Tag Archives: Wong and Bernstein Advisory Group

Rule No. 3 No Extra Marital Affairs

The rule definitely appears controversial and has raised many eyebrows every time I introduce the topic during Family Governance talks. Even my best friend who is a second-generation Chinese family member weighed in on the rule that it is very “un-Chinese”.  I leave the readers to interpret what my Chinese friend said.

Lee Kum Kee Policies

But for the 129-year-old Lee Kum Kee Group, the family edict related to extra marital affairs is one of the most powerful rules that the third generation and grandson of the founder, Lee Man-tat has required the next generation shareholders to obey especially those sitting on the board.

There are equally unique and governance rules that Lee Man-tat espoused as well and these are:

Rule No 1: No Late Marriage

Rule No 2: No Divorce

Rule No 3: No Extra Marital Affairs

Any family board member who contravenes Rules No. 2 and No. 3 are expected and required to leave the board automatically and will no longer have the right to speak and participate in the family council and business decision-making process.

Family Constitution and Family Council in 2002

For Lee Man Tat, these rules are important and crucial as the family members have grown in size, some have lost personal interest in the business, the market environment has become complicated, shareholder ownership are dispersed and owners have varying versions of where the future is headed.

After weathering through two major corporate battles, the Lees agreed to finally set up a family council and draft a family constitution in 2002.

In an article penned by Jeff Pao, he highlighted the different corporate governance systems set up by LKK and what came out of the initiatives, most notable was organizing the Family Council Board and the roles of the 29-member family assembly.

Pao further contends that the family council is in charge of the family business, family office, family investment firm, family charity fund and family training center.

I will share more initiatives that the Lee Kum Kee incorporated in their Family Constitution:

a. All family members have to work at least three to five years in other companies after graduating from college if they want to join the family business

b. Family members who violate rules do not just defy the values enshrined in their Family Charter but will also lose their moral and business ascendancy to implement, enforce and discipline erring or wayward family members.

c. Another powerful value worth repeating in this article is their strong adherence to “Si Li Ji Ren“, a Mandarin saying meaning “Put Other’s First, before yourself.”

d. If family members quit the board or company for personal reasons, they can sell their shares to the company and remain as family council members

e. The next generation are allowed to inherit shares even if they are not involved in the daily business operations.

These rules are the heart and soul of Lee Kum Kee’s flourishing existence and the foundation of their commitment to pursue business excellence and stewardship so the business can be handed to the next generation seamlessly.

Lee Kum is the name of the founder, and Kee is a Chinese word that means a new family business.

The enterprise will be celebrating 130 years in 2018 and there are no signs of the group slowing down. On top of their strict observance of protocols, the other critical and indispensable governance rule that the Lee family initiated was formalizing their succession plan.

The family believes that the plan is critical to sustaining a long-lasting family business.

(esoriano@wongadvisory.com)

The Lee Kum Kee Family Secret

Hong Kong sauce giant Lee KumKee Group is one of a handful of Chinese family owned enterprises in the world that has not only managed to survived for more than a century but has thrived after 129 years of steadfastly holding on to some unique and time tested values reinforced with a powerful succession plan model.

Established in 1888, the Lee KumKee group has a remarkable history built over five generations. Yet, despite its market leadership and being a world-renowned brand offering an assortment of Chinese sauces, the group has not been spared of her share of family conflict as a result of business disagreements and buyouts.

Major Shocks

In 1972, the third generation heir, Lee Man-tat and grandson of the founder suggested to its shareholders the importance of creating additional product lines for its oyster sauce business to reach a bigger market. But the idea did not sit well with his uncles, so the following year and with the backing from his father, Lee Man-tat ended up buying all the shares of the company.

Another setback happened in 1986 when Lee Man-tat proposed the idea of expanding the factory but ended up being rebuffed by his younger sibling who at that time owned 40 percent of the business. Due to differences in management style, Lee Man-tat offered to buy his brother’s shares.

After going through these two major corporate hiccups, Lee Man-tat ended up gaining control of the business. His five children then joined the company one after another.

The two shocks made the Lee family realized the vulnerability of the enterprise to internal conflicts, so in 2002, the family agreed to set up a family council and draft a family constitution.

Family First, Business Second

The core value of Lee KumKee is “family first, business second,” there other values according to writer Alan Lee Ka-Fai that are worth emulating by family business owners and these are the following:

a. Entrepreneurship is Key: The family requires the successors to stay as entrepreneurs as “it does not believe one would succeed in keeping the business without instant innovation and thinking out of the box.” The family business will not be able to stay on long unless it always maintains the mindset of entrepreneurs.

b. Governance System must be in Place: Apart from family values, the family constitution and family council are two key elements of family governance. These elements would help build trust among family members and cement family ties.

c. The family motto also underlines achieving a win-win situation

Additionally, I have included some of the powerful values I mentioned in my article last week namely:

d. Put Other’s First, before yourself

e. Pragmatism

f. Integrity and

g. Benefiting the community

According to Dr. Amen Lee, President of Legacy Academy, developing a long-term vision is a key element. He goes on to espouse the five dimensions that includes the practice of family values, continuation of family relationship, passing on of family knowledge, management of family wealth and succession of family business.

Inevitably, for family enterprises aspiring to become legacy bearers, the key is to pass on the values of the first-generation entrepreneurs, including their core concepts and life wisdom.

For writer Allan Lee Ka-fai, he concluded that “Family businesses which have lasted more than 100 years usually have a very unique understanding of family, business and relationships, and pass it on to the next generation as the family legacy.”

(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.

 

Stop Suffering in Silence!

How can I tell my son that he has to be at the office early and be a good example to our employees?

I have been giving equal compensation to my children and I know it is not fair to my other son who works very hard. What is the right compensation for my children?

I am extremely worried why my children gave shares to their spouses? What if they passed away and their spouses remarry?

How can my son work in our family business and manage his personal business at the same time?

Shouldn’t the business buy supplies from me?  After all, I am part of the family?

What happens if my brother thinks my nephew (his son) should be promoted and his salary increased, but I disagree?

How do we terminate a family member for incompetence or dishonesty?

How do we prevent a sibling from selling his shares? What if it is our competitor?

How do we deal with shareholders who are based overseas and yet have the temerity to always question the way the business is run?

Volatile Brew

These are just some of the nagging questions that I regularly hear from family business owners. And if left unresolved can be real nightmares!

Without any means to address these issues, it will be a bruising struggle for power that will result into more disagreements, further antagonizing family members and weakening the very foundation of the family business.

Tolerating these serious concerns and sweeping them under the rug and “do nothing” will result to entropy. The consequences of inaction are irreversible.

Policies help avoid problems and conflicts

The best and only option is for family members agreeing on solutions and subsequently formulating family agreements. To avoid making the issues less personal and ensure greater objectivity, it is imperative for the family to engage the services of a third party family business facilitator who will propose initiatives leading to some form of family and business governance.

Problems are predictable and initiating policies before they happen can eliminate or reduce future tension and will de-escalate a major conflict when the founder or patriarch is no longer around.

Family Protocols

Family protocols or agreements, if done right, can minimize or avoid a potentially damaging conflict and prevent unnecessary misunderstandings.

The objective is to mitigate the conflict by establishing very clear guidelines and promote the goals of the family and the company towards a joint and collective interest to grow the enterprise. Additionally, it will also strengthen the communication process amongst family members.

When a family protocol is unanimously accepted by the whole family, it tends to be strictly applied and, in most cases, helps to ease tensions that may arise between family members.

A Fair Warning

According to a study published by IESE’s Josep Tàpies and Lucía Ceja, if the protocol is not broadly accepted by family members and its stipulations seldom applied or if the code of conduct is not explicitly made clear and put in writing, the process of trying to implement it will further cause confusion and ultimately render it useless.

The key therefore is a fair process of formulating rules where family members are engaged  and compliance without fear or favor.  

(esoriano@wongadvisory.com)

*****

Prof Soriano is slated to deliver a talk to family business owners in Cebu on March 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.

Role Confusion Can Lead to Disastrous Results

I am now sharing the last half of Benny’s email (the 37 year old grandson and eldest 3rd Generation family member), that he sent to me together with his Easter Sunday greeting:

“Prof, despite our imperfections and the family members’ stubborn nature (it is in our DNA), we are grateful that you never gave up on us. Collectively as a family, we are more than determined not to let this governance opportunity pass and we are absolutely committed to pursue our role as stewards aiming for 100 years or more!

So, in behalf of the family, our second-generation leaders and my third-generation cousins, we sincerely thank you for believing in us. 

We look forward to the next Family Council meeting next month!”

Positive feedback like this one I received on Easter Sunday lifts my spirit and emboldens me to continue my advocacy of helping family businesses in Asia.

The Goal of 100 years is Unfolding

Now the C Family is united in its vision of becoming a family-inspired enterprise. The family is now on its way towards fulfilling the founder’s dream in building a legacy that promotes harmony, growth through strategy, professionalism, free from petty conflicts, supported with mutual covenants and a powerful set of values reinforced with legally enforceable shareholder’s agreements!

Governance work is about compliance and it is challenging. There is no guarantee that the ride will be smooth.  As a matter of fact, it will have its twists and turns but their journey to becoming a world class family enterprise will no longer be elusive.

The C Family Crisis mirrors 90 % of the World’s Family Enterprises

Without any form of proper mentoring related to governance and role definition, these next generation family members will end up managing non-family employees with disastrous results.

Additionally, family member entitlement is oftentimes a result of a confused role when these children crosses over from a purely family member role to a family member employee or shareholder role.

By observing how the patriarch (matriarch) or other senior generation family members gives out orders and discipline subordinates, the new family member employee will naturally imitate these behaviors and the senior leader’s management style. Good thing some of the family members realized that an intervention was needed so a looming crisis was averted. It would have been the beginning of the end for the C Family Business.

Solutions Must Be Long-Term

A non-executive Shareholder or family member who is active in the business but with an “owner mentality” mindset is naturally unreasonable and may demand the use of company resources or to impose his or her will on employees in how to behave.

Such role confusion can often be clarified by conducting a series of educational forums initiated by a Family Business facilitator in which the boundaries of appropriate and inappropriate shareholder behavior are clearly explained. Depending on the planning area where intervention is urgent and immediate, I am suggesting critical planning areas to choose from:

1. Family Governance and Succession Planning as a prelude to the Crafting of the Family Constitution where the topics covered will be the natural transition to the next generation members and the predictable problems that goes with the transition

2. Business and Growth Planning entails the formulation of a Strategic Plan that will serve as the family business’ 3 to 5-year vision and growth plan. The option to do an IPO, if the family members are receptive, can be discussed in this forum.

3. Ownership Plan addresses key topics that clarifies the roles of owners, management and the board level family members

(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.
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.

Role confusion is dangerous

The C Family Business is a 52 year old manufacturing firm with operations in Southeast Asia and currently being managed by three branches belonging to the second generation.

There are a total of fifteen second and third generation family member employees-managers actively working in the business and their positions range from the President all the way down to the operating business unit managers.

My engagement was particularly challenging as the active third generation family members (cousins) were already on the brink of a major conflict. The only glue that held the family together then was the closeness of the second generation siblings.

In the course of my initial assessment, I felt that the way to move forward was to transition the enterprise from a family first to a business first mindset while addressing a slew of predictable problems related to entitlement, conflict of interest, envy and a sense of “owner mentality”. In-law participation was also slowly emerging as an added source of acrimony.

A Culture of Apathy and Indecisiveness

To avoid addressing these numerous conflicts head on, the three siblings chose to “sweep these problems under the rug” and looked the other way. This feeling of apathy made my intervention very difficult.

On the one hand, it was a tug of war of sorts between my role as family business coach and my singular resolve to put systems and accountability in place guided by the family’s dream of someday becoming a professionally-run, publicly listed and family inspired enterprise.

On the other hand, I was also confronted by every family members’ dilemma and reluctance to cut loose from the entitlements and perks they have gotten used to for many years! It took me all of two years to finally gain some headway.

Successful Intervention must be processed-driven

So what was the formula for success? Fundamentally it centered on eight crucial areas:

a. A collective decision to stop procrastinating and finally move forward to engaging a third party family business coach;

b. Established Rules and getting everyone to come to the table and agree on Governance;

c. Created a Shared Vision with the same set of values espoused by the founder

d. Initiated the implementation of the Agreed Principles immediately right after the signing of the Family Constitution;

e. Activated a working Board Level Governance;

f. Pursued Accountability where any breach by any family member will mean disciplinary consequences;

g. Educated everybody (Family and Non Family Employees) that ownership is different from management

h. A lot of patient capital from all stakeholders

To quote a portion of the email that Benny (the 37 year old grandson and eldest 3rd Generation family member) sent to me together with his Easter Sunday greetings a few days ago:

“Happy Easter Coach! We remain thankful for your continued guidance in making us realize that yes family is family, but business is business. At the onset, we disliked you for insisting that we all focus on governance and pressuring the family to comply but over time we eventually appreciated what you have done.

The realization happened when you insisted that we go through the process of several sessions in crafting the family agreements. The next change was when you asserted that the family council be activated right after we signed the family constitution as it squarely addressed family member roles and entry policies in joining the business. In short, everyone without exception understood that we needed to adhere to the same rules as anybody within the company.

To be continued…

The impact of having entitled children

TORONTO, CANADA. I delivered a talk here a few days ago and was asked a valid question by a worried business owner participant on the impact of family member entitlement to the business, and my answer was frank and candid.

I said,  “There is absolutely no doubt the business will suffer. It is just a matter of time!”

Let me expound on my answer: 

1. No Value.The entitled family member employee does not bring any value to the business.

2. A likely liability.The entitled family member employee is likely to be a liability. He or she may cause divisiveness.

3. Two types of Employees. Non-family employees frown upon entitled family members.

4. Professionals are Averse. Non-family employees have little or no respect for family member-employees whose only claim to fame and passport to employment is his or her last name.

Then I was asked with a follow-up question…”Professor, who is to be blamed for creating entitled family member-employees? My answer was equally swift and straightforward, “Of course the founder-parent-business owner!”

I then articulated why founders commit this grievous mistake:

1. The natural instinct of parents or founders of businesses to “shelter” their children from the hardships that they went through during the startup years.

2. A form of guilt for being an absentee parent.These visionaries who where rarely present during the child’s formative years will try to make up for lost time by showering their children with material wealth

3. Nine out of ten business owners make the mistake of repeatedly assuring their children that “someday this business that I built will be yours” or “everything I do and own will eventually be passed on to you”

4. Employing Children without any work experience will translate to the child-successor emulating the autocratic style of his or her visionary parent

Business Owners Continue to Struggle

When business owners commit any of the behaviors mentioned, we can naturally expect the twin evils (entitlement and “owner mentality”) to manifest when the children crosses over from being family members to family member-employees.

Everyday the business owner will continue to struggle, hold on to the business out of fear, resist initiating a succession plan and try to understand why their children never display the work ethic or exhibit the same commitment as they do.

How Do We Deal With Entitlement

To conclude my Q&A portion, I was asked a question by a 65 year old founder that many business owners in the audience were very interested to know.

”Prof, I must admit that I belong to the nine out of ten business owners/patriarch you mentioned. Moving forward, what should we all do to address this “sense of entitlement? Can this problem be reversed?”

I replied with an emphatic yes but the process can be daunting as it entails firm leadership that must be exhibited by the patriarch or senior generation leaders and a strong commitment to pursue governance by the next generation family members.

Working for the Family Business is Not a Gift

The first step is to educate the family members on the need to embrace governance.  Initiating Governance and best practices will require the removal of the sense of entitlement. One effective way to impose accountability is to create a family charter/constitution which clearly outlines how and when a family member will progress within the business.

It also incorporates a powerful family code of conduct that outlines a set of policies that will address predictable problems that are currently happening and may likely occur in the future.

In the end, next generation family member-employees must understand and realize that their way into and through the business should always be based on merit and never through their birthright.