Tag Archives: Prof. Enrique Soriano

Without Respect, There is No Love

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“Without respect, there is no love. Without trust, there’s no reason to continue.”

This is a powerful quote from Paul Chucks that must resonate to all family members torn by strife and conflict. It is also a timely reminder as we celebrate the month of hearts!

For the past six years after its founder Richard’s passing, the “A” family typically gathers for their mid-year family and business council meeting every third Sunday of the sixth month. The family calls it Code 36 representing the third Sunday of the sixth month. It is an event combining family and business performance review with a segment on ownership alignment. I normally add flavor by injecting governance, strategy and growth during the session.

This activity is separate from their regular family and business council meetings. In the Family Constitution that my advisory firm, Wong Advisory drafted six years ago, the members of the Family Council must meet for a total of 20 hours a year spread over five to six meetings while the Business Council members are required to meet every month.

My firm added Code 36 together with the other governance councils before the founder passed away primarily because the family and the business almost fell apart due to major conflicts on many areas (entitlement, in law participation, decision making, power struggle, conflict of interest). The infighting was so intense that it grounded the business to a halt for several years and caused so much heartbreak for the founder. 

In this year’s forthcoming gathering, a total number of 23 members of the second and third generation are expected to attend. Their age ranges from 61 to 15 coming from the founder’s five children and their families. Those below 15 years old can join but are not obligated to be in the function room.

Relevant topics are sorted months before but the objectives are four fold:

  • Evaluate the state of family and the business
  • Review mid-year performances of the operating units
  • Develop long-term goals for the business
  • Evaluate policies to govern family- business relationships

The overarching core messages remain the same and revolve on five powerful values handpicked by the founder himself: Communication + Respect + Trust +Unity = Growth

Just like the last gathering in December, the meeting usually starts with the clan’s Gen 2 anointed leader reiterating the family’s shared vision and values and a story about the growth of the business since its humble beginnings in the 1960’s.

The objective is to remind the younger generation and the extended family members how their grandfather Richard and his wife jointly founded the business through hard work and honest dealings with customers and suppliers. Then a short seven-minute video of the family history will be played. The emotional video instantaneously reconnects the deceased founder to all the members of the two generations and reminds everyone that through regular and open lines of communication, the family enterprise can overcome temporary setbacks.

After the talk, a Gen 3 member usually in charge of finance will report how the business performed over the last quarters and the outlook for the succeeding quarters.

Then the legal counsel, a non-family professional will then provide a quick review of the ownership structure by way of educating newly inducted family members on the importance of stewardship as well as shareholder qualifications and responsibilities. Recently employed family members are those who were invited, signed the constitution and are now full-fledged family assembly members.

To be continued…

esoriano@wongadvisory.com

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Unlocking Your Full Potential

In one of my coaching engagements for a mid-sized family business last year, I recall censuring a next generation business leader in a QBR (quarterly business review) for failing to deliver on his performance targets.

The results were dismal and instead of owning up to the debacle, he ended up pointing fingers at his subordinates. While he was trying to absolve himself of any responsibility, I stood up and showed him two slides.

Slide 1 came from Tom Landry

“A Coach is someone who tells you what you don’t want to hear, who makes you see what you do not want to see, so that you can be who you have always known you can be.”

Slide 2 came from lightboxleadership.com

“Accept Responsibility for your actions. Be Accountable for your results and Take Ownership of your mistakes.”

The role of a Business Coach is to challenge business owners by way of visioning, accountability and encouragements. It also helps organizations enhance their operations, sales, marketing, management and so much more. Most importantly, just like a sporting coach, a Business Coach will make you focus on the game.

Business coaching is extremely effective in creating successful actions designed to move the business owner in a positive direction.  It is the partnering of client and coach in an extraordinary relationship aligned towards achieving big goals set in milestones. In my years of experience coaching organizations all over the world, a good example of a focused plan is to align organizations and its executives toward a possible listing in the stock exchange in the immediate future.

So, what exactly is business coaching?

Business coaching is for clients who are READY to make changes and improvements in their business. It gives the entrepreneur a business partner who doesn’t necessarily share in the business profits.  Anyone who’s ever had a business partner knows that partnerships are rarely equal. With a Business Coach, you’ll receive unbiased strategic advice for a retained monthly fee usually covering a number of hours, not 50% of your profits.

Business coaching is about SPEED, ACTION and ACCOUNTABILITY. Think about all the workshops and conferences you have attended where you learned a new technique or strategy that was never implemented. Your Business Coach will help you get it done and hold you accountable, but you must be ready to take action. The client does the work, not the coach.

Business coaching CHALLENGES the status quo and exact GOVERNANCE. Your Business Coach asks, “What are your challenges?  What are you NOT doing?  When are you going to do that?”

Business coaching promotes CLARITY OF ROLES between the owner and the professionals consistent with corporate as well as personal values.  When your values are aligned with your business, greater success is possible.

Business coaching helps the business owner create a SHARED VISION AND MISSION for the organization.  A business owner with a Vision is much more likely to succeed than one that doesn’t know where he’s going.

Business coaching helps the business owner identify OPPORTUNITIES.  A Business Coach can help you to see an opportunity you may have passed up.

Business coaching helps the business owner see his business through a DIFFERENT PAIR OF EYES.  A Business Coach can see what you don’t see.

Business coaching brings out the BEST in the entrepreneur.  Have you ever had someone truly interested in your success? Business coaching will push you out of your comfort zone, take you to your limits and in the end you will embrace it!

Taming the Black Sheep

When parents are not united in their words and actions, display conflicting messages and continue to tolerate the black sheep family member’s damaging actions, Prof. Eddelston correctly painted two scenarios:

  • The black sheep or “Fredo” will either withdraw from the family business and/or;
  • Lash out with selfish behaviors in an effort to gain compensation for their circumstances

Another aggravating scenario that will further add strain to the family is the tendency of the children to pit parents against each other.

On one hand, a parent, usually the mother, has the natural tendency to coddle underperforming family members by way of covertly supporting the children (financial and advice) often against the wishes of the father who in most cases is the disciplinarian.

Unknowingly, the actions of the coddling parent (rewarding/reinforcing bad behavior) will eventually lead to more problems effectively undermining an already strained relationship among family members.

On the other hand, the children who have communication issues with the stricter parent will gravitate to the coddling parent resulting in real conflict and constant clashes between parents and the children.

To mitigate the tension, the family will “sweep the issues under the rug”, ignore the tension and for most family members, would rather just “suffer in silence.”

This unstable “ceasefire” will allow a semblance of numbing peace but it will only be temporary. When a sensitive topic is raised and a raw nerve is touched, expect an avalanche of problems to come out in the open and a new round of discord is activated.

With the “elephant in the room” becoming so big but deliberately ignored, stress levels will continue to surge and one trigger, just one, can discharge another round of infighting. This event, if left unresolved, becomes a vicious cycle that consumes and zaps the energy of every family member.

At this juncture, the family is in a state of helplessness and on the brink of finally “throwing in the towel.” When left unresolved, this negative energy spills over to the business.

Unfortunately, when the parents are already old or are gone, you can expect the children (and in-laws) to slug it out, employing higher levels of relationship conflict. With their newly inherited ownership rights, the problems are compounded and another bruising conflict awaits the siblings. This highly charged situation becomes a precursor for family members to sell out and marks the beginning of the end of the family business.

Do you want to have a united and harmonious family? Do you want family members to become responsible owners and stewards? Eddelston offers some advice in dealing with black sheep and underperforming family members.

First, confront the child, either one-on-one or through an experienced advisor. Sometimes children do not realize the harm they bring to the family and the business so articulating the family’s clear position is important. Show that the bad behavior has major consequences and expulsion, suspension or demotion are options available.

Second, give the child another job – one that better suits his/her interests and experience. Sometimes an otherwise “good” family member can seem like a black sheep because the person is ill-suited to the industry and business.

Third, consider firing or buying out the child’s shares. Unfortunately, in reality, there are also situations when firing him/her is not practical since the person does not have career options and needs to provide for a family.

You are not alone. Having a black sheep family member is universal. Initiating these actions are unpleasant but in the end you just have to do what is best for the family and the business.

The Destructive Effect of Poor Succession Planning

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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.

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“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)

 

Businesses Must Aspire to Reach 100 years (Part 2)

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Cosmos Bottling Corporation

One of the more popular alternative soda brands in the Philippines after the war was a product of the Manila Aerated Water Factory, located on Misericordia St., Manila. It was founded way back in 1918 by Wong Ning, a Guangdong native who migrated to the Philippines.

The eldest of his 7 children—Henry Gao-Hong Wong—rebuilt the business post-war and renamed it in 1945 as COSMOS Bottling Corporation. Cosmos is the first softdrink manufacturer in the country.

Among its branded products include Pop Cola, Sarsi, Cheers Lemon, Orange and Ruby, Jaz Cola and Sparkle. Sarsi and Sarsi Light are directed at the Class A and B markets while Pop, Jaz, Sparkle and Cheers brands are primarily marketed to the Class C and D segments.

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TORONTO, CANADA According to the Family Business Institute, only 30% of Family Business organizations last into the second generation, 12% remain viable into the third, and 3% operate into the fourth generation or beyond.

Family businesses face major challenges in working through ownership and management succession and family business leaders acknowledge the problem. However, few know where and how to develop a Governance and Succession plan. Let me continue part 2 of the article.

b. The Romero Group, a Philippine conglomerate with interests in construction and port services, got thrown into a turmoil when the son allegedly refused to cede control of the port business to his father. This led to a volley of court cases filed between them amid allegations of fraud, betrayal and financial improprieties. The son was a co-faculty at the ATENEO Graduate School of Business in the late 90’s and the father, a colleague in another business association. Common friends asked me to intervene but it was too late. The lawyers were already swapping accusations and the courts ended up taking over jurisdiction over the brewing conflict.

c. Another Philippine company is Manila Cosmos Aerated Factory, a beverage company started by Wong Ning in 1918 and successfully steered by the second generation only to fail in the third generation due to the sudden death of the patriarch and the lack of succession planning. This led to a power struggle between the uncles and the cousins ending with a sell-out to the RFM Group. Cosmos would have celebrated their 100th year next year. The third generation leader, Prof Danny is one of W+B’s Family Business advisor.

d. Family conflict is universal. In the US, the New England grocery chain Market Basket faced six weeks of mounting employee protests losing a hefty $583 million in sales as two cousins-both grandsons of the founder—publicly and bitterly fought for control of the company. The employees refuse to follow the directives of the newly installed CEO after removing his cousin Arthur T. Demoulas.  With pressure coming to a head, the feud ended with Arthur T, initiating a buyout and reclaiming his old post as CEO of Market Basket.

I have written in my column successful cases of family owned businesses overcoming hardship and triumphantly extending the founders legacy (Eu Yan Sang, Royal Selangor).

Visionaries need not go through the same periods of adversity.To preserve their wealth, theymust initiate governance and succession at the onset and not when they are old, sickly and dying.

Imagine the benefit, if the company mastered the art and science of governance, people management, leadership development, and succession practices?

Imagine the enormous rewards, if governance is reinforced with a shared vision supported with powerful values that the founder passed on to the next generation.

Imagine legacy-building benefits, if the founder put in motion the training of the next generation leaders so they can wholeheartedly embrace the value of fairness and meritocracy and the importance of making decisions based on “what is good for the company”.

The real challenge is to make every family member and future stakeholders understand early on the all-important concept of stewardship rather than ownership.

How? By learning from the best in their class… large family-owned businesses and their leaders that have defied the odds, went through rough patches in the second generation, summoned extraordinary strength to set things right, and deftly overcoming the third generation curse. They continue to prosper with some becoming certified century-old organizations.

Governance and Succession is non-negotiable. It is your wonderful gift to the next generation!

(esoriano@wongadvisory.com)

 

138 years of murder, sellout, buyout, growth

THE Eu Yan Sang Group is one inspiring family enterprise and undoubtedly deserves to be in the top spot of my Family Business Longevity Series because of the resiliency and resolve of the fourth generation members to regain control, where they ended up owning the majority shares after engineering a buyout from an outsider/investor.

It is a classic “stalls to stars to almost stalls and back to stars” turnaround story!

According to an account by Rachel Cheung in the South China Post, “despite years of family strife, the murder of the founder’s wife by her brothers-in-law and a takeover by a Singapore investment group, traditional Chinese medicine maker Eu Yan Sang has survived and flourished as a Hong Kong icon.”

Founded in 1879, Eu Yan Sang is Asia’s leading brand in the healthcare industry, with a core focus on traditional Chinese medicine (TCM). They market quality Chinese herbs, Chinese Proprietary Medicines, as well as health foods and supplements, offering more than 900 products under the Eu Yan Sang brand and sub-brands plus over 1,000 different types of Chinese herbs and other medicinal products.

The company’s ability to control the total supply chain enabled it to expand across Singapore with more than 50 retail outlets in major shopping malls and residential estates.

Overcoming years of strife and betrayal, the Eu Yan Sang Group is celebrating its 138th anniversary this year. It is now being run by the fourth-generation family members headed by the savvy and daring Richard Eu, two cousins together with institutional shareholder Temasek Holdings & Tower Capital.

In the 1870s, founder Eu Kong Pai, better known as Eu Kong, left the village of Foshan in Guangdong, China and settled down in the small mining town of Gopeng, Perak (now Malaysia). After failed ventures in a bakery and a textile dyeing business, Eu joined thousands of Chinese miners on a tin rush and noticed that his fellow mine workers were heavily dependent on opium as the easiest method for immediate relief for their medical needs.

He decided to start selling traditional Chinese herbal medicine using the ancient recipes that had been passed down through Chinese culture. Eu Kong opened his first Chinese medicine shop in 1879 in Gopeng.

In a 2009 biography by Ilsa Sharp about his son, Eu Tong Sen, the father was pictured as a savvy entrepreneur, acquiring land that was rich in tin deposits. Eu Kong eventually became a prominent businessman, supported by his second wife Mun Woon Chang, a well-connected Nyonya (female Malacca Strait-born Chinese).

The book also recounted that Eu’s success was short-lived. A disease suspected as smallpox, claimed his life at the age of 37. All his possessions went to Mun, triggering the envy of his two gambling addict brothers, who murdered her by lacing the family dinner with poison during a visit to China.

Sixteen-year-old Eu Tong Sen, who inherited his father’s business, narrowly escaped death himself. Toughened by the traumas of his early life, he went on to become one of the richest men in Southeast Asia in the early 20th century, owning tin mines, rubber plantations, properties and even a bank.

To be continued…

(esoriano@wongadvisory.com)

Only One Child Inherits (Last Part)

NAIROBI, KENYA. We have all heard about the 3rd generation curse and are familiar with the grim statistics that only 3% of all family-owned corporations make it into the fourth generation.

I am in Nairobi now for a week-long World Bank/IFC mission to promote corporate governance amongst East Africa’s aggressive family owned enterprises and I would frequently challenge business leaders to ponder on the unique Japanese approach to longevity especially for the Toraya Group.

Five hundred years later, Toraya continues to stand tall above other family owned enterprises with the current proprietor belonging to the 17th generation, ably supported by the next in line successor-son Kurokawa Mitsuharu.

How did the family business managed to navigate the business amidst an emotion-driven enterprise where family relationships always come first over business?

The “ie” concept, unique only to Japanese family business community immediately comes to life.

Non-existent to the western world, the concept in a patrilineal household, is at the core of the traditional Japanese family and is based on a forefather or primogenitor model.

In this ecosystem, only one child inherits. All of the other children in any generation are expected to eventually leave the family and go on to establish themselves in some other institution. The chosen successor, usually the eldest son, inherits the family and everything to do with the family, and the rest of the children have to find their own way in the world.

In theory, the “ie” should last forever and in principle never dies. Japanese culture plays down the role of the individual and places significance on the importance of conformity and the success of the group.

The primary objective of an “ie” is to preserve the clan. Therefore, it entails: (1) long-term planning, (2) priority to market share, rather than profit, (3) weak shareholder position, (4) resisting mergers and acquisitions, and (5) displaying, even more, strength in the face of adversity.

Since the company should last forever, a Japanese family business based on the “ie” principle will have very few disturbances from misalignment or possible frictions between the different family circles.

The Chairman/CEO and head of the “ie” is usually in full control and the family is programmed to support him in any possible way.

In case there are no children or the offspring of the owning family is not willing or capable to fill the position, the head of the “ie” can rope in an outsider via adoption.

This centuries-old adult adoption practice in Japan was developed as a mechanism for families to extend their family name, estate and ancestry without an unwieldy reliance on bloodlines.  The Chairman/ CEO of the “ie” can substitute his own bloodline with a competent person that he likes.

By choosing a “mini-me” he can ensure the survival of the business and bar incompetent heirs from ruining the family lineage. The effect is twofold: (1) his own children will be much more aligned to the overall business goals; (2) he signals to his employees or talent pool that they also have a theoretical chance to make it big.

It is the unwritten spirit of “ie” and truly lived unity that is powerful. Written agreements are important, but worthless if the core “ie” does not exist.

This addresses the question why Japan has 7 out of the 10 oldest companies on the planet and also has the highest concentration of old family businesses by any measure such as GDP, population, and land mass.

(esoriano@wongadvisory.com)