Tag Archives: Family Agreements

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)

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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.

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 (Part 2)

LOS ANGELES – After a series of meetings that took me to Osaka, Dubai and Madrid covering a brief 10 days, I am almost done with work here with the successful launching of Organique Acai, a world-class health supplement manufactured in California and proudly owned by the well-loved Cebuano couple Elton and Cathy Salimbangon.

Their story of faith and courage in the face of adversity makes every Fil-Am here beam with pride! TV and print organizations flew from Manila to cover all the events and I am deeply honored that I was invited to share the expansion plans of the group.

I salute Elton and Cathy, as they have intimated to me early this year their desire to pursue governance while the three children, Luisa, Martina and Nathan, are still in school.

Right after my US engagement, with or without jet lag, I will fly to Cebu on Nov. 26 for my talk on family and board governance at the Cebu Parklane International Hotel. I look forward to exchanging notes with family members and participants.

The three-generation curse

Most companies in the Philippines are family-owned. They compose close to 80 percent of businesses in the country. Unfortunately, 70 percent of first-generation businesses fail to reach the second generation due to sibling rivalries, fights over ownership control and personality conflicts that can tear families apart.

Another reason is that the goals and objectives of the founding generation are rarely the same as of those of the succeeding generation. Indeed, succession problems are the greatest threats to the survival of family businesses.

The Jollibee formula

What made Asia’s biggest quick service restaurant (QSR) food chain Jollibee Foods Corp. hugely successful? The founder, Tony Tan Caktiong, provided the vision and leadership, hired the best professionals, formulated five to 10-year game plans and empowered them to deliver results.

To make sure governance is sustained, each active family member is aware of the programs rolled out. By 2020, Jollibee is poised to gain significant entry to the untapped European Union. With the success of Jollibee in Vietnam, where 95 percent of their patrons are Vietnamese, the group will seek to replicate this success by tapping EU’s mainstream market

I will now continue with the time-tested tips successful senior business owners employ to ensure the enterprise’ growth and sustainability:

2. Never stop communicating with family members.

Talking is the most obvious prescription and the most relevant. When family members stop talking, they stop solving. In a family business, issues never stop. Family members must establish clear and regular methods of communication. The key is to keep on talking and develop a system dedicated in having these important conversations one on a regular basis. In my coaching work, I encourage and often times impose that family members come together at least every month to talk.

These gatherings can cover family issues or business issues. The key is for the lines to be open for every adult member of the family, whether involved in the business or not.

A simple governance model that works

In my recent trip to Japan for my regular coaching work on a ninth generation family, part of the governance rules that every family member must abide by would be regular monthly meetings for active family members and twice a year social-cum-business meetings for non-active family members.

Every two years, those above 50 years old must meet and every three years, every family member must gather for socials and business strategy. This rule applies to all active and non-active family members.

For a 200-year-old family business with more than 100 family members, with a third actively working in the business, it has been a fairly organized and canorous chorus of family members focused on a singular objective of growing the business.

3. Formulate a five-year business plan.

Effecting real change in a family business takes longer. Change, especially related to strategic initiatives in a family business environment, is very sensitive, especially when it involves two or three generations and several branches of the family. By default, families don’t like to recognize the need to change and so they delay the recognition and pressures build up.

The key to effect change is by initiating a process that preserves the dignity of family members and allows them to feel well-regarded throughout this change process.

4. Prepare family agreements.

It is hard to create agreements within the family because things change. And the fact that siblings are good partners now means that they should respect each other enough to have good shareholder agreements or buy-sell agreements. Getting family members to sit down and craft agreements that can be guide posts when it is needed and doing it in advance before they need it is your most valuable gift to the next generation.

To be continued.