Tag Archives: Ownership and governance

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.

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End of the Cosmos family business: Where did it go wrong?

I AM back in Manila after a dizzying week of family business coaching work mixed with several conference talks related to governance and business strategy. How I wish there was another day between Saturday and Sunday!

This half year alone, I have been a witness to so many family owned enterprises (FOEs) in Asia groping in the dark on how best to start the governance process. Most of these FOEs are facing challenges in working through their ownership and management transition.

Some would ask the extent of my coaching work in the Asia Pacific, but modesty aside, it’s really not rocket science. It is more of a series of interventions where my goal is to equip visionaries, next generation owners, in-laws and other stakeholders with the tools necessary to ensure their companies’ success and survival.

My role as a family business coach

In a more detailed form, my role is to provide family members a clearer perspective on what option the family business will operate. Will it be business first or family first? Second, I help define the roles and responsibilities of owners, directors, board chairs, the executive team and the family council. This particular task introduces corporate governance amongst family members working in the business.

The third task is to educate family owners by highlighting the importance of aligning and perpetuating the family and business values. These values when embraced by family members will be the glue that will harmonize relationships amongst family members.

My fourth and last intervention is to create clarity and build trust among family owners through governance and ownership. The latter requiring a process of documenting agreements covering family, business and ownership governance.

When all of these four areas are covered and the family members are fully compliant, then I happily exit from the engagement and move on to help the next family business.

Death of the Cosmos patriarch

Such is not the case with the Cosmos Group. The patriarch of the Cosmos Bottling empire, Henry, suffered a stroke due to a malignant tumor in his brain and left him incapacitated until he died a few months after. He was 53.

According to his eldest son Danny, the death was the main trigger leading to the collapse of the mighty Cosmos Group.  But the much bigger issue was the unpreparedness of the family to handle the death of the patriarch, the dynamics of having family members and different branches working in the family business and managing the transition/succession process to the third generation. Henry’s death created that leadership void in the organization.

RFM acquires Cosmos

In Danny’s own words regarding the sell off, “Cosmos was sold for the wrong reasons and for the wrong price!”

The eventual transfer of ownership to the RFM Group concluded the end of the Wong family’s ownership of the Cosmos Bottling Company after only three generations.

Danny went on to pose several regretful questions with the hope that FOEs currently facing their own internal conflict must continue to be determined and unyielding in pursuing governance. No matter what the challenges are, every family member must seek ways to promote harmony.

Where did we go wrong? Why didn’t we see the signs? What should we have done? What can we do? Who can help us?

In my conference talk last week, I purposely highlighted studies that addressed the inevitability of the death of the patriarch and the numbers are alarming. Most family enterprises are highly dependent on their current leader – as much as 80 percent of the business.

But major leadership change in family businesses is forthcoming:

Forty percent of family business leaders will retire in the next five years.

Twenty-eight percent will retire in six to 10 years.

Twenty-two percent will retire in 11 to 15 years.

To this day, most have no contingency plan covering the death or the disability of their leader and only 29 percent have a succession plan. Family business owners see the generation of wealth as the primary role for the business. Preservation of wealth and business succession in the family is a lower priority. These are sad numbers but empirically true.

My advocacy is to reverse this trend.