Tag Archives: Family Business

Are Your Children Really Committed?

Or are they just working to please you?

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. For founders/owners, family member commitment gives them a certain level of self-assurance that the business will be in good hands when the day the formal handover happens (an event like death or illness of the senior leader).

But how do we galvanize family member commitment? That is a tough question that continues to bother business owners especially those whose age ranges 60’s onwards. Here is a couple of disturbing statements coming from the next generation family members (31 and 40-year old) that my firm, W+B Family Business Advisory, researched and polled in 2017.

Next Generation 1

“My parents offered me future ownership even while I was in college. It felt good being an owner but years later I realized that having zero outside work experience became more of a liability. The only consolation I got was because I never went through the difficulty of applying for a job.  There was also less pressure in terms of going to work. But how I wish I had real work experience outside my comfort zone. It’s been a difficult 15 years managing the business with frequent disagreements with papa. It is a wake-up call and this made me realized that at 39, it’s time for me to make a full assessment of whether I am worthy to succeed my father. I am playing catch up by hiring professionals and doing advance courses on areas I am weak at.”

Next Generation 2

“I have the best of both worlds and couldn’t ask for a better job. Of course friends teased me as a COO (Child of Owner) but at 31 years old and managing 450 plus employees, it’s not bad. I also get to enjoy the benefits of a nice salary, an SUV and unlimited travel benefits. My classmates who are employed are still languishing with low salaries. I couldn’t ask for more!”

When they were asked about the following: future growth plans, managing complexities and balancing growth, how to confront the uncertainties of sustaining the business… their reactions showed serious reservations and self-doubt. Collectively, these were generally the responses of more than 100 next generation successors surveyed:

a. If they really have the skills set like their hardworking visionary parents

b. Their continuing struggle in the areas of decision making and people policies

c. Their concerns related to the pressures of expanding the business

d. Balancing the old and the new ways of managing the enterprise

e. Issue of business longevity, co-ownership with siblings, debt issues

f. Potential conflict among siblings that will predictably surface when their visionary father is no longer around

These are natural reactions that I encounter every day. Therefore, the real challenge for business owners is to confront these questions:

How will we know if those who are actively working in the business have the passion and sincere intention to grow the business? How will we know if they are just after the four P’s –– Pay, Position, Perks and the Potential windfall (ownership) the parents generously and wrongly offered them when they started joining the business.

If these questions remain unanswered or if there are no singular focus in creating powerful commitment initiatives now, these will result to many sleepless nights by the business leader. Expectedly, the road ahead will be less paved and difficult to navigate. Hence, governance should now be the way forward.

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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

 

Nothing is Certain Except Death

It is a Volatile, Uncertain, Complex, Ambiguous (VUCA) world out there! I am constrained to add that on top of the uncertainty of business, the demise of a family business leader can cripple the enterprise overnight.

The sudden death of a colleague in 2015 was a stark reminder that life is fleeting.

A year earlier, we were exchanging notes and quite excited about our planned collaboration to “gain a beach head” by setting up businesses in emerging ASEAN member economies. Then suddenly, I received news that he became terminally ill and given a few months to live… six months to be exact. In a blink of an eye, his health deteriorated and went downhill. He was gone at 64. Death came so swiftly like a thief in the night. He left behind a wife, three children and a 2,700 plus workforce.

My friend passed away without preparing any leadership transition and as the family grieved, the children struggled to consolidate his estate comprising assets, liabilities including the three core businesses. And as if on cue, worried creditors swooped down like vultures, naturally demanding for answers on how loans will be repaid.

For the three children (all in their 30’s), they were obviously unprepared, untrained and used to the good life generously provided for by their visionary father. With the death of the patriarch, they were now fearful of an uncertain future and the “what’s next”. I realized that the family needed help so I volunteered any assistance but my offer was politely turned down.

When the youngest child was diagnosed with a certain form of mental disorder and had to be hospitalized, the other siblings continued to manage the business but their apparent lack of training and limited skills worsened the situation. Sensing a bleak future, employees started to leave the company.

The business suffered its biggest setback when their credit lines were discontinued. Clearly, everyone where at a loss due to the sudden void left by the demise of their leader.

Four months after, the children pleaded for help and requested my intervention.

The six months that followed was probably one of the most challenging times the family members experienced under my brand of governance… and a test of patience for me and my team as well. I almost gave up on a number of occasions. The family members were stubborn, indecisive, arrogant and distrustful of our turnaround initiatives. Worse, they were incredulous and hardly contributed to the efforts.

I felt helpless when they could not decide on critical issues and in my quiet moments I would lay the blame on their deceased father for overprotecting and raising entitled children. Their actions were extremely frustrating and a disservice to the values of hard work and tenacity that the father displayed when he was alive.

At the onset, the only way to appease troublesome creditors was to install a management committee primarily tasked to manage a tight cash flow.  We also brought in specialists to “hold the fort” until the situation normalized. My title was “caretaker CEO” but in reality I played a conductor role by making sure alignment of plans continued without disruption.

After 2 years of playing catch up, the firefighting became less frequent and the business showed signs of recovery.  When we finally saw steady growth, we knew a turnaround was in sight. We also saw creditors renewing their commitments after cash flow and new investments were already showing favorable results.

It was a close call and for year three (2018) to five, the enterprise is now geared for growth and expansion.

Nothing is certain in Life and in Business

Geoffrey Gaberino, the 1984 Olympic Gold Medalist once remarked, “The real contest is always between what you’ve done and what you’re capable of doing.  You measure yourself against yourself and nobody else.”

If family businesses around the world strive for future prosperity and family survival in an increasingly volatile, uncertain, complex and ambiguous (VUCA) world, how did the next generation business leaders of dominant conglomerates like the 184-year old Ayala and 130-year old LKK managed to keep pace with an ever-changing VUCA world?

Even with a great idea, leadership and many hours of hard work, one rule still applies:  Nothing is certain in life and in business.  No one can unfailingly know if an enterprise will fail or reach a century or whether a startup will survive past the one-year mark.  So, how can one increase the odds?

To dream and aspire in becoming a 100-year old enterprise, the business must be relentless in staying relevant. But how?

Firstly, the business leader must create a clear vision of where he or she wants to take the business in 10 to 20 years. Next is future proofing a succession plan. It is important that this shared vision must be well-defined, replete with measurable objectives and supported with very clear lines of communication and accountability, especially with the natural entry of next generation siblings and cousins.

I was in Boston last week for strategic coaching work and in between engagements, pursued collaborative studies at Harvard on how to create a resilient and dynamic organization of the future. Expectedly, VUCA is here to stay and family businesses must evolve to overcome these dramatic changes!

So beyond the perks, entitlement and glamour of being an SOB (Sons and daughters of Business owner), successors must fully embrace the commitment, the hard work, the long hours and the pursuit of a strategic “big idea” that goes with the succession plan. This is what strategic planning is all about.

Jane Hilbert-Davis, a Boston based consultant, defined strategic planning as “simply creating a plan of action. Originally from the Greek roots, ‘STER’ which means to spread out, usually in a military sense, and AG to drive or to lead, the word ‘strategy’ conjures up images of preparing for battle, or competition.  It’s different from ‘vision’ which is a future imagined, a hope of how things can be in the ‘farther into the future’ horizon, 10-20 years from now. “

A strategic plan describes how you can get there. It’s about making decisions in the present for the future and usually involves a 3-5-year time frame. It is both written and lived. It cannot be pieces of paper stuck in a drawer and forgotten, but must be thought through carefully.  It should reflect a flexibility and readiness to whatever the future may bring.

So I pose this challenge to business owners: What is your vision, your shared values—and your mission? What strategies should you follow to reach your goals before passing the baton? What structures and people do you need for the business to succeed? What is your succession plan? What are your contingency plans in handling a business crisis? How about a death in the family? Sibling rivalry? Questions related to ownership, management of shares, who are qualified to own, inheritance, entry of in-laws, extended family members?

Many business owners recognize the importance of ownership and management transition, but few know where and how to start in developing collaborative leaders that will take the business to the future.

To be continued…

Family Businesses at their Best

In my last article, I warned about the dangers of ignoring and abetting the red flags in family owned businesses and the natural confusion the dual role family members play both in the family and business ecosystem.

In today’s article, I will cite family businesses at their best and how they continue to remain resilient after overcoming generational challenges and family conflict.

The strengths of a family business are plentiful. In terms of organizational metrics, family owned businesses outperform non-family owned companies in sales, profit, and other growth measures by a mile. Some of the inherent characteristics unique to family members are their high commitment as business owners, their willingness to work long hours and their natural instinct to reinvest profits into the business that will enable long term growth.

Indeed, family businesses provide a good opportunity for wealth creation and the secret lies in a well-structured governance system that promotes harmony, improves communication and promotes accountability.

The reality is this, as the family and business become more complex, effective governance structures increases. Unfortunately, as the business leader continues to generate wealth for the business, governance and succession takes a back seat.

So when a major event or risk happens (Illness/death of key family figure, major fight among siblings, among generations) the business goes into a free fall. For some businesses that I have helped, it can be a daunting task to reverse the tide. For a handful, it has become irreversible.

To quote the 8th generation successor of the Philippine’s oldest conglomerate, Jaime Zobel de Ayala, when asked how they have managed to survived two world wars and still came out stronger, he said:

“Ensuring the continuity of a multi-generational business is not easy. It is a challenge in itself to run a business successfully, while family dynamics and relations can often be very complex. Each generation introduces new challenges. No family leader can plan beyond one or two generations, but if each one values continuity and the legacy that has been passed on, they will always look for ways to strengthen the foundations for the next generation.”

Without any question, the Ayala model of governance is something every family enterprise must strive to emulate. They have stayed the course and relentlessly pursued governance through the years.

Today, Ayala is a preferred brand by investors promoting “shared value”. As Jaime succinctly puts it, “Promoting shared value means aligning company success with social progress.”

Another Asian model for governance is the 130 year Hong Kong based Lee Kum Kee Group (established 1888), the world leader in sauces and condiments. Misunderstanding on the way the business was run, unclear succession plans, greed and power almost took the life out of the LKK family business in the 3rd and 4th Generation.

After two successive buyouts, the next generation leader finally decided to exact governance and raised compliance and accountability standards by introducing unorthodox rules like prohibiting members from sitting in the board if they married late, engaged in extra marital affairs, etc.

With more rules introduced, the group extended their longevity streak. Undoubtedly, one very important value that is at the core of LKK is their concept of “Si Li Ji Ren” or “Put others First Before Yourself”. The traditional and overseas Chinese also refer to this powerful value as “Xian Ren Hou Ji”.

These rules, safely embedded in their family charter and reinforced by a Family Council continues to educate, regulate and inspire the 5th and 6th generation family members to be stewards rather than owners of the LKK Group.

esoriano@wongadvisory.com

What If You Died Tonight?

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When you’re dead, you’re dead. 

What happens to your business, however is another story… if you planned the leadership and ownership transition, I congratulate you! In your memorial service, you will be remembered fondly!

Wait a minute!  No plan? That can be chaotic for your family, children, employees, partners and the business itself — a completely avoidable mess. Don’t expect to be remembered fondly!

It is not only scary but too daunting to think of a likely scenario where the founder or patriarch dies without planning the future of the enterprise. In my recent family business coaching engagement in the US and Canada last month, the death of a patriarch was just too much to bear for family members who were caught unprepared.

During our first session, I was peppered with so many questions coming from practically all family members and creditors!

  • What would happen to the business?
  • What would happen to the ongoing projects?
  • Who will take care of the family members?
  • How would this affect our respective families?
  • Will there be conflicting priorities and future plans for the business between other shareholders and the deceased’s family?
  • How do we make decisions amongst us siblings?
  • What will happen to Mom with Dad gone?
  • How much is the total value of our business?
  • Do we need to sell some properties to pay for Dad’s estate taxes?
  • As heirs, how do we go about getting our inheritance?
  • How much and how do we settle our total liabilities?
  • Where will we get the money to pay creditors? Are our loans secured?
  • Where are the list of assets? Who is in charge of safe keeping the Titles?
  • Who will assume the leadership role?
  • Will suppliers and creditors extend the same credit and terms of business they always have or will they begin to pull back?
  • Will customers maintain their confidence in our products and services?
  • Will key personnel suddenly begin to leave?

It is difficult to imagine, especially after working so hard and then all of these questions are raised because you never planned your death or disability. In unfortunate events like this, businesses are liable to fall apart if the proper planning and agreements are not in place.

Sadly, you are not alone though. In a Wong + Bernstein Advisory internal research, fewer than 30% of business owners have a succession plan in Asia!

You can prevent losing all that you worked so hard with a good and enforceable plan.

The key is preparation! Founders, second generation leaders, patriarchs or matriarchs always think of themselves as superheroes and take the inevitability of death lightly until one day he or she discovers something that will forever change his or her perspective about life and living.

And then in a blink of an eye, the mortal faces death and reflects on the family and the family business and the “what ifs” and the ” what should have been done”.

But in all likelihood, it will be too late.

Thus, it is no surprise that the Chinese saying, “Wealth Shall Not Last Three Generations” will continue to consume and haunt families in the event that death suddenly occurs in the family.

Any death can disrupt a functioning family and can mercilessly cause the family business to jolt and veer off course. At worse, the lack of preparation and the entitlement of the family members can cause the family business to fall apart and disintegrate.

How then should family businesses deal with such a powerful emotional event?

esoriano@wongadvisory.com

Without Communication, There is No Relationship (Part 2)

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“Without respect, there is no love. Without trust, there’s no reason to continue.” This was the overarching message in my last column.

Today’s article will highlight the importance of communication.

In a growing multi-generational family similar to the “A” family featured last week, communication is no longer a benefit, it is mandatory!

This coming June, a timely and very important topic where family members are eagerly looking forward to is the topic related to M&A’s (mergers and acquisitions) and IPO or Public listing. I personally handpicked the topic to create awareness on the need for the family business to understand the concept of enterprise value and also to raise the bar on performance and accountability.

The topic last December was also relevant as the subject focused on the Tax Reform Law and its effects on the enterprise.

And as a fitting finale, being the family’s business coach and growth advisor, I intend to conduct a 30-minute session that focuses on three important areas related to governance.

Three C’s (Communication, Compliance, Commitment), three R’s (Roles, Rules and Responsibilities) and three G’s (Governance, Goals, Growth). 

It is also a wonderful venue in addressing possible questions many families wonder about. How do we educate our family members so that they can be effective owners and contributors to the family legacy? How can family members’ voices be heard if they have issues within the business? Who can work in the family business?

Sometimes, the family decides on a certain philanthropy, foundation or service (community project) to support as well as acknowledge accomplishments and milestones of family members. The last part is spent sharing wonderful stories together.

The meeting usually wraps up in less than four hours. When there are no more issues or topics raised, the whole clan is treated to a sumptuous buffet lunch, the much awaited raffle of travel certificates and their honorarium or per diem for attending.

What the family is employing is a process that prepares and plans the family business’ future. It is called communication. Communication also brings to the table openness and transparency. When these meetings are properly managed, it breeds goodwill, trust and respect both for those active and non-active in the family business.

After helping reverse an emotionally charged conflict among Richard’s children that lasted four years, I felt that creating a communication platform with regular Family and Business council meetings plus a middle of the year gathering was the best “fire wall” approach to deter and eliminate any possibility of renewed conflict.

Additionally, the discipline to meet on a regular basis and the opportunity to embrace “take home values” or new knowledge has positively reinforced their commitment to protect the business.

With a stewardship mindset slowly being embedded among family members, the culture of long term thinking has effectively discouraged personal interests to take root.

Expectedly, while the family continues to experience “rough patches” in terms of their relationships, the fact that they can address the issues in a safe and open manner has given them a certain level of maturity and closeness that was not evident before the meetings were initiated.

For the “A” family, open and honest communication during meetings was the foundation for a better future.

As a final message, do not underestimate the importance of good communication — among members of management, among family members, and particularly between the generations. It is an investment in the future!

esoriano@wongadvisory.com