disheartened and embarrassed by his children’s actions.

At one point and out of desperation, Mr. C became emotional and told me “how he wished his business never grew so big so he will never have to contend with his entitled, squabbling and disrespectful children”.

He also lamented about the issue of money and power plaguing his adult children… “why are they fighting for the small pot? If they can just work as a real, united family, there is a much bigger pot to create!

Mr. C was used to the hard life, at a young age of 12, desperate and hungry, he decided to join the exodus of Chinese laborers leaving China with only one thing in mind…hope for a better life.

As he was about to tear up again, I comforted him that all was not lost. In tense situations where the Patriarch or Matriarch is being pressured by family members to make decisions, there is a very strong likelihood that they will end up suffering in silence and feeling helpless. Such is the case of Mr. C. He chose not to decide, opted to procrastinate and remained neutral in the course of our intervention.

This pattern of indecision is not only wrong but destructive. Unfortunately, the “Do Nothing” option is by far the most popular option. Therefore, it makes sense to consider a third party intervention as time is critical.

An experienced family business advisor, bereft of any emotion, will guide the family members the appropriate governance mechanism to make critical decisions based on what is best for the family and the enterprise.

After the children swapped accusations of wrongdoing, it was apparent that if my firm, W+B Family Advisory cannot help them, their only recourse was to seek the legal route. It didn’t help that both parties were being goaded by their lawyers to seek court intervention.

In a KPMG report, this case is what they refer to as a classic Rags to Riches and likely back to Rags family.

The report highlights that starting a family business is easy, relatively speaking; sustaining it beyond 2 or 3 generations is the hardest part. Indeed, it’s often said that the rags fall on the third generation. It’s a sad commentary on the reality that faces family business.

Every family member must recognize that family issues, not business nor external events, will define the very survival of the next generational change in family businesses.

After a series of assessments, one on one sessions with the family members and a slew of governance interventions replete with drama, a breakthrough happened that averted what would have been the biggest mistake the warring family members would have committed… go to court and scar the family for life.

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Are Business Owners Doing It Right? (Part 2)

  • Do you think your children are dedicated in pursuing business continuity?
  • Are your children qualified to assume leadership roles?
  • Do you have rules for in-law participation?
  • Have you already identified a successor?
  • Do you have a succession plan in place?
  • Do you honestly believe your eldest child is the most qualified? 
  • Are your children entitled? Were there rules when they joined the business?
  • Did you require them to work outside the family business before joining?
  • Are you compensating your children commensurate to their skills and annual performance?
  • Does an HR policies cover family members? Does your HR Manager have the power to discipline family members?
  • Have you established criteria for family members owning shares? For selling shares? Assigning shares? Encumbering shares? Selling to siblings or other branches?

If you answered “NO” to just a handful of the questions above, sadly your family and the business may be headed to a bruising conflict.

If you sense the undercurrents and tensions building amongst family members now, it is wise not to disregard them. As their leader, do your family a big favor, fix the problem. If you cannot fix it, find someone who has the competence, experience and objectivity to help.

Let me take this opportunity to say that this extremely sensitive subject will be highlighted and discussed in my one day workshop in Cebu on Saturday, May 20 at City Sports Club.

The simmering tensions are telltale signs of a “baby elephant in the room”. Ignore these issues and the family and business will suffer. You might think that these issues will heal over time. It will not. As a matter of fact, the conflict will manifest in many forms and through time, implodes as you start losing your grip of the business due to advancing age or when you are no longer around to make important decisions.

It is obviously clear that these problems surfaced many years ago and you brushed them aside. These problems relate to entitlement, sibling rivalry, generational conflict, conflicting interest, in law and cousin participation.

When you procrastinate, the problems are magnified, emotions takes center stage, entropy pervades and battle lines are drawn.

Emotion and entitlement

At this juncture, legal intervention assumes a more active role and my capacity and influence as a family business coach diminishes. As family business advisor, our governance intervention is more effective if lawyers are kept out of the conflict.

Immediately right after helplessly watching his children bitterly fought for ownership and control of the business he started 50 years ago, a client confided to me:

“Prof, I failed as a parent. How I wished I were poor again. I never expected that the wealth I created has cause so much pain and misery amongst my children…we used to live simple lives but things have changed, all because of greed and pride!”.

If I hasten to add, emotion and entitlement remained as aggravating circumstances to any conflict.

With no policies in place, it will be overwhelmingly tough for the family to move forward in one direction.

I can go on and on with more nagging questions but inarguably, it will still reflect on the most fundamental question for family business owners…

“Are you doing it right? If you think you are not doing enough to ensure your legacy, do you plan to urgently do something to create harmony amongst family members?”

It is not too late though. There is still time to do something right but you must start the process now!

(esoriano@wongadvisory.com)

*****

Prof Soriano is slated to deliver a talk to family business owners in Cebu on May 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.

 

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.