Tag Archives: Family Business Coach

Who Is “Fredo”? (Part I)

According to Wikipedia, Frederico “Fredo” Corleone is a fictional character in Mario Puzo’s novel The Godfather.

He is the second son of the mafia don Vito Corleone, younger brother of Sonny and elder brother to Michael (portrayed by Al Pacino) and sister, Connie. In the films, Fredo’s feelings of personal inadequacy and his inability to act effectively on his own behalf are character flaws leading to greater consequences.

With so much insecurity starting in childhood, Fredo exhibited poor coping mechanism and would always complain how he was ignored by his siblings and deprived of parental love during his adolescent years.

Eventually, his selfishness led to serious problems for the family, which ended when his own brother (Al Pacino) disowned him. In short, “Fredo” Corleone was known for his incompetence, bad business ideas, heavy drinking and betrayals. If you watch Godfather II, you will discover what happened to Fredo.

Do you have a “Fredo” in your family?

In a well written article by Kimberly Eddelston, Fredo is described as “the kind of sibling who just couldn’t get it right, no matter how hard he tried. But because he was family, Fredo was involved in some of the family’s business ventures.  Due to his weak personality and below average intelligence, he was constantly failing at even the simplest tasks he was given.”

In Asia, Fredo is often compared to a “black sheep” in the family. They display similar patterns of behavior and end up as a disgrace to the family. They are known as trouble makers, often left out, branded as outcasts because they choose to do other things than live up to their parent’s standards.

A Fredo in the family business is likely to be the least capable amongst siblings so when the family patriarch coddles him and looks the other way, he will do whatever possible means to take advantage of the family business for personal gain.

Like many family businesses with Fredos working, their presence in the business poses a serious hindrance to the enterprise. In a 2012 study by Kidwell, Kellermanns, Eddleston, they revealed that approximately one-third of family businesses admit to having a family employee who is an impediment to the business and only has a job because he or she is ‘family’.

What are the most common traits of a Fredo working in the family business? I have listed a handful of attributes below so family members are aware of the potential dangers that lie ahead.

Fredos can be any or all of the following:

  • They are irresponsible and consistently performs poorly in the family business
  • They disrupt the work of colleagues including business decisions initiated by family members
  • They strongly resent their parents especially with the way they were treated when they were young
  • They are naturally demanding and expect parents to support them especially when they experience setbacks or misfortunes
  • They misuse company resources and continue to commit conflict of interest
  • They are selfish, quick to blame others except themselves
  • They have no sense of responsibility nor accountability
  • To compensate for their failure, they usually engage in get rich quick schemes at the expense of the parent’s (and the business’) financial support.

In dozens of family businesses in Asia where I was tasked to intervene, I would always come across “Fredos”, either male or female, responsible for causing unnecessary pain and conflict in the family and the business.

In Mario Puzo’s The Godfather novel, Fredo nearly destroyed the first and second generations of the Corleone dynasty.

To be continued…

(esoriano@wongadvisory.com)

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Founder Inaction Can Cause the Business to Fail (Last Part)

Phase 2: Restoring Communication Channels

The team focused its efforts in salvaging whatever lines of communication channels available and in doing so gradually, introduced the buy-in of the warring siblings through the different phases:

  • Founder History (How he started)
  • Founder Shared values (hard work, humility, honesty)
  • Founder Aspirations (family harmony, legacy, stewardship)
  • Founder Transition to Next Generation leaders (direction of the business)
  • Family and Business Structure (What structures must be instituted to maintain family harmony)
  • Family Transition (How will the family Prepare for the Future)

With these values resonating, we then proceeded to a plan of action geared towards a unifying and shared vision and mission statement.The direction of the business was a major strain and through the formulation of a strategic plan, we effectively diffused the tension.

Even with my years of family business coaching, this process was arguably tougher than expected as the growing pains were quite palpable.

For Gen 1 and 2 family members, the big switch from the first generation “entrepreneurial” style to a professional and consensus based model had to happen so it was necessary to institutionalize the rules without fear or favor.

Phase 3: Governance is Mandatory to Survive

After a series of sessions coupled with one on one assessments, we finally made them agree to sign family agreements outlining family member roles and responsibilities (active and non-active) in the family and business.  We then created a detailed code of conduct covering conflict of interest, entry and exit rules, and family member KPI’s.

For shareholders, we made it very clear that those elected to the board must have the competence, interest and commitment and that the conduct of the shareholders must be aligned with what the founder desired.

Phase 4: Ownership Alignments

After a series of exhaustive ownership sessions, we preempted what could have been a scandalously damaging effect to the family and the business. We finally made all shareholders sign ownership agreements.

These difficult intervention was worth it! It not just averted a long and litigious court proceeding and, as their HR head puts it, “our office saved the jobs of close to five thousand employees, 1,200 project based workers and a few thousand indirect recipients from suppliers to the families that rely on their breadwinners.”

We felt we won the lottery when warring siblings started to communicate and some members reaching out and trying to play catch up on the many years lost due to the conflict.

As I write this article, it is still a work in progress, as the next challenge is to continue the momentum by forming a Family Council and doing oversight work. Beyond governance, the business can now move toward growth mode.

There are many founders in the mold of Mr. C. I would often hear Gen 2 members explaining to me their inability to talk to their fathers about succession issues. It is still an extremely sensitive topic. It is a cultural factor.

Finally, founders (particularly the traditional Chinese) are reluctant to disclose their wealth and the history of the conflict to a local advisor so when Mr. C met me, he only asked three questions:

  • My nationality
  • My experience; and
  • My motivation in helping mediate and mentor

I told him that my grandfather from my mother’s side used to own many businesses. And for many years, was recognized as the second largest taxpayer in his city. But in one fell swoop, the business collapsed because of sibling rivalry.

Mr. C understood completely.

Founder Inaction Can Cause The Business To Fail (Part 3)

My World Bank/IFC Governance work in Africa did not push through over the weekend due to the current post election tension unfolding in Kenya.

The deferment was a blessing as it allowed me to revisit peculiar and common issues affecting family owned businesses in Asia. The case of Mr. C is no exception.

After a thorough evaluation of his family business, the Family Advisory unit of my firm, W+B, identified several major causes of conflict that led to the dramatic decline of the business exacerbated by a virulent tug of war among siblings.

  • Employment by virtue of their last names with zero accountability
  • Family members were thrust into leadership positions, despite their lack of experience and competence
  • Money issue as a result of ownership misalignment
  • Compensation and incentive programs were wrong
  • Unclear succession programs that bred conflict

After summarizing the report and analyzing why the conflict happened, I have listed a handful of related issues:

  • The patriarch did not see the urgency of initiating governance in the early stages. As the problems became more evident, Mr. C chose to procrastinate
  • He exhibited a typical patriarch mindset that siblings will be able to fix the issues amongst themselves
  • He was also too busy growing the business and ignored the red flags
  • Control and Power struggle among siblings was bound to happen
  • The conflict escalated when Mr. C suddenly stepped down

When the patriarch’s health deteriorated and disagreements among the children were becoming frequent, he suddenly realized that the children lacked the maturity to lead their departments and were not prepared to assume full control of the business.

Out of desperation, the patriarch finally sought assistance from his friends and luckily his colleagues endorsed me and the firm to initiate intervention.

Our Intervention was Intense

We were racing against time using three critical areas:  Resolve a “ticking time bomb”, initiate full governance across all areas and prepare a lengthy succession process.

Phase 1 Intervention Governance Protocol

Our precondition in helping Mr. C was to take out the litigation lawyers representing the children. With the mother’s appeal, the children finally relented to let the lawyers step back.

Our initiatives focused solely on addressing the causes of conflict by installing and aligning governance systems covering the naturally overlapping areas (family, business and ownership). What was peculiar about this intervention was the need to put another circle covering long-staying employees loyal to the father.

The issue may look miniscule from the outside, but it is not. These handful of employees who started as factory hands 40 years ago became equally entitled as the children.

The W+B findings revealed “their association with Mr. C for many decades was “power in itself” as they held the title of “gatekeeper”. In short, they were perceived to be so influential that they can make or break a candidate aspiring for a managerial position.”

On a positive note, their contribution to the company’s growth years under the leadership of Mr. C can never be discounted. However, with the imminent break up, we also discovered that this group was also “fighting for survival.” They strongly felt that with Mr. C slowly losing his grip on power, their influence was also dissipating and they were not prepared to leave the company.

To be continued…

Founder Inaction Can Cause Business to Fail

Allow me to share the story of a Family Business run by Mr. C. Like most entrepreneurs Mr. C migrated from Southern China, started a trading business and through the years expanded to several businesses like manufacturing, food and retail. The business was founded 44 years ago and at its peak, had a total employee count of more than 15,000.

Early this year, I conducted an organizational audit and found out that the employee headcount sharply dropped to just below 5000. The decline started right after the founder took a back seat due to a life threatening condition.

Family C’s case is unique. It is a live case full of twists and turns and ever unfolding. Live case also means that it is a “work in progress” (WIP) project. This is also one of the reasons why I spend more time in Asia than in the Philippines.

Our sessions have been quiet challenging and gratifying at the same time. My core team was able to diffuse a family “ticking time bomb” that started more than a decade ago involving two warring sides of the family…three younger siblings pitted against two older siblings.

The problem started with the employment of the first 2 children, who were untrained and ill equipped to handle the rigors of managing an enterprise belonging to different industries.

Straight from college and without any formal entry policy, they were asked by their father to help out in the business. Confident that the children were ready to assume bigger roles and the companies’ consistently better performance year after year, the father decided to slowly detach from the day to day chores.

Through time, they married, produced children and the family grew faster than the business. With their new found power, the older children started to apportion for themselves the departments and business units that they were already managing.

This was also the time the three younger siblings joined the business. With 5 children in the business, each vying for control, the departments were like a separate kingdom without any semblance of a collective plan moving in one direction.

With the children at the helm, heated discussions among them became more frequent and their incompetence manifesting by way of lapses in major decisions. It was obvious that apart from the breakdown of governance, the lack of vision, poor judgment, conflict of interest, high attrition rate for employees, no planning and a certain level of entitlement contributed to the decline.

Primary Causes of the Sharp Decline:

  • With the same surname as the founder, any family member can freely join the business
  • Some were plain lazy, while some did not have to work as hard and still got the same pay as those who were fully engaged
  • Distrust and self-dealing among family members were becoming apparent
  • Relatives or friends can be a supplier without the necessary accreditation.
  • In-laws got infected with the “entitlement bug”
  • No rules of entry and exit including accountability for family members.
  • Employees started to take sides out of survival
  • Frequent clashes due to personality differences
  • Constant friction as to where the business should be heading
  • No expansion as family members spent much of their energy fighting one another over money and power
  • Family members never exerted effort nor time to cooperate.

To be continued…

 

https://www.towerswatson.com/en/Insights/IC-Types/Reprints/2014/10/Succession-Planning-The-Answer-to-Leadership-Crisis

DIY Governance Can be a Disaster (Part 2)

Family Governance

A fundamental aim of family governance is to mitigate conflict and harmonize interests to ensure business sustainability.  Successful family businesses in the region often establish a governance model and do the following:

  • Establish and formalize family rules and policies through a family constitution
  • Have a clear succession plan in terms of family ownership and leadership
  • Establish the right structures and bodies to enable proper family governance e.g. family assemblies, councils, etc.

Professionalization of the Firm 

  • Corporate Governance: Having an effective Board of Directors with the right structure, composition, roles, decision making rights, etc.
  • Planning and Performance: Having a planning function for both holding and subsidiary levels supported by a performance management system
  • Controls: Effective management controls are in place to ensure proper functioning of business processes
  • Processes, Policies, and Procedures: Effective processes and policies for core business functions, job descriptions, authority matrices, etc.
  • Technology: Implementing technological systems which increase efficiencies in processes and promote more effective decision making

Portfolio Direction and Management

  • Core competencies of the group need to be clearly defined and an investment strategy outlined to match those competencies and opportunities in the market.

—- Continue with Prof Soriano’s Article —-

Governance is all about communicating and winning the trust of family members/branches as well as instilling the overarching message that institutionalizing rules and setting a realistic code of conduct for the “greater good” can effectively mitigate conflict and raise the bar of productivity.

For some that have sought my help, they have admitted that in the past, the next available “resource” and natural “go to counselor” were their favorite spiritual advisers. These can be the community parish priest, a pastor and to some extent seeking out guidance and wisdom from the most senior and influential member of the business community.

Sadly, for those who are already on the edge and showing clear signs of desperation, they have resorted to calling out as many saints including their deceased founders and influential family members imploring their divine intervention so they can finally put an end to the “curse” we generally refer to as family conflict.

DIY Governance Can Be Extremely Frustrating

The downside in any DIY initiative is it can be physically draining for the family member proponent. Governance is not just about articulating the list of benefits or asserting the importance of legacy creation or getting everyone to comply based on the rules and policies set.

The key is communicating the urgency and significance of going through this all-important event!

It is a Once in a Lifetime Event

Now that I have emphasized the enormity of work and the likely disastrous consequence of initiating a Governance DIY approach, I am sharing a timely PWC research related to the importance of initiating Governance in family owned businesses:

a. Safety in structure. Many family businesses have learned that a little structure can be extremely helpful when the time comes to discuss sensitive issues, such as:

  • Ownership shares
  • Rights and responsibilities
  • The competence of family-member managers, and
  • Agreeing on a strategy that is best for both the business and the family

b. It starts with a clear vision—and clear lines of communication

  • Like any business, a family enterprise must be built on a foundation of mutual agreement on certain fundamental questions:
    • What is our vision—and our mission—for this business?
    • What strategy should we follow to reach our goals?
    • What structures and people do we need to succeed?
    • How do we handle shares, inheritance, in-laws?

The Importance of Education and Shared Values

When next generation members fully understand and embrace their roles as stewards rather than owners, the entitlement mindset is tempered. And having a non-family member as advisor to provide oversight can significantly improve and restrain aberrant behavior.

Clearly, when the process of governance becomes unbiased, consistently applied to all, and initiated without fear or favor and with the guidance and facilitation of an experience family advisor, the family can expect better communication within its members plus the added benefit of a scientific and stable approach to the natural overlapping interests of the family, business and the ownership ecosystem.

In closing, Governance is a sensitive and serious matter and is simply too important to be left in the care of a family member unfamiliar and ill equipped to manage emotions and personal interests of different family members.

Harmonizing relationships and institutionalizing control across generations under an environment of shared vision can tremendously accelerate the growth curve of the enterprise.

If done correctly from the onset, governance can become the source of more strength and longevity for the family.

Governance is Not a DIY Thing

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In order to produce the desired outcome we believe that we need to guide the family through a three step process.

STEP 1.  Build the future on sound foundations

The starting point for delivering the desired outcomes is to have a sound foundation built on trusting relationships and open, honest and constructive communication. If there is no trust between family members, it is very difficult for family members to successfully negotiate the complex issues that a family business must deal with.   To work with a family successfully, first step is to assess the quality of both trust and communication and if they need improvement, develop strategies appropriate to their individual circumstances.

STEP 2. Develop a common uniting vision for the future based on the families values

This step is about identifying what each family member wants to achieve personally, and finding the threads to create a common, uniting vision for the family in business, based on the families’ values. This is the critical step that creates energy and commitment.  Having a common vision can also provide the reason to put up with differing personal styles and can therefore assist with communication and the inevitable tensions that arise in a family business.

STEP 3.  Ensure that there are appropriate governance structures in place for both the business and the family

This step is about creating a framework for sound governance for both the business and the family. The challenges however often arise in growing family business where the roles overlap with the family dynamic. We find that in the process of setting these sound foundations, many  issues are invariably cleared.  Most importantly we have set the framework for the family to address any issues that they are faced with.


Have you ever watched some reality shows on cable? The script usually starts with people working on a project but they have no idea what they are doing. Take the case for example of a particular show in HGTV focused on home remodeling where unskilled homeowners will attempt and try the “do it yourself” (DIY) approach.

The host of the show then comes in to save the day, repairing what the DIYers tore down, and teaching them how to do and perform certain tasks to reverse the situation.

This show has many parallels to the world of Family Business governance. It is very tempting to try and find a DIY solution to sticky family issues. Why?

Budgets are tight, and professional advice can seem like a luxury when you are struggling to meet sales goals, many family members adopt a DIY solution when what they really need is an experienced family business advisor.

The Internet is also a huge source of information and encourages many family members especially the younger generation to DIY their family agreements, whether it is access to governance information or plainly using a “cut and paste” model to craft a charter or constitution.

But the problem is that advice on the Internet is not always accurate, particularly since governance and if I may add Succession, are not a “one size fits all” document.  It is a process and the way governance is applied depends on so many factors:

  • The size and complexity of the family
  • The phase where intervention is needed
  • The magnitude of the conflict and
  • The capability of the family members to transition from the old entitled and lackadaisical model to a process, vision centered and governance driven family business.

Additionally, there have been a few instances where my competence and credibility as Family Business advisor was questioned by business owners both in the Philippines and overseas and on rare occasions, business owners would also belittle my firm’s engagement parameters.

The “I know better” syndrome is quite common among enterprise leaders. I do not blame them. Their power, wealth and their inflated ego distinguishes them from the rest of us and rightfully so. In the stage where they are high and mighty, they probably believed that they know their family better and can effect change.  It is a normal process and comes with the territory. So when I feel an air of unreasonable arrogance, I would just graciously disengage.

I am not totally closing the door on doing DIY Governance. It has a slight chance of succeeding for as long as the rules are exhaustive and doggedly applied to all family members.

But here are my key takeaways to family business leaders stubbornly pursuing the DIY approach:

  • You cannot DIY intervention after doing nothing for many years causing the family so much emotional strife
  • You cannot DIY and act as arbiter in a hostile environment pitting two generations or two branches
  • You cannot DIY and act as referee between warring family members/ branches that have caused untold sufferings and anguish
  • You cannot DIY compliance in an atmosphere of frayed nerves with a long history of animosity coupled with constant threat and intimidation
  • You cannot DIY suspension of an erring and entitled next generation member who happens to be your favorite nephew or niece or in law
  • You cannot DIY termination of a first born child even if he or she has prejudice and damage the business

To be continued…

 

http://www.fbrc.com.au/what-we-do/fbrc-development-process

Hope Alone Will Never Heal Family Conflicts

oct 16

Lotte: Family Feud

Founded in 1948 in Tokyo by Shin Kyuk-ho, the Lotte Group started off as a chewing gum distributor to children in post-war Japan. Nearly a decade later, Shin expanded the company to South Korea and became the country’s largest confectionery manufacturer. Lotte group engages in several industries, such as shopping, entertainment, finance, hotels, and food.

The feud began on July 27 2015 when the 92-year-old Shin dismissed his younger son Shin Dong-bin, the chairman of Lotte Group, along with six board directors. According to the Korea Herald, Lotte Group lost billions of dollars from its operations in China over the past four years, and Dong-bin had reportedly failed to report the losses to his father. Dong-bin held an emergency board meeting and staged a coup to remove his father as general chairman of the company’s holdings. The younger son kept both of his executive titles. The move angered Shin Dong-joo, who called his father’s demotion unlawful. In January 2015, Dong-joo himself was fired after his father discovered that he had overstepped his role by meddling in the management of Korean operations.

Lotte chairman clinches ultimate victory against brother

The long-running family feud between Lotte Group Chairman Shin Dong-bin and his older brother Dong-joo has apparently ended after the latter disposed of a large stake in the group’s key affiliate. The nation’s fifth-largest conglomerate said Thursday that former Tokyo-based Lotte Holdings Vice Chairman Shin Dong-joo sold a 6.88 percent stake in Lotte Shopping ― 1.73 million shares ― through a block deal for 391 billion won ($342 million).

Group founder Shin Kyuk-ho’s oldest son now holds just 7.95 percent of Lotte Shopping, while his younger brother has 13.46 percent.

The siblings have been fighting for control of the retail giant since July 2015, engaging in a fierce legal battle. But the older brother appears to have accepted defeat in the uphill battle for now, according to industry watchers.

—–

NEW YORK. NY. On September 3, 2008, at the Republican National convention, former New York City Mayor Rudy Giuliani was the first to use the phrase “hope is not a strategy. Specifically, his convention speech included these words:

“Because ‘change’ is not a destination, just as ‘hope’ is not a strategy.

What Does It Mean? When Mr. Giuliani used the quote in late 2008, he was saying that Obama – and any other president – needs to act.

I am connecting this message to family members who are suffering in silence because of deep conflict within the family and indecision.

Hope Supported by Action

You cannot just hope and wished that the issues will just go away. As a family member, you need to muster enough strength to initiate and act on the problems that are causing tension within the family and have likely spread to the business.

The patriarch/matriarch must act to mitigate the problems. Just sitting around thinking about how the current situation could be better is not going to change anything.

The fact remains that the following problems will never be resolved by just merely hoping for the best:

  • Hope will never address the confusion as to where the business is heading
  • Hope will not reduce misunderstandings among siblings/cousins
  • Hope will never resolve personality differences
  • Hope will not cure the incompetence nor can it terminate unqualified/ dishonest family members
  • Hope can never manage frequent power struggles among siblings/cousins
  • Hope will not create ownership alignments/agreements
  • Hope will not mend emotional outbursts and constant finger pointing and cursing
  • Hope can never cure greed nor will it fix a slew of conflict of interest or self-dealing activities by family members
  • Hope will not remove from the business entrenched inept but entitled in-laws
  • Hope cannot heal a scarred relationship
  • Hope can never promise nor offer solutions to a mismanaged enterprise nor will it help correct a bad P&L (Profit and Loss) financial statement
  • Hope cannot prevent a family member from selling his or her shares to a competitor
  • Hope cannot prevent a catastrophic failure of both the family and the business

Just hoping is plain and simple procrastination!

I can list more issues but one thing is crystal clear, hope is not a strategy. Without any means to address these deep and frightful issues, it will be a bruising struggle for power that will result into more disputes, further antagonizing members and weakening the very foundation of the family business.

If there is continued inaction, these problems can cause entropy and will scar the family and the business forever. The consequences of inaction are irreversible.

Objective Intervention Is Important

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 facilitator who will propose initiatives leading to the creation of mutually agreed governance policies defining the roles and responsibilities of family members active and not actively working in the business.

The good news is that most family related problems are predictable and initiating policies before they happen or morph can eliminate or reduce further tension and will de-escalate a brewing conflict when the founder or patriarch is no longer around.

Do not get me wrong, hope and prayer can work in the face of a difficult situation, but family members need to act and do their part now. There is still time.

(esoriano@wongadvisory.com)

*****

LINK:

http://kore.am/a-breakdown-of-the-lotte-family-feud/
http://www.koreatimes.co.kr/www/tech/2017/02/694_224573.html