Tag Archives: Family Business governance

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
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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