Tag Archives: Patriarch

The destructive effect of poor succession planning (Part 2)

sEPT 18

Ensuring the solvency of a family business

Note that succession planning is not about just sending the second and third generation to the top schools. It’s about careful career planning and skill development, and more importantly, it is about making sure that the core processes in the company, including governance, communications and decision making, are such that they support succession planning. Key areas that often are in the center of this are intra-company communication routines, decision-making processes, documentation, and sharing of information.

Corporate governance, growing pains, and your family business 

Instilling corporate governance into the business model is more of a mandatory thing, rather than just a benefit. Without proper governance, a company (be it family-owned or not), can simply not survive.

The growing pains are that usually switching from the first generation “entrepreneurial” style to proper professional grade succession planning requires a major change in mindset.  Sometimes this is only possible in conjunction with the actual generation shift. However, it is much better if succession planning and governance are already addressed within the time of the first generation. This way the process is smoother and has a better likelihood of success, success including also preserving good relationships across the family members throughout the process.

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While some initiatives in my previous article including the list below are instinctively noble, Family Business author Dr. Fan refers to these leader aspirations as “wishful thinking”.

a. Family gene pool is limited but Patriarch is not keen on hiring Non Family professionals

b. Typical of founders, they would express their desire to retire but the patriarchal shadow continues to cloud the next generation members’ decision-making

c. They apportion their wealth equally resulting to a divisive and disunited next generation shareholder group where decisions are stalled

d. Patriarch will delay succession plans because of the fear of losing control

In most cases, family members who have been sheltered often want to sell the business and move on right after the death of the patriarch or matriarch.

Similarly, some leaders (especially the conservative owners) even pass away without making a will. This leads to bitter feuds and will be even more complicated and severe if the founder has several wives.

Flying Away from the Nest

Finally, with the patriarch gone, the untrained and entitled next generation members will end up clashing amongst themselves.

Limited decision making and the lack of any form of hardship experience while growing up under the shadows of their overprotective parents will take its toll on the business.

With their roles undefined for years, there is the likelihood that heirs will be confused amplified by an unproven management skills set.

Compounding the lack of preparation is when they discover that the business has liabilities (debt load) and a looming creditor intervention to exact pressure on the new leadership.

With all the problems besetting the enterprise, the natural option for heirs will be to opt out by selling their shares, effectively absolving them of any form of “hard work”. In the end, the preference to just “live the good life”becomes insatiable.

Can the bleak situation still be reversed?

This scenario is repeated many times, thus it is no secret that business owners go through many sleepless nights blaming themselves for creating entitled children.

I consider this pervasive problem one of the biggest dangers faced by family businesses in Asia where owners attempt to self-medicate by way of offering more perks to family members hoping to motivate them. The problem is in the manner the perks are equally distributed whether to the deserving, capable or inept. The other problem is whether the perks should be given in the first place.

This practice will certainly guarantee failure after failure as the incentive will translate to more entitlement for the next generation of untrained family members.

It now becomes a vicious cycle of generational tension and sibling rivalries. In the end, the business owner will end up struggling with governance, leadership transitions, ownership conflicts and even survival.

At this juncture when the patriarch or matriarch, by reason of age, rushes the process of turning over the business to the next generation and discovers their ineffective or feeble judgements, the parent will end up extending his reign until he succumbs to pressure, old age, stress and death.

There is Still Time to Exact Good Governance

It is absolutely impossible for family businesses to manage internal talent (both family and non-family) and or attract the best non-family professionals without setting up a governance best practices program.

The key is to separate the family and the business and ensure independent oversight from a professional board.

To be continued…

(esoriano@wongadvisory.com)

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LINK:

https://www.entrepreneur.com/article/254614

 

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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.

Death of the patriarch: Are we prepared?

“The sudden death of Henry Wong at 53, the acknowledged patriarch of the Cosmos Bottling family business, is a reminder that all of us–no matter how much we’ve accomplished and what we’ve built for ourselves–are mere mortals.”

WITH the death of the patriarch, is it the beginning of the end for the family business?

Visionaries and 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 the 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. 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? Allow me to continue with the third part of the Wong Family story with the hope that family members, especially those that are actively running the business, will finally take to heart the importance of preparing for a future event like the death of the patriarch or any family member.

The Cosmos Bottling story

It was a decision that Danny respected, knowing fully well that he was still “wet between the ears”. In short, Danny was barely a year in the business and, despite having an MBA under his belt, he still lacked the experience in leading a big organization. So the board chose an outsider in the person of William Ma Padua, an uncle and a professional rolled into one.

In the words of Danny, “Uncle William empowered the younger executives to make decisions and encouraged them to learn from their mistakes. He set the guidelines and we worked within the guidelines. The business grew and we continued with our expansion.”

But another unexpected crisis happened

After ten years of continued growth, William, in one of his visits to the US, suffered a mild heart attack and immediately decided to “call it quits”.

With the vacuum created by the untimely resignation of William and to avoid choosing one nephew over the other, the siblings of Danny’s father decided to let the number two brother, Hubert, who was the chairman at the time, assumed the presidency. Danny was again bypassed and refers to the decision of the uncles not only “unfair but clearly an emotional one.”

A test of character, credibility and competence

Danny went on to share his frustrations about Hubert. ”Can a person without a college degree, did not succeed in business, lacked human relations skills, stubborn, and who believed that he was always right but afraid to make important business decisions, run a family business made up of people from different families? My uncle was all of the above!”

The management was so demoralized, especially the family members working at Cosmos. Instead of solving relationship problems, Hubert would challenge family members who did not like the way he run things to quit or sell out if they can find a buyer, and that is what the other family members did.

With the squabbles happening almost regularly and the disputes continued with increasing acrimony, coupled with shouting accusations during board meetings, the situation reached a boiling point that prompted family members to entertain the idea of selling to outside parties.

So when offers came, the disgruntled members grabbed the opportunity and sold the majority shares of the company. In Danny’s own words, “Cosmos was sold for the wrong reasons and for the wrong price.”

The eventual transfer of ownership to Joey Concepcion of the RFM Group concluded the end of the Wong Family’s ownership of the Cosmos Bottling Company after three generations. The Cosmos family business died under the failed leadership of the second and third generation family members.

Cosmos would have celebrated their 98th year in business this year.