Tag Archives: Family Agreement

Family Commitment is Non Negotiable

Family values and business values are usually not aligned.

While a business exists to create customers and achieve financial success, families have an entirely different motivation. They typically bring a less profit-centered focus alternating financial gains with trust, relationship and a lifetime engagement. These non-financial goals represent the bedrock of the family business ecosystem.

For one, family-owned enterprises are more community driven. They go out of their way to help their trade area on various social advocacies. Internally, the employees see the enterprise as an extension of their family and vice versa.

One good example was when a Philippine based businessman (net worth US$3B) went out of his way to do a headcount of all his employees affected by Super typhoon Yolanda (Haiyan). He then secretly met and surprised each one of them with financial support under a “pay when able” scheme and encouraged them to go back to their hometowns so they can be with their loved ones while rebuilding their homes. As a PWC report stated in one of their studies, it “is the injection of this very human element into the mix that makes family businesses unique.”

I want to share another success story of how family and business governance can work for as long as the family remains committed.

Family Business A is a trading company I have been coaching for the past five years. It was founded in the 1970’s and now distributes its products across the Asia Pacific region. By industry volume alone, the business is ranked 8th in Asia Pacific.

The business is currently being run by second generation members composed of five siblings. Due to the lack of systems and internal structures, confusion and petty misunderstandings among siblings became more frequent. Even non-family members were always caught in the crossfire, unclear on whose instructions to follow.

Recognizing the need to overcome the generational curse, the family agreed that the eldest son would take the lead and address governance in the areas of family, business and ownership (shareholding) structures.

“We used to have heated, nasty disagreements, but because we have set some rules in place now, we can resolve problems in a more professional manner minus the emotion” said Johnson.

Jenny the other sibling also remarked, “The advantage of having a family council and being constantly reminded by a family governance coach is that our disputes have become less personal. We were made to realize that we were brought up under the same roof and our father always reminded us that when conflicts do happen, we should always hold on to our values like respect, honesty and unity.“

As in most of my engagements, my intervention with this family was never a walk in the park. In my first year, it was clear that my initiatives would solely focus on family governance. It is extremely important to galvanize family commitment first as a squabbling family will never progress to embracing business governance.  Forcing a disunited family to transition to business governance is a double edge sword.

In the course of a little more than a year, we finally signed the family agreement. Immediately after, I made them formulate business governance policies to include hiring of non-family key personnel, performance metrics including entry and exit rules.

With professionals in place, meetings became less emotional and family members saw it as a challenge to raise their performance standards.

When every family member is fully committed, it sends a strong message to everyone to put the interests of the family business first before their own.

esoriano@wongadvisory.com

 

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What If You Died Tonight? Part 2

march 6

I am challenging the family members to heed my call on the importance of preparing for a future event like death or disability.

Procrastination as they say is a thief of time and has no place in any organization.

Let me be straightforward. Are the issues below happening? If left unresolved, any one issue can trigger an avalanche of conflict among family members that can spillover to the next generation.

Family members have limited communication skills and are unable to handle a future conflict especially when you are gone

  • There is a brewing conflict
  • There is an urgent need to establish harmony within the family
  • The goals and values of the family are unclear
  • There is no clarity on Roles and Responsibilities
  • There is no accountability
  • There is no Formal Succession Plan
  • There is a huge gap between generations in terms of work attitude, mindset, and values
  • Senior generation control is triggering tension
  • Next Generation sense of entitlement is triggering more tension

Planning the family’s business future is a process and there are several stages that must be initiated.

Firstly, the patriarch or matriarch must address critical issues related to family involvement in the business.

Family members wear many hats all at the same time. How does a business leader distinguish between his or her role as president of the enterprise and his or her role as mother or father?

How can a parent distinguish between his/her unconditional love over his/her children and a parent/business leader exacting performance over them?

The same question goes for the younger generation. Do they expect special treatment because they wear son or daughter hats?

To address the dilemma, the family must develop a family constitution or a charter that highlights shared values and vision as the cornerstone of the family agreement.

A constitution can only be effective based on two areas: it should have specific policies governing family-business relationships and it is activated immediately right after signing lest it becomes a useless piece of document. Sadly, every month without fail, my firm in Asia, the Wong + Bernstein Family Business Unit has been approached by family members complaining why their family constitution prepared by other consultants remain ineffective.

Thirdly, a constitution reinforced by a shareholder’s agreement should be prepared. The latter is a legally and enforceable document that regulates shareholder behavior and act as a deterrent for erring family members/shareholders. Without a Shareholder’s agreement, the constitution is empty!

And lastly, the senior leaders must prepare a 5 to 10-year succession plan that can prepare the next generation members to assume leadership based on a future event.

Why are these interventions non-negotiable? Even the best family businesses that I have coached must work hard at governance and relationship building. It does not end with the signing of the agreement.

In many instances, next generation members appear confused and cannot reconcile why I would always advocate a shift in owner mentality to a professional manager mentality when for many years the parents have ingrained ruinous statements such as “someday this business that I built from scratch will be yours”.

An understanding of what the company’s mission is, what its short and long term goals are, and solid job descriptions can be a good starting point for businesses that are going through some form of “natural tension”.

When done right, the transition from parents to young children entering the business phase can be a wonderful opportunity to embed governance and define the boundaries of family and business. Good, open communications fostered by the parents can help build good relationships throughout the different phases.

esoriano@wongadvisory.com