Tag Archives: Family Business Coach

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)

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)

The Lee Kum Kee Family Secret

Hong Kong sauce giant Lee KumKee Group is one of a handful of Chinese family owned enterprises in the world that has not only managed to survived for more than a century but has thrived after 129 years of steadfastly holding on to some unique and time tested values reinforced with a powerful succession plan model.

Established in 1888, the Lee KumKee group has a remarkable history built over five generations. Yet, despite its market leadership and being a world-renowned brand offering an assortment of Chinese sauces, the group has not been spared of her share of family conflict as a result of business disagreements and buyouts.

Major Shocks

In 1972, the third generation heir, Lee Man-tat and grandson of the founder suggested to its shareholders the importance of creating additional product lines for its oyster sauce business to reach a bigger market. But the idea did not sit well with his uncles, so the following year and with the backing from his father, Lee Man-tat ended up buying all the shares of the company.

Another setback happened in 1986 when Lee Man-tat proposed the idea of expanding the factory but ended up being rebuffed by his younger sibling who at that time owned 40 percent of the business. Due to differences in management style, Lee Man-tat offered to buy his brother’s shares.

After going through these two major corporate hiccups, Lee Man-tat ended up gaining control of the business. His five children then joined the company one after another.

The two shocks made the Lee family realized the vulnerability of the enterprise to internal conflicts, so in 2002, the family agreed to set up a family council and draft a family constitution.

Family First, Business Second

The core value of Lee KumKee is “family first, business second,” there other values according to writer Alan Lee Ka-Fai that are worth emulating by family business owners and these are the following:

a. Entrepreneurship is Key: The family requires the successors to stay as entrepreneurs as “it does not believe one would succeed in keeping the business without instant innovation and thinking out of the box.” The family business will not be able to stay on long unless it always maintains the mindset of entrepreneurs.

b. Governance System must be in Place: Apart from family values, the family constitution and family council are two key elements of family governance. These elements would help build trust among family members and cement family ties.

c. The family motto also underlines achieving a win-win situation

Additionally, I have included some of the powerful values I mentioned in my article last week namely:

d. Put Other’s First, before yourself

e. Pragmatism

f. Integrity and

g. Benefiting the community

According to Dr. Amen Lee, President of Legacy Academy, developing a long-term vision is a key element. He goes on to espouse the five dimensions that includes the practice of family values, continuation of family relationship, passing on of family knowledge, management of family wealth and succession of family business.

Inevitably, for family enterprises aspiring to become legacy bearers, the key is to pass on the values of the first-generation entrepreneurs, including their core concepts and life wisdom.

For writer Allan Lee Ka-fai, he concluded that “Family businesses which have lasted more than 100 years usually have a very unique understanding of family, business and relationships, and pass it on to the next generation as the family legacy.”

(esoriano@wongadvisory.com)

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.

 

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…

End of the Cosmos family business: Where did it go wrong?

I AM back in Manila after a dizzying week of family business coaching work mixed with several conference talks related to governance and business strategy. How I wish there was another day between Saturday and Sunday!

This half year alone, I have been a witness to so many family owned enterprises (FOEs) in Asia groping in the dark on how best to start the governance process. Most of these FOEs are facing challenges in working through their ownership and management transition.

Some would ask the extent of my coaching work in the Asia Pacific, but modesty aside, it’s really not rocket science. It is more of a series of interventions where my goal is to equip visionaries, next generation owners, in-laws and other stakeholders with the tools necessary to ensure their companies’ success and survival.

My role as a family business coach

In a more detailed form, my role is to provide family members a clearer perspective on what option the family business will operate. Will it be business first or family first? Second, I help define the roles and responsibilities of owners, directors, board chairs, the executive team and the family council. This particular task introduces corporate governance amongst family members working in the business.

The third task is to educate family owners by highlighting the importance of aligning and perpetuating the family and business values. These values when embraced by family members will be the glue that will harmonize relationships amongst family members.

My fourth and last intervention is to create clarity and build trust among family owners through governance and ownership. The latter requiring a process of documenting agreements covering family, business and ownership governance.

When all of these four areas are covered and the family members are fully compliant, then I happily exit from the engagement and move on to help the next family business.

Death of the Cosmos patriarch

Such is not the case with the Cosmos Group. The patriarch of the Cosmos Bottling empire, Henry, suffered a stroke due to a malignant tumor in his brain and left him incapacitated until he died a few months after. He was 53.

According to his eldest son Danny, the death was the main trigger leading to the collapse of the mighty Cosmos Group.  But the much bigger issue was the unpreparedness of the family to handle the death of the patriarch, the dynamics of having family members and different branches working in the family business and managing the transition/succession process to the third generation. Henry’s death created that leadership void in the organization.

RFM acquires Cosmos

In Danny’s own words regarding the sell off, “Cosmos was sold for the wrong reasons and for the wrong price!”

The eventual transfer of ownership to the RFM Group concluded the end of the Wong family’s ownership of the Cosmos Bottling Company after only three generations.

Danny went on to pose several regretful questions with the hope that FOEs currently facing their own internal conflict must continue to be determined and unyielding in pursuing governance. No matter what the challenges are, every family member must seek ways to promote harmony.

Where did we go wrong? Why didn’t we see the signs? What should we have done? What can we do? Who can help us?

In my conference talk last week, I purposely highlighted studies that addressed the inevitability of the death of the patriarch and the numbers are alarming. Most family enterprises are highly dependent on their current leader – as much as 80 percent of the business.

But major leadership change in family businesses is forthcoming:

Forty percent of family business leaders will retire in the next five years.

Twenty-eight percent will retire in six to 10 years.

Twenty-two percent will retire in 11 to 15 years.

To this day, most have no contingency plan covering the death or the disability of their leader and only 29 percent have a succession plan. Family business owners see the generation of wealth as the primary role for the business. Preservation of wealth and business succession in the family is a lower priority. These are sad numbers but empirically true.

My advocacy is to reverse this trend.