Tag Archives: Successor

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)

Are Business Owners Doing It Right? (Part 2)

  • Do you think your children are dedicated in pursuing business continuity?
  • Are your children qualified to assume leadership roles?
  • Do you have rules for in-law participation?
  • Have you already identified a successor?
  • Do you have a succession plan in place?
  • Do you honestly believe your eldest child is the most qualified? 
  • Are your children entitled? Were there rules when they joined the business?
  • Did you require them to work outside the family business before joining?
  • Are you compensating your children commensurate to their skills and annual performance?
  • Does an HR policies cover family members? Does your HR Manager have the power to discipline family members?
  • Have you established criteria for family members owning shares? For selling shares? Assigning shares? Encumbering shares? Selling to siblings or other branches?

If you answered “NO” to just a handful of the questions above, sadly your family and the business may be headed to a bruising conflict.

If you sense the undercurrents and tensions building amongst family members now, it is wise not to disregard them. As their leader, do your family a big favor, fix the problem. If you cannot fix it, find someone who has the competence, experience and objectivity to help.

Let me take this opportunity to say that this extremely sensitive subject will be highlighted and discussed in my one day workshop in Cebu on Saturday, May 20 at City Sports Club.

The simmering tensions are telltale signs of a “baby elephant in the room”. Ignore these issues and the family and business will suffer. You might think that these issues will heal over time. It will not. As a matter of fact, the conflict will manifest in many forms and through time, implodes as you start losing your grip of the business due to advancing age or when you are no longer around to make important decisions.

It is obviously clear that these problems surfaced many years ago and you brushed them aside. These problems relate to entitlement, sibling rivalry, generational conflict, conflicting interest, in law and cousin participation.

When you procrastinate, the problems are magnified, emotions takes center stage, entropy pervades and battle lines are drawn.

Emotion and entitlement

At this juncture, legal intervention assumes a more active role and my capacity and influence as a family business coach diminishes. As family business advisor, our governance intervention is more effective if lawyers are kept out of the conflict.

Immediately right after helplessly watching his children bitterly fought for ownership and control of the business he started 50 years ago, a client confided to me:

“Prof, I failed as a parent. How I wished I were poor again. I never expected that the wealth I created has cause so much pain and misery amongst my children…we used to live simple lives but things have changed, all because of greed and pride!”.

If I hasten to add, emotion and entitlement remained as aggravating circumstances to any conflict.

With no policies in place, it will be overwhelmingly tough for the family to move forward in one direction.

I can go on and on with more nagging questions but inarguably, it will still reflect on the most fundamental question for family business owners…

“Are you doing it right? If you think you are not doing enough to ensure your legacy, do you plan to urgently do something to create harmony amongst family members?”

It is not too late though. There is still time to do something right but you must start the process now!

(esoriano@wongadvisory.com)

*****

Prof Soriano is slated to deliver a talk to family business owners in Cebu on May 20, 2017. The talk this month is part of W+B Cebu’s advocacy campaign related to Family and Business Governance. Seats are limited. Those interested to reserve a slot may call Octopus Events at 09159108686 and look for Ms. Cherryl.

 

Fighting for the throne: A father and son conflict (Part 1)

THE case study you are about to read is a consolidated version of five father-son conflicts that my office, W+B Advisory, resolved in the last quarter of 2016.

The families are dispersed in different parts of Asia but with almost similar dynamics.

For family business consultants helping to untangle this form of complicated relationship, the article is not meant to provide solutions but gives family members a better understanding of the trigger or pain points or to put it mildly, the sources of conflict.

In my years of coaching family businesses, there is really no hard and fast rule nor a one-size-fits all solution. Each family conflict is unique and complex and my singular purpose in writing this sensitive topic is to enable families to act with dispatch when confronted with conflict situations.

Growing number of father-son conflicts

Working with Asian families has afforded me a deeper understanding of the conflict. I have seen, heard and intervened in cases involving parents (mostly fathers) pitted against their children, siblings against siblings, cousins against cousins, family members against in-laws, children against half siblings/adopted children, etc.

I also want to sound the alarm bell: generational conflict involving founders and their children in the Philippines and overseas are growing in number. And to finally put this topic into perspective, this kind of conflict is worth sharing as:

a. It ranks very high in the number of advisory interventions I have had in the past decade.

b. The problems, though complex, are predictable and can be resolved.

c. The protagonists are emotional and defensive and can’t seem to find a middle ground.

d. The complex dynamic of fathers and sons (siblings) is as old as the world.

e. The survival of the enterprise and the unity of the family are at stake.

A story of conflict

Jonathan (not his real name) is a next generation appointed successor, having worked under the tutelage of his father for 19 years in a family-owned trading company.

The business was founded by his father through sheer hard luck.

Jonathan was fortunate to have worked for three years outside the family business right after graduating from a university and if he had his way, he would have wanted to stay longer as a professional. But a call from his father one afternoon changed everything.

He considers joining the family business as his ultimate sacrifice after he ended what would have been a flourishing career as a sales manager of a prestigious business organization.

Fast forward 20 years

At 45 and married with two kids, Jonathan will be celebrating his 20th year next year working for the family business. To borrow a quote from him…

“For many years, I have learned to accept and manage papa’s continuing interference on the way I run the operations, as well as the direction of the business. But in the last two years since papa officially announced his retirement, the arguments have become more frequent and has resulted in unending squabbles. I hate to admit it but sometimes our discussions turn ugly and I feel guilty just thinking about it. Is there a way out of this Prof.?”

Not a week has passed where father and son always end up disagreeing on operational decisions. What originally appeared to be a seamless handover of the enterprise to the next generation has become a difficult one and on the verge of a breakup.

Apart from the heated discussions, profits have generally been flat and employee attrition rate has been registering higher than industry rate since the son assumed the role of CEO.

To be continued.

*****

Prof. Soriano is a National Agora Awardee for Marketing Excellence, 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 the author of two bestselling books related to Family Business Governance and Succession.
Those interested to order can call the W+B Group 09228603186 and look for Ms. Aira.

Real causes of family conflict

Dear Prof. Soriano,

Happy New Year to you and your family!

I am a regular reader of your column for the last two years and I always look forward to reading your very informative weekly article.

It has been a habit of sorts to share your weekly article to friends who are also working in their respective family businesses. We even went one step further, we collated your articles and use them as self-help materials during informal gatherings. It has been a wonderful guide for all of us.

We hope and pray that you never stop sharing your wealth of knowledge to family business owners and exude the same passion and advocacy for many more years!

Sincerely,

Rey

THE letter was sent to me right after the holidays but I have observed that in the recent past, I continue to received countless letters bearing the same message but with varying degrees of fear, anger, agitation, anxiety, uneasiness and the feeling of hopelessness coming from the letter senders.

So instead of responding to each letter, I decided to consolidate and make a story with a similar theme using another industry, different names and number of siblings to hide the identities of the letter senders.

Modified story of Rey : A volatile conflict waiting to explode 


I have been wanting to email you since October but due to the pressures of work and the long holiday preparation, I never had the opportunity. Lately, through the advice of my friends and the stress this new problem has been causing me, I finally decided to email you about our current situation.

There are five siblings (Rey, Ralph, Rowen, Rachelle, Raymond) in the family and we are all active in the family business. The word active is relative though. You will find out in the succeeding paragraphs.

After heeding your advice (reading from your articles) related to aligning the ownership structure, I and my brother Raymond took the opportunity during the Christmas celebration to talk to our mother primarily on the need to start the process of working out an ownership transfer.

For your reference, my father passed away a year and a half ago and my mother suffering from various ailments, is in her mid-70s. With her weak condition, we thought it best to tell her about our plan.

Conditions for ownership transfer

When we explained to her about the ownership transfer, we were both surprised that she readily agreed to start the process subject to three conditions:

a. That I will be officially appointed as the successor, following the desire and wish of Papa. It was clear from the start when I was invited by Papa to join the family business more than 19 years ago. Being the eldest and the most experienced, Papa trained me in practically everything related to running the business. My siblings collectively acknowledged this and it was just a matter of time when I will end up taking over the mantle of leadership. My mother’s statement made it official.

b. The family business must continue and the next generation (second generation) will ensure that the legacy will transition smoothly; and

c. Ownership of the business will be divided equally at 20 percent per sibling. This last condition floored me and this is the very reason why I finally summoned the courage to write you a long email.

Being fair is never about equal ownership

My mother insisted that we each own 20 percent of the stock. Her insistence of equal ownership shocked me. I was unable to think nor react because I was so upset!

Raymond felt bad as well. He even tried to argue and justified why I should own more shares but she stood her ground and even reminded both of us that it was Papa’s dying wish with the hope that it will create harmony in the business.

To be continued.

(esoriano@wongadvisory.com)

***************

Prof. Soriano is a National Agora Awardee for marketing excellence, 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.
Prof. Soriano will be in Cebu in February to deliver talks to family business owners. The series of talks are part of W+B Cebu’s advocacy campaign related to family and business governance for SMEs. Those interested to attend should call the W+B Group 09228603186 and look for Ms. Jen. Registration is a requirement.