Tag Archives: family conflict

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
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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

The Destructive Effect of Poor Succession Planning

sept 11

Yu Pang-lin

A property mogul has decided to donate his entire £1.2 billion pound fortune to charity, leaving his wife and kids with nothing.

He had a special interest in helping those with cataracts in their eyes. Since 2003, his foundation has helped restore the sight of more than 300,000 people from more than 20 provinces and autonomous regions across China, including some poverty-stricken areas in Qinghai, Gansu, Yunnan and Guizhou provinces.

Yu attributed his desire to help others with his experiences as a young man. In the 1940s, Yu had worked as a journalist and an editor for a newspaper, learning about the hardships of people in poverty. He moved to Hong Kong in 1958, and made a living in the early years with many jobs, including as a cleaner, handyman and construction worker. He later founded his own real estate company, then expanded to other areas, including tourism, hotels and healthcare.

In the 1980s, Yu started donating money to build schools, emergency centres, public bus routes, tunnels, fountains and other infrastructure projects. In 2007, he was on the list of world’s top philanthropists selected by Time magazine.

===

“If my children are more capable than me, it’s not necessary to leave a lot of money to them. If they are incompetent, a lot of money will only be harmful to them,”

Hong Kong Real Estate Billionaire Yu Pang-lin

Yu is the founder of the Yu Pang-lin Foundation dedicated to healthcare, education and disaster relief. He was believed to be China’s first billionaire to donate an entire fortune to charity.

Alarming Number of Family Business Failures

In my work as Family Business coach doing the rounds in Asia the past five years, I have witnessed a rapid increase of family business disputes bitterly adjudicated in courtrooms because of poor governance and harmful wealth and ownership distribution.

In a Family Enterprise Trend report by my consulting firm, W+B Family Advisory, it researched on the average age of business owners who are going through “rush” transitions.

The study showed more than half were 70 years old or more. The firm also identified the top five major sources of dispute:

1. Money as a result of ownership misalignment and wealth distribution

2. Control and Power struggle among siblings and or cousins

3. Poor succession programs that bred conflict

4. Wrong policies related compensation, dividend policies and incentive programs

5. Employment for everyone. Despite their lack of experience and competence, family members are thrust into leadership positions because of their surnames

Summarizing the report and analyzing why conflict and tension happens among these enterprises, it highlighted the following findings:

“Business owners in general procrastinated and did not see the urgency of initiating governance in the early stages of the business cycle. They were just too busy growing the business.

In the latter stages when health issues surface often and disagreements were becoming frequent, owners would suddenly realize that the children were not prepared to assume full control of the business when they (parents) are no longer around. In short, there was a very high probability that these family enterprises were headed to separation due to internal squabbles.”

Litigation Can Scar Family Relationshipsfor Life

My role as governance coach is to prevent and deter senseless and unnecessary family tension from escalating into a full blown and irreversible family feud. That if left to feed on its own, will spill over and convert the courtroom into the next family battleground.

With the exception of lawyers from both sides, nobody wins in a messy litigation process. They are just plain expensive, personal and can scar relationships for life.

Inevitably, whatever comes out of any court case can produce a debilitating effect not just on warring family members but also on the financial state of the enterprise.

Why is conflict pervasive?

As the business leader or visionary gets old, he or she has to naturally pass on the business to the heirs. Unfortunately, many of these owner managers follow certain traditions to a fault.

a. They do not want to see their own business empire falling apart as a result of division of wealth

b. They want their children to stay together in harmony so they can continue the business

c. They have very strong preference towards their male offspring to carry the mandate in the next generational cycle

d. But they are not open to Non family professionals joining the business

e. There are no entry and exit rules for family members and in-laws

To be continued…

(esoriano@wongadvisory.com)

 

Fighting for the throne: A father and son conflict (Part 1)

THE case study you are about to read is a consolidated version of five father-son conflicts that my office, W+B Advisory, resolved in the last quarter of 2016.

The families are dispersed in different parts of Asia but with almost similar dynamics.

For family business consultants helping to untangle this form of complicated relationship, the article is not meant to provide solutions but gives family members a better understanding of the trigger or pain points or to put it mildly, the sources of conflict.

In my years of coaching family businesses, there is really no hard and fast rule nor a one-size-fits all solution. Each family conflict is unique and complex and my singular purpose in writing this sensitive topic is to enable families to act with dispatch when confronted with conflict situations.

Growing number of father-son conflicts

Working with Asian families has afforded me a deeper understanding of the conflict. I have seen, heard and intervened in cases involving parents (mostly fathers) pitted against their children, siblings against siblings, cousins against cousins, family members against in-laws, children against half siblings/adopted children, etc.

I also want to sound the alarm bell: generational conflict involving founders and their children in the Philippines and overseas are growing in number. And to finally put this topic into perspective, this kind of conflict is worth sharing as:

a. It ranks very high in the number of advisory interventions I have had in the past decade.

b. The problems, though complex, are predictable and can be resolved.

c. The protagonists are emotional and defensive and can’t seem to find a middle ground.

d. The complex dynamic of fathers and sons (siblings) is as old as the world.

e. The survival of the enterprise and the unity of the family are at stake.

A story of conflict

Jonathan (not his real name) is a next generation appointed successor, having worked under the tutelage of his father for 19 years in a family-owned trading company.

The business was founded by his father through sheer hard luck.

Jonathan was fortunate to have worked for three years outside the family business right after graduating from a university and if he had his way, he would have wanted to stay longer as a professional. But a call from his father one afternoon changed everything.

He considers joining the family business as his ultimate sacrifice after he ended what would have been a flourishing career as a sales manager of a prestigious business organization.

Fast forward 20 years

At 45 and married with two kids, Jonathan will be celebrating his 20th year next year working for the family business. To borrow a quote from him…

“For many years, I have learned to accept and manage papa’s continuing interference on the way I run the operations, as well as the direction of the business. But in the last two years since papa officially announced his retirement, the arguments have become more frequent and has resulted in unending squabbles. I hate to admit it but sometimes our discussions turn ugly and I feel guilty just thinking about it. Is there a way out of this Prof.?”

Not a week has passed where father and son always end up disagreeing on operational decisions. What originally appeared to be a seamless handover of the enterprise to the next generation has become a difficult one and on the verge of a breakup.

Apart from the heated discussions, profits have generally been flat and employee attrition rate has been registering higher than industry rate since the son assumed the role of CEO.

To be continued.

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He is also an International Business Lecturer and Professor at the Ateneo Graduate School of Business.
He is the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.

Causes of conflict: Arresting red flags (Last Part)

WHY do most family businesses fail? That is the gist of my family session here in the United States East Coast. And I have listed some of the most common causes:

The senior generation leaders ignore family dynamics, thinking that the issues raised are petty. They ignore basic business issues thinking that family members should have special privileges. I call this entitlement, and it’s bad. The senior generation leaders are tax-driven. They are fixated on day-to-day selling.

These businesses have very limited initiative on strategy, structure and human resource. The senior generation leaders rarely involve “the next generation.” Everyone wants to avoid confrontation.

When family members admit committing at least one of these causes, then you can expect trouble to start brewing. It is just a matter of time.

Role of the family advisor

Rey affirmed that his family committed some of the listed causes and admitted that he was lost and helpless right after his father passed away.

I told him that my role as a family business advisor is to create a program, starting with the education of family members on the interrelation of all three governance structures, whose members are expected to collectively coordinate the succession, continuity and leadership processes of the family, business and ownership groups.

Separate yet integrated, the three groups need both a sense of each structure’s importance and sense of what is best for the family business’ overall interests.

Education on governance is key

When the time to gather everyone to start my program came, the four things I reiterated to the family were:

Every family member involved in these governance structures is expected to have important roles and responsibilities during the transition process.

The death of the father triggered an avalanche of change in the family business system.

Everybody is expected to participate with an open mind so they can collectively pursue family unity, a shared vision, shared values, harmony and renewed competencies.

My role is to iron out a fair ownership plan for everyone. Wealth preservation, stewardship and legacy-building are primary objectives.

Nobody wins in a messy family conflict

I also pointed out the downside. Should my intervention fail and the family members refuse to cooperate, the likelihood of the family business failing is high and will result in a power struggle where all siblings will fight for every voting opportunity to assume control.

The result will be so messy that everybody will end up as losers. When discord happens, the family business will break apart and shares will be sold to very lucky non-family investors for a song.

The list of companies who suffered similar fates is getting longer, and among the family businesses I used as unhealthy examples in the past is the case of the Wong Family of the famous brand Cosmos Bottling Corp.

This family conflict stands out

The story of the rise and fall of Cosmos is an all-too-familiar tune for failed family businesses. The patriarch, Henry Wong, at the relatively young age of 54 was given six months to live after doctors discovered a tumor in his brain, leaving the family members unprepared.

With Henry gone and no anointed leader, shareholders and family members started to form alliances within the board. As they mustered voting rights by virtue of their shareholdings, the different branches ended up in skirmishes after constantly disagreeing on how the company would be managed.

Henry’s siblings ended up taking over management, and within a few years the frequency of clashes in and outside board meetings became so acrimonious that, eventually, cracks developed, relationships were strained, shouting matches became louder, and conflict erupted. And as if in unison, everyone in the board scrambled to look for buyers.

After a messy power struggle, the RFM group ended up acquiring Cosmos for less than P1 billion in the 1980s, made a sweeping turnaround, and flipped it to the San Miguel group for a cool P15 billion.

Who helped RFM grow the brand? The eldest son of the patriarch who was bypassed twice by his uncles and my WB colleague and Cebu Managing Director Professor Danny Barrechea.

(esoriano@wongadvisory.com)

***********

Prof. Soriano is an ASEAN family business advisor, book author and executive director of ASEAN-based consulting group, W+B Strategic Advisory. He is also an international business lecturer and professor at the Ateneo Graduate School of Business.
He is slated to deliver a talk to family business owners in Cebu on Feb. 18. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SME’s. Those interested to reserve a slot should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

 

Causes of conflict: Arresting the red flags

WE all know that unhealthy family conflict can wreak havoc in the family and the business. At its worst, it can break both the family and the business apart.

We also acknowledge that there are always challenges and that failure to address the conflict can lead to troubled days, uneasy and sleepless nights, uncertainty in terms of the future direction of the business, traumatic effect on the next generation and the thought that at any time a confrontation amongst siblings can lead to physical violence and irreversible financial losses.

These factors are causing Rey so much stress and insecurity. Inevitably, this will affect his family and the people surrounding him. As a family business coach, I can tell you, family conflict is not just unwarranted, unnecessary, and a waste of energy but extremely debilitating.

The stress can take its toll on one’s health and it just consumes and deprives you of your right to enjoy a meaningful life.

My role is to resolve conflict, mitigate the damage that has been done, educate the undisciplined and entitled family members and encourage leaders to make the sometimes difficult transition from a family-first to a business-first model so they can all reframe their resources towards growth and legacy building.

A reflection of family members in a dilemma

Rey’s predicament is quite too common but extremely challenging and difficult to untangle. This problem should never be ignored and is not simply a matter of sweeping it under the rug. The problem will continue and persist and at some point, will escalate into a conflict amongst siblings, their spouses and children.

But for Rey, he has reached a point where he has to make a choice–to fight or take flight. And he knows that any of the two options have serious consequences.

There are options in resolving this impasse. But Rey has to fundamentally address two conflict situations first.

The first part is dealing with the unfocused siblings who all have shown no commitment and passion in helping the family business grow. To further complicate the process, the three siblings set up businesses of their own so their time is divided. This lackadaisical attitude appears to be deliberate and therefore must be addressed. This is where a family business advisor must step in and seek to resolve these pressing issues:

a. Why have these three siblings not been supportive of Rey?

b. Are their actions deliberate? Collective?

c. Are they sending a strong message that they disliked Rey’s management style?

d. Why have they continued to remain uncooperative?

e. Are these actions their way of protesting Rey’s brand of leadership?

f. Was there a trigger event in the past?

g. Did the siblings behave this way before the patriarch passed away?

h. Why is Raymond supportive of Rey? Is there a tacit alliance between the two?

The other part is in convincing Rey’s mother that having equal ownership is not fair and potentially has a far reaching impact on family relationships and the future of the business.

To be continued.

***********

Prof. Soriano is an ASEAN family business advisor, book author and executive director of ASEAN-based consulting group, W+B Strategic Advisory. He is also an international business lecturer and professor at the Ateneo Graduate School of Business.
He is slated to deliver a talk to family business owners in Cebu on Feb. 18. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SME’s. Those interested to reserve a slot should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

 

Real causes of family conflict

Dear Prof. Soriano,

Happy New Year to you and your family!

I am a regular reader of your column for the last two years and I always look forward to reading your very informative weekly article.

It has been a habit of sorts to share your weekly article to friends who are also working in their respective family businesses. We even went one step further, we collated your articles and use them as self-help materials during informal gatherings. It has been a wonderful guide for all of us.

We hope and pray that you never stop sharing your wealth of knowledge to family business owners and exude the same passion and advocacy for many more years!

Sincerely,

Rey

THE letter was sent to me right after the holidays but I have observed that in the recent past, I continue to received countless letters bearing the same message but with varying degrees of fear, anger, agitation, anxiety, uneasiness and the feeling of hopelessness coming from the letter senders.

So instead of responding to each letter, I decided to consolidate and make a story with a similar theme using another industry, different names and number of siblings to hide the identities of the letter senders.

Modified story of Rey : A volatile conflict waiting to explode 


I have been wanting to email you since October but due to the pressures of work and the long holiday preparation, I never had the opportunity. Lately, through the advice of my friends and the stress this new problem has been causing me, I finally decided to email you about our current situation.

There are five siblings (Rey, Ralph, Rowen, Rachelle, Raymond) in the family and we are all active in the family business. The word active is relative though. You will find out in the succeeding paragraphs.

After heeding your advice (reading from your articles) related to aligning the ownership structure, I and my brother Raymond took the opportunity during the Christmas celebration to talk to our mother primarily on the need to start the process of working out an ownership transfer.

For your reference, my father passed away a year and a half ago and my mother suffering from various ailments, is in her mid-70s. With her weak condition, we thought it best to tell her about our plan.

Conditions for ownership transfer

When we explained to her about the ownership transfer, we were both surprised that she readily agreed to start the process subject to three conditions:

a. That I will be officially appointed as the successor, following the desire and wish of Papa. It was clear from the start when I was invited by Papa to join the family business more than 19 years ago. Being the eldest and the most experienced, Papa trained me in practically everything related to running the business. My siblings collectively acknowledged this and it was just a matter of time when I will end up taking over the mantle of leadership. My mother’s statement made it official.

b. The family business must continue and the next generation (second generation) will ensure that the legacy will transition smoothly; and

c. Ownership of the business will be divided equally at 20 percent per sibling. This last condition floored me and this is the very reason why I finally summoned the courage to write you a long email.

Being fair is never about equal ownership

My mother insisted that we each own 20 percent of the stock. Her insistence of equal ownership shocked me. I was unable to think nor react because I was so upset!

Raymond felt bad as well. He even tried to argue and justified why I should own more shares but she stood her ground and even reminded both of us that it was Papa’s dying wish with the hope that it will create harmony in the business.

To be continued.

(esoriano@wongadvisory.com)

***************

Prof. Soriano is a National Agora Awardee for marketing excellence, an ASEAN family business advisor, book author, and executive director of ASEAN-based consulting group, W+B Strategic Advisory. He is also an international business lecturer and professor at the Ateneo Graduate School of Business.
Prof. Soriano will be in Cebu in February to deliver talks to family business owners. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SMEs. Those interested to attend should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.