Tag Archives: Ownership transition

The 70/30 Succession Curse

The month of May has been quite challenging. An ugly feud erupted for control of a family-owned business in country A and I have been requested to intervene.

The sons of the founder are attempting to wrest control of the company from their father. Several thousand miles away in country B, another scenario has befallen another company, this time pitting siblings against siblings after the sudden demise of the matriarch. In both cases, my intervention posthaste was due to recommendations from associates that felt there was still a glimmer of hope for mediation.

The caveat is that should my initiatives fail in the next 12 months; a litigious process pitting lawyers from both sides will ensue. I can almost anticipate a very public mud-throwing spectacle between the warring parties much like the Lotte Group conflict in South Korea and the Philippine’s Ilusorio and Romero family disputes.

In my initial research, the problems started manifesting when the children were forced to join the business without any clarity related to their roles and responsibilities. After the ownership structure was distributed to the children, the plot to unseat their father intensified. I cannot pass judgment nor speculate on the motivation of the four siblings why they rebelled against their father. One thing is clear –– the issues are deep-seated and have created so much strain on the family. The children are now in their early 40’s.

Theoretically, I refer to the first case as rebellious. It is one of the three patterns of ineffective succession where the next generation launches a clean slate approach to the organization as an overreaction to the founder’s control of the firm. As a result, traditions, legacies and even the business model are rejected and discarded.

This case is just one of a handful of unwarranted family squabbles where the children would attempt to dislodge their parents from controlling the companies that the older generation founded. Predictably, these conflicts implode when governance, succession and ownership processes are set aside. And these same type of issues can happen to any family owning business, big and small.

As a family business advisor, I have never been remiss in constantly reminding leaders to initiate the process of succession immediately. Unfortunately, procrastination, an air of invincibility (superman mentality) and an inflated ego can oftentimes obfuscate the founder’s rational mindset.

The facts are clear, seventy percent of wealth and ownership transitions are not successful and seventy percent of family wealth ends with the 3rd generation.

So I am posing a direct challenge to family business owners: Be among the thirty percent who have successfully transitioned their wealth and ownership to the next generation.

One of the worst mistakes entrepreneurs can make is to postpone naming a successor until just before they are ready to step down or when death comes knocking.

Sometimes founders avoid naming successors because they don’t want to hurt family members who are not chosen to succeed them.  Yet, both the business and the family will be better off if, after evaluating the candidates as they work in the business, the founder picks the successor based on that person’s skills and abilities, early enough.

So my advice to business owners in their 60’s and 70’s is to have an open mind on the topic of succession planning. It can be both exciting and daunting at the same time. Daunting as the “letting go” phase for someone else to take over can be initially tough on founders. However, for visionaries dreaming of perpetuating their businesses, they must recognize that this leadership transition is both critical and indispensable.

esoriano@wongadvisory.com  

 

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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