Tag Archives: family member

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.

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Role confusion is dangerous

The C Family Business is a 52 year old manufacturing firm with operations in Southeast Asia and currently being managed by three branches belonging to the second generation.

There are a total of fifteen second and third generation family member employees-managers actively working in the business and their positions range from the President all the way down to the operating business unit managers.

My engagement was particularly challenging as the active third generation family members (cousins) were already on the brink of a major conflict. The only glue that held the family together then was the closeness of the second generation siblings.

In the course of my initial assessment, I felt that the way to move forward was to transition the enterprise from a family first to a business first mindset while addressing a slew of predictable problems related to entitlement, conflict of interest, envy and a sense of “owner mentality”. In-law participation was also slowly emerging as an added source of acrimony.

A Culture of Apathy and Indecisiveness

To avoid addressing these numerous conflicts head on, the three siblings chose to “sweep these problems under the rug” and looked the other way. This feeling of apathy made my intervention very difficult.

On the one hand, it was a tug of war of sorts between my role as family business coach and my singular resolve to put systems and accountability in place guided by the family’s dream of someday becoming a professionally-run, publicly listed and family inspired enterprise.

On the other hand, I was also confronted by every family members’ dilemma and reluctance to cut loose from the entitlements and perks they have gotten used to for many years! It took me all of two years to finally gain some headway.

Successful Intervention must be processed-driven

So what was the formula for success? Fundamentally it centered on eight crucial areas:

a. A collective decision to stop procrastinating and finally move forward to engaging a third party family business coach;

b. Established Rules and getting everyone to come to the table and agree on Governance;

c. Created a Shared Vision with the same set of values espoused by the founder

d. Initiated the implementation of the Agreed Principles immediately right after the signing of the Family Constitution;

e. Activated a working Board Level Governance;

f. Pursued Accountability where any breach by any family member will mean disciplinary consequences;

g. Educated everybody (Family and Non Family Employees) that ownership is different from management

h. A lot of patient capital from all stakeholders

To quote a portion of the email that Benny (the 37 year old grandson and eldest 3rd Generation family member) sent to me together with his Easter Sunday greetings a few days ago:

“Happy Easter Coach! We remain thankful for your continued guidance in making us realize that yes family is family, but business is business. At the onset, we disliked you for insisting that we all focus on governance and pressuring the family to comply but over time we eventually appreciated what you have done.

The realization happened when you insisted that we go through the process of several sessions in crafting the family agreements. The next change was when you asserted that the family council be activated right after we signed the family constitution as it squarely addressed family member roles and entry policies in joining the business. In short, everyone without exception understood that we needed to adhere to the same rules as anybody within the company.

To be continued…