Tag Archives: Wong and Bernstein Advisory Group

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!

Don’t Ignore the Elephant in the Room

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One of the most common and pervasive causes of family tension that I have learned over my years as a Family Business consultant is that every family business has what is commonly referred to as having “elephants in the room.”

According to Wikipedia, an Elephant in the room is an “English-language metaphorical idiom that means that there is an obvious problem or risk that no one wants to discuss, or a condition that people do not want to talk about.” This has been a challenge for me coaching family businesses. They find merit in pursuing governance but when it’s time to talk about forbidden issues and I press them to let these “elephants” out of the room, they become uncomfortable and prefer to share the issues individually and in complete confidence.

For the sake of discussion, the word “elephant” suggests that the problem is so big and so heavy that no one wants to confront it or try to move it.

By virtue of its size, it takes up so much energy, time and productivity. The phrase “in the room” implies that the issue is large that no one can help but notice it. And since it is in the middle of the room, it means that family members have deliberately avoided and walked around it and worse, pretended it is not there rather than deal with it.

For family enterprises, the term refers to a question, problem or controversial issue that is obvious, but which is ignored by family members especially the business leader, generally because it causes embarrassment and may “rock the boat.”

Rocking the boat means stirring up trouble where none is welcome, disrupting things, promoting disharmony, upsetting family members and causing disagreement.

There are qualitative truths that business leaders (usually patriarchs) must understand about elephants in the room:

  1. Ignoring the elephants in the family business does not make them go away. In fact, once they have found a home, they tend to stay for good
  2. Baby elephants tend to get bigger over time. Most of the time, the problem starts small and escalates into something weighty
  3. I am also highlighting the top “elephants” that must be addressed immediately lest setting them aside can cause disruption and will throw the family business off-course creating unnecessary frayed nerves and strained relationships:
    • A “Fredo” or a black sheep family member causing problems
    • Sibling rivalry spilling over to power struggle
    • Next generation sense of entitlement
    • Patriarchal Shadow (refusing to hand over power to the next generation)
    • Misaligned ownership
    • A wide array of Conflict of interest and self-dealing among family members
    • No succession plan in place
    • No estate planning
  4. Having an elephant in the room is demotivating to the family and the business as well as to non- family members especially the professionals who will not hesitate to abandon ship when these issues are wantonly ignored by the patriarch
  5. If the elephant is not dealt with, the leader/patriarch is perceived as weak, ineffective, bias, and lacking in leadership skills

The consequences of ignoring “elephants” are extremely risky! And the “do nothing” attitude, aggravated by a procrastinating mindset among family members should never be an option! As a business leader and family member, it is important that you deal with these elephants with the help of experienced family business advisors before it’s too late.

Therefore, as the head, perhaps it is high time to ask yourself: Are you ignoring and tolerating “elephants” in your family business?

 

When parents reward bad behavior (Part 3)

The “Fredo” behavior manifests as early as when a child confronts a major dilemma: the crossing over from a healthy family where unconditional love, inspiration, encouragement, equality and full support are ingrained during the child’s growth years.

Instinctively, parents tend to further extend care and nourishment on the more fragile child expending and nurturing him or her until the child bounces back and intermingles with the other siblings. While the parents demonstrate the handholding process, the family is also expected to care for one another especially on someone who needs it the most.

Full of Inconsistencies

The danger is unmasked when this “culture of love and equality” is carried over to the business. Here lies the inconsistency! Let me articulate why?

Business represents a huge contrast to the norms and culture embedded in the family. While family nurtures love, feelings and equality regardless of behavior, business singularly focus on key metrics like meritocracy, profits, results and accountability.

On one hand, family encourages the family to compensate for the weaknesses and failings of family members and to forgive indiscretions but on the other hand, business in its truest form can be unforgiving on matters related to under performance and mediocrity. Aggravating this paradox is the natural tension between two or three generations working together. You don’t just have a sandwich generation but the gaps between a baby boomer and the millennial generation is far and wide.

Allow me to list down a number of contradictions and divergent values that have created a confused mindset among family members as they cross over to the two other circles (as managers and or owners).

The weakest family member will inevitably end as a likely “Fredo” candidate.

If the family breeds feelings emotion, entitlement and equality plus a slew of varying C’s like confidentiality, culture, career, control and conflict, the business on its own pursues a totally different approach bereft of any emotion. As the family member moves on to the more difficult and measurable metric like profits, policies and plans, you can almost conclude the makings of a full blown conflict.

In an article penned by Kimberly Eddleston, she highlights a critical part in the transition of the child.

“When a child joins a family business expecting the same treatment he or she experiences in the family, where resources are allocated based on equality and need, trouble can result. Patriarchs that treat family employees as children encourage immaturity and dependence, and lead family employees to see them as responsible for their well-being. Moreover, well-meaning family patriarchs often feel they must reward their children equally in the business realm, without regard to their contributions. Their altruism ends up hurting them and costing the business.”

In a very recent family governance engagement assigned to me by our family business advisory firm, Wong+Berstein, a son (sibling A) actively working in the family business was given a house by his parents right after he got married. On hearing the news, his only sibling (B) known to be lazy and underperforming, demanded a house of his own with the same number of bedrooms! Sibling B felt it was not ‘fair’ that sibling A received a house and he did not.

Situations like this as Eddelston opined “are very common in family businesses and demonstrate how family members often expect resources and rewards to be allocated based on the family norm of equality rather than the business norm of merit.”

“Fredos” Are Certified Trouble Makers Part 2

According to Wikipedia, Frederico “Fredo” Corleone is a fictional character in Mario. There are real-life “Fredos” working in Family Businesses out there.

While the Corleone’s of the Godfather movies are fictitious, I have seen many examples of Fredos who are disruptive, dangerous and have wreak havoc on their family’s business.

Family Case 1

A restaurant chain, majority owned by the eldest brother Rey (not his real name) with contribution from his other siblings, repeatedly suffered at the hands of a Fredo named Rodney (not his real name). The latter was Rodney’s first born son. Barely straight out of college, Rey insisted that his son work for the family business.

However, Rodney was lazy, performed below expectations and showed poor human relations skills. His abrasive behavior drew complaints from colleagues and customers. He also had a penchant for sitting on major decisions, reports to the office as he pleases and displayed a very bad temper.

To hide Rodney’s incompetence, the father helped him with his work but over time, the son relied more and more on his father to do his work.

Things came to a head when a cousin discovered that Rodney was making a cut (commissions) on his preferred suppliers. Because of the overprice in the purchase of raw materials, the company struggled to compete in the industry they once dominated. While all the cousins wanted Rodney suspended, his father refused and continued to make excuses. When the animosity escalated into regular skirmishes amongst cousins, several key non family employees opted to resign instead of being caught in the crossfire. Soon after, the family business suffered a decline. The other founders then decided it was time to step in.

Family Case 2

This is the case of a leather retailer chain that had to deal with multiple Fredos who felt entitled to the products for their personal use. Two brothers would often shop at the stores, taking merchandise without paying or documenting what they took.

When an in law was hired as part of the accounting team, things got even worse since she had access to the cash registers. The brothers and the in-law started to take cash out of the registers to pay for their personal expenses. Eventually the business went bankrupt because the older generation looked the other way and never lifted a finger to put an end to the children and the in laws’ misbehavior.

Such dilemmas are so common in family firms that I have advised in Asia. Fredos are a different breed. They sincerely feel they are deserving of rewards and privileges even without earning it. They also have the temerity to demand an equal share of the business’s wealth, simply because they are part of the family and their last name is their birthright.

With the two cases presented, the message is clear…when you are contemplating in hiring a family member, watch for a Fredo behavior or better still before inviting a family member to join, make sure the family has already set in place the governance infrastructure.

Kimberly Eddelston in her research accurately observed the issue of a Fredo feeling entitled… “Research has shown that children with a strong sense of entitlement may be more likely to engage in theft because they see the business’s riches as compensation for their poor and neglected childhood during the firm’s early-year struggles.  No wonder that those who study family businesses have found that 85% of them go from “shirtsleeves to shirtsleeves” by the third generation.

Who Is “Fredo”? (Part I)

According to Wikipedia, Frederico “Fredo” Corleone is a fictional character in Mario Puzo’s novel The Godfather.

He is the second son of the mafia don Vito Corleone, younger brother of Sonny and elder brother to Michael (portrayed by Al Pacino) and sister, Connie. In the films, Fredo’s feelings of personal inadequacy and his inability to act effectively on his own behalf are character flaws leading to greater consequences.

With so much insecurity starting in childhood, Fredo exhibited poor coping mechanism and would always complain how he was ignored by his siblings and deprived of parental love during his adolescent years.

Eventually, his selfishness led to serious problems for the family, which ended when his own brother (Al Pacino) disowned him. In short, “Fredo” Corleone was known for his incompetence, bad business ideas, heavy drinking and betrayals. If you watch Godfather II, you will discover what happened to Fredo.

Do you have a “Fredo” in your family?

In a well written article by Kimberly Eddelston, Fredo is described as “the kind of sibling who just couldn’t get it right, no matter how hard he tried. But because he was family, Fredo was involved in some of the family’s business ventures.  Due to his weak personality and below average intelligence, he was constantly failing at even the simplest tasks he was given.”

In Asia, Fredo is often compared to a “black sheep” in the family. They display similar patterns of behavior and end up as a disgrace to the family. They are known as trouble makers, often left out, branded as outcasts because they choose to do other things than live up to their parent’s standards.

A Fredo in the family business is likely to be the least capable amongst siblings so when the family patriarch coddles him and looks the other way, he will do whatever possible means to take advantage of the family business for personal gain.

Like many family businesses with Fredos working, their presence in the business poses a serious hindrance to the enterprise. In a 2012 study by Kidwell, Kellermanns, Eddleston, they revealed that approximately one-third of family businesses admit to having a family employee who is an impediment to the business and only has a job because he or she is ‘family’.

What are the most common traits of a Fredo working in the family business? I have listed a handful of attributes below so family members are aware of the potential dangers that lie ahead.

Fredos can be any or all of the following:

  • They are irresponsible and consistently performs poorly in the family business
  • They disrupt the work of colleagues including business decisions initiated by family members
  • They strongly resent their parents especially with the way they were treated when they were young
  • They are naturally demanding and expect parents to support them especially when they experience setbacks or misfortunes
  • They misuse company resources and continue to commit conflict of interest
  • They are selfish, quick to blame others except themselves
  • They have no sense of responsibility nor accountability
  • To compensate for their failure, they usually engage in get rich quick schemes at the expense of the parent’s (and the business’) financial support.

In dozens of family businesses in Asia where I was tasked to intervene, I would always come across “Fredos”, either male or female, responsible for causing unnecessary pain and conflict in the family and the business.

In Mario Puzo’s The Godfather novel, Fredo nearly destroyed the first and second generations of the Corleone dynasty.

To be continued…

(esoriano@wongadvisory.com)

Founder Inaction Can Cause the Business to Fail (Last Part)

Phase 2: Restoring Communication Channels

The team focused its efforts in salvaging whatever lines of communication channels available and in doing so gradually, introduced the buy-in of the warring siblings through the different phases:

  • Founder History (How he started)
  • Founder Shared values (hard work, humility, honesty)
  • Founder Aspirations (family harmony, legacy, stewardship)
  • Founder Transition to Next Generation leaders (direction of the business)
  • Family and Business Structure (What structures must be instituted to maintain family harmony)
  • Family Transition (How will the family Prepare for the Future)

With these values resonating, we then proceeded to a plan of action geared towards a unifying and shared vision and mission statement.The direction of the business was a major strain and through the formulation of a strategic plan, we effectively diffused the tension.

Even with my years of family business coaching, this process was arguably tougher than expected as the growing pains were quite palpable.

For Gen 1 and 2 family members, the big switch from the first generation “entrepreneurial” style to a professional and consensus based model had to happen so it was necessary to institutionalize the rules without fear or favor.

Phase 3: Governance is Mandatory to Survive

After a series of sessions coupled with one on one assessments, we finally made them agree to sign family agreements outlining family member roles and responsibilities (active and non-active) in the family and business.  We then created a detailed code of conduct covering conflict of interest, entry and exit rules, and family member KPI’s.

For shareholders, we made it very clear that those elected to the board must have the competence, interest and commitment and that the conduct of the shareholders must be aligned with what the founder desired.

Phase 4: Ownership Alignments

After a series of exhaustive ownership sessions, we preempted what could have been a scandalously damaging effect to the family and the business. We finally made all shareholders sign ownership agreements.

These difficult intervention was worth it! It not just averted a long and litigious court proceeding and, as their HR head puts it, “our office saved the jobs of close to five thousand employees, 1,200 project based workers and a few thousand indirect recipients from suppliers to the families that rely on their breadwinners.”

We felt we won the lottery when warring siblings started to communicate and some members reaching out and trying to play catch up on the many years lost due to the conflict.

As I write this article, it is still a work in progress, as the next challenge is to continue the momentum by forming a Family Council and doing oversight work. Beyond governance, the business can now move toward growth mode.

There are many founders in the mold of Mr. C. I would often hear Gen 2 members explaining to me their inability to talk to their fathers about succession issues. It is still an extremely sensitive topic. It is a cultural factor.

Finally, founders (particularly the traditional Chinese) are reluctant to disclose their wealth and the history of the conflict to a local advisor so when Mr. C met me, he only asked three questions:

  • My nationality
  • My experience; and
  • My motivation in helping mediate and mentor

I told him that my grandfather from my mother’s side used to own many businesses. And for many years, was recognized as the second largest taxpayer in his city. But in one fell swoop, the business collapsed because of sibling rivalry.

Mr. C understood completely.