Tag Archives: Sibling rivalry

Rise, Fall and Rise of the EYS Family Business

Asian giant Eu Yan Sang (EYS) International is a traditional Chinese medicine (TCM) provider. The company was established in the late 1870s and has been in operation for 138 years. It is managed by a combination of fourth-generation descendants and professional managers.

This article highlights the complex nature of family businesses and the even more complex and often unwieldy interplay of preserving family values, managing sibling rivalries, personality differences, and reviving a century old business using modern management techniques.

Adding to the 100 year old drama that almost imperiled the business was the murder of Eu Tong Sen’s wife by his brothers, the sellout to an outside investor and the repurchase by the fourth generation members giving back control of the business to family.

Growing the Family Business

In an interview by NUS adjunct Prof Alison Eyring, she asked Richard Eu, the great grandson who led the buyout for his advice to leaders who want to grow a family business…

“Every generation, you’ve got to think what you want to do with the family business. Is your business the right business for the future? Is it more important to preserve the family or more important to preserve the business? That’s a discussion that you’ve got to have within the family and there’s many different parts to this. The family must have ongoing conversations about its future. This isn’t just about the patriarch or the founder – it’s got to include everybody.”

The entry of the fourth generation was a period of ups and downs but would end up as Eu San Sang’s defining moment.

Sell out due to 10 Uncles and 72 Cousins

In one newspaper account, Richard persuaded the board to make him general manager in 1989. But he ended up running  into a brick wall when the clan, comprising of mostly extended family members that included 10 uncles and aunts and 72 cousins, did not support him.

Instead, they sold their shares to the construction company Lum Chang. For the latter, it was a just an opportunistic investment in taking over the company.

Despite losing control, Richard navigated the company to steady growth, with the launch of a breakthrough product, American Ginseng Tea in 1991. The year after, the company listed in the Hong Kong Stock Exchange.

Four years later, Richard Eu and two of his cousins engineered a buy out of Lum Chang’s shares in EYS Holdings – making the firm a family business once again.

Back to Being a Family Business

Expansion went full-blast in Hong Kong, with its facility receiving ISO certification. In the coming years, the company achieved one milestone after another. The company would also end up becoming the majority stockholder of Australian health giant Healthzone.

With the company pursuing online automation for quality control, it aggressively expanded to more than 300 stores and clinics across four continents with $230 million in sales.

Growth and Expansion

Richard acknowledges that professionals are necessary in a huge enterprise, but he once told Asia Society that non-family managers tend to think short-term rather than long-term. For him, family is still paramount.

Since it was publicly listed in 2000, Eu Yan Sang has delivered double digit growth. In its core markets of Singapore, Malaysia and Hong Kong – the business enjoys the largest market share in its sector.

Many thanks to the participants of my Family Constitution seminar (Manila Series) last Saturday at the Tower Club in Makati as well as the participants who attended my talk in Jakarta the week before. These talks are extremely important for business owners in their quest to create a lasting legacy for their enterprises.

(esoriano@wongadvisory.com)

Causes of conflict: Arresting the red flags

WE all know that unhealthy family conflict can wreak havoc in the family and the business. At its worst, it can break both the family and the business apart.

We also acknowledge that there are always challenges and that failure to address the conflict can lead to troubled days, uneasy and sleepless nights, uncertainty in terms of the future direction of the business, traumatic effect on the next generation and the thought that at any time a confrontation amongst siblings can lead to physical violence and irreversible financial losses.

These factors are causing Rey so much stress and insecurity. Inevitably, this will affect his family and the people surrounding him. As a family business coach, I can tell you, family conflict is not just unwarranted, unnecessary, and a waste of energy but extremely debilitating.

The stress can take its toll on one’s health and it just consumes and deprives you of your right to enjoy a meaningful life.

My role is to resolve conflict, mitigate the damage that has been done, educate the undisciplined and entitled family members and encourage leaders to make the sometimes difficult transition from a family-first to a business-first model so they can all reframe their resources towards growth and legacy building.

A reflection of family members in a dilemma

Rey’s predicament is quite too common but extremely challenging and difficult to untangle. This problem should never be ignored and is not simply a matter of sweeping it under the rug. The problem will continue and persist and at some point, will escalate into a conflict amongst siblings, their spouses and children.

But for Rey, he has reached a point where he has to make a choice–to fight or take flight. And he knows that any of the two options have serious consequences.

There are options in resolving this impasse. But Rey has to fundamentally address two conflict situations first.

The first part is dealing with the unfocused siblings who all have shown no commitment and passion in helping the family business grow. To further complicate the process, the three siblings set up businesses of their own so their time is divided. This lackadaisical attitude appears to be deliberate and therefore must be addressed. This is where a family business advisor must step in and seek to resolve these pressing issues:

a. Why have these three siblings not been supportive of Rey?

b. Are their actions deliberate? Collective?

c. Are they sending a strong message that they disliked Rey’s management style?

d. Why have they continued to remain uncooperative?

e. Are these actions their way of protesting Rey’s brand of leadership?

f. Was there a trigger event in the past?

g. Did the siblings behave this way before the patriarch passed away?

h. Why is Raymond supportive of Rey? Is there a tacit alliance between the two?

The other part is in convincing Rey’s mother that having equal ownership is not fair and potentially has a far reaching impact on family relationships and the future of the business.

To be continued.

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Prof. Soriano is an ASEAN family business advisor, book author and executive director of ASEAN-based consulting group, W+B Strategic Advisory. He is also an international business lecturer and professor at the Ateneo Graduate School of Business.
He is slated to deliver a talk to family business owners in Cebu on Feb. 18. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SME’s. Those interested to reserve a slot should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.

 

Family business failures: A serious global concern

IN a well-written article in Vanity Fair, author Suzanna Andrews remarked that Jay Pritzker quietly built an empire of more than 200 companies, including Hyatt Hotels Corp., and a network of 1,000 family trusts.

But one of the patriarch’s final deals before his 1999 death, designed to bind his heirs closer, unleashed a torrent of anger, greed, and betrayal, culminating in a $6-billion lawsuit by his niece.

The death led to a battle among siblings and family members where lawsuits and accusations led to a public battle and the company eventually split up.

External Shock: Family business leaders unprepared for future events

Only a minority of wealthy families retain their wealth position over time. Out of 100 families in the Forbes list in 1999, 64 percent of those in the top lost their position. Of course, their where many external upheavals that took many businesses out of the market the past 15 years, starting with the technological shock in 2000 and the global financial meltdown in 2008 that practically decimated family businesses all over the world.

But the ill-equipped and unprepared successors contributed to the demise of these well-established businesses. The key, therefore, is for business owners to future-proof the organization and be highly innovative.

Changes in the marketplace and the rising global competition have created so much alarm bells for family businesses to start revisiting their business models. There is no other option but to stay relevant and highly competitive.

The numbers in Europe and the declining business succession

My visit to Europe this month to research on family enterprises was very enlightening. In a report by EFB, the umbrella federation of family businesses across Europe, family-owned businesses provides some startling contribution to the European economy:

They represent around 50 percent of Europe’s GDP.

More than 14 million business are classified as family-owned businesses.

They contribute 60 million jobs.

I also discovered that many family-owned businesses in the European Union are unsuccessful in managing intergenerational transmissions and vanish after the first generation. I am not at all surprised.

In one of my family business engagements in London more than a couple of years ago, I discovered that the continued drop in numbers of family businesses transitioning from the second to the third generation already showed worrisome figures.

Germany topped the list with 24 percent left in the second generation and down to single-digits in the third generation. Not a single family business survived the fourth generation.

Still reeling from its exit from the European Union, the United kingdom came in a close second with less than 30 percent left in the second generation and a mere 12 percent going into the third generation, with zero left in the fourth generation.

The trend was similar for French family enterprises but they fared better, posting an above average eight percent, somewhat overcoming the third generation curse. The single digit survival rate however is still bad news for family enterprises.

Sibling Rivalry: A fight for control of the $96-billion Empire

Acrimony and family conflict is a global concern.

Shin Kyuk Ho was born in the southern Korean city of Ulsan in 1922 and founded Lotte in 1948. The business grew from selling chewing gum in post-war Japan to becoming a major confectionery and diversified multinational corporation with overseas branches.

The bulk of its business is in Korea, where it has 80 affiliates in areas ranging from department stores to amusements parks and hotels, with an estimated $96 billion in assets. It is now South Korea’s fifth largest conglomerate.

The conflict started when the founder Shin Kyuk-ho and eldest son Dong-joo visited Lotte Holdings last year and ended up firing six board members, including youngest son Dong-bin.

With his back against the wall, Dong-bin called an emergency board meeting, reinstated the fired board members while declaring the ouster of his father and relegating him to honorary chairman. Having lost his board seat at the family-controlled conglomerate’s lodgings and duty-free sales unit Hotel Lotte Co., the 93-year-old founder filed legal action against Dong-bin.

With the vicious family conflict, the group has shelved a $4.5-billion Hotel Lotte IPO.

To quote Singapore’s Strait Times, “while succession battles are not unusual in South Korea, a son overthrowing his aged father is almost unheard of in a Confucian society where respect is valued.”

On a lighter note, my message to family business owners: the New Year offers new beginnings, fresh starts, reaffirmations of love and harmony so we can all work towards a brighter future!

Will the business end when the cousins take over? (Part 2)

FAMILY business comprises three overlapping circles. One circle is family, another circle is business and the last circle is ownership.

Depending on where you stand on those circles, the issues can be predicted. According to family business expert Ivan Lansberg, the challenge is learning to manage the diversity of people, as more and more of the territories (in the different circles) become populated with family members, cousins, in-laws, etc.

Entrepreneurs and founders in general are fundamentally skilled in running and growing the business but as Lansberg highlighted, “very few people stop to think that families are every bit as important and complicated.”

Founder/Controlling Owner: Unilateral decisions, authoritarian, quick and simple

In the startup days or the stage known as the founder/owner stage, understanding the circle where the owner is easy. One owner, or the spouses, stand in the area where all three circles overlap: they are the family, the business owner, and the management team rolled into one. The founder calls the shots and is revered by everyone in the organization. But clearly, that setup is not sustainable.

Sibling rivalry stage: Consensus decision, diversity, volatile, higher risk of conflict

As the sibling partnership joins the business, the need to create rules on practically all decisions requires consensus among siblings. This can take its toll on the founder. Working in a structure that checks and balances the founder’s authority does not come naturally to entrepreneurs. There will be many cases of conflict related to decision making and overlapping. And as the business gets passed down to another generation, the field becomes more complex.

Cousins stage: Democratic decision, dispersed ownership, rules, fairness, others lose interest

By the third generation, most businesses have evolved into “cousin consortiums” and fragmented ownership and as what Lansberg describes the third stage members.

“They’ll be into the world of coalitions, politics, branches—complex structures that allow the cousins to collaborate.”

In a cousin consortium, the depth of involvement of each of the cousins varies. There are those who would be active in the business and there are those who would be passive. The scope of ownership could also be different. Some of the cousins could be majority stockholders and some could be minority stockholders. In this case, the control over the business would not actually be equally balanced. Therefore, my most basic intervention is for active family members to formulate rules and protocols and align ownerships. Otherwise, expect cousins to draw swords on the most petty issues.

Initiate a governance structure while the parents are still around

As part of instituting changes, it can be expected that certain entitlements of cousins/shareholders, both active and non-working, will need to be clipped as part of putting in place an enforceable governance system. Depending on the degree of civility or acrimony among cousins, I have outlined below several solutions that family members can immediately put in place with or without the need for a family advisor:

a. Engage qualified non-family members. When necessary, invite non-family members/professionals/former senior executives who can serve as advisors or independent members of the board of directors. These professionals would ensure that the objectives of the enterprise would be prioritized minus the emotion and drama that would naturally come from family members. Last year, I endorsed almost a dozen W+B consultants and colleagues from the academe to act as board level advisors or formally nominated independent directors. For family business owners averse or not being use to having non-family members becoming a regular fixture in the board, I or my colleagues would usually assume the role of a family board advisor to provide advise and guidance during meetings where the items in the agenda may be sensitive.

Common examples would be compensation, disciplining a non-family member for non-performance, direction of where the company is headed, etc.

b. Communication and conflict resolution mechanism. It is very healthy to develop open lines of communication among cousins; after all they are one huge family.

However, since they would not be coming from one and the same nuclear family, it would not necessarily follow that they would have the same ideas, background, culture, practices, beliefs, education, skills, levels of understanding and experience. These are all hindrances in achieving an open communication among the cousins but could be managed if they would specifically begin the consortium out of willingness to participate, commitment and respect to each other.

To be continued.