Tag Archives: Wong and Bernstein Advisory

Chinese values shunned by next generation leaders?

I AM back in the US for talks and family coaching sessions after only a month in Asia. Counting the many exchanges with colleagues at the University of San Francisco (USF), I finally delivered a lecture last Thursday related to Asian business strategy and growth as well as the impact of trading blocs like ASEAN and APEC.

Many thanks to those who attended my lecture most notably the department chairs, faculty members and the multi-racial business students comprising several classes belonging to USF’s School of Management.

Ateneo and USF are Jesuit Catholic universities.

USF is a top tier Jesuit Catholic university and the school’s main campus is located on a 22-hectare setting between the Golden Gate Bridge and Golden Gate Park. The hilly campus has a breathtaking view of downtown San Francisco. Belonging to the same order like Ateneo de Manila University, it’s Jesuit Catholic identity is rooted in the vision and work of St. Ignatius of Loyola, the founder of the Jesuit order.

Prof. Danny, a colleague at the Ateneo Graduate School of Business and a senior family business advisor for Chinese families at W+B Strategic Advisory Group is an MBA alumnus of USF.

Asian family business

I immensely enjoyed the interaction with students and I counted more than half of the participants of Asian origin. Most of the questions were trained at their desire to know more about the dramatic changes in Asia and validates their beliefs that there is indeed a plethora of business opportunities worth growing outside the US.

My lecture was an obvious eye opener and talks are under way to organize an even bigger event. If this major activity materializes, it will be a collaboration with the Chinese Business Studies Initiative of the University. That is another article in itself but briefly, the USF China Business Studies Initiative provides a platform for collaboration with the influential Chinese business community and bridges Chinese business leaders, public policy makers and academics. It will be an honor to be part of that initiative in the near future.

Why? I get to understand in a much deeper perspective why the present crop of Chinese leaders are deliberately asserting and re-introducing history and confucian values to overseas based Chinese. That concerted effort supported with funds from prominent Chinese businesses has gained considerable influence in practically all areas…business, academe and the political spectrum of a given community. Depending on how you look at it, my firsthand knowledge mentoring family businesses is a good starting point…I have noticed next generation Chinese family members’ waning interest in embracing Chinese values and practices.

Chinese influence has waned in family enterprises

For thousands of years Chinese rulers have wanted to build dynasties. And in Asia, family businesses remain a tradition. But something new is happening in Chinese family firms.

As the younger generation of Chinese business owners have been increasingly exposed to Western values, the gap between them and the older generation has become a source of conflict in the succession planning of family businesses.

Incidents of family court business disputes are increasing at an alarming rate, with poor succession planning as a root cause of the problem. The impact of poorly managed succession and family infighting can be significant, both for the family business and investors.

Some think the best path to future success is to ditch leadership by family members – and instead bring in the professionals.

But is this the right way forward? What lessons can we learn from the family approach to business?

Professor Joseph P.H. Fan, researcher and educator of family business governance at The Chinese University of Hong Kong wrote in his book “Critical Generations – Out of the Succession Dilemma of Chinese Family Businesses” that the market value of 250 listed family firms in Hong Kong, Taiwan and Singapore declined by almost 60 percent on average starting from five years before to the year the family patriarch handed over the business to his successor.

In other words, if an investor bought shares valued at $100 five years before the succession, the value of their shares would be reduced to an average of $40 three years after the succession. Hong Kong companies dropped the most, losing some 80 percent on average, with Taiwan and Singapore family-owned companies falling about 40 percent and 20 percent, respectively. Hence, if greater China entrepreneurs take Professor Fan’s advice, there should be a lot more public companies. He wrote that a stock market listing is a good way to distribute ownership to family members.

Chinese values are difficult to pass on

According to Prof. Fan, the reason behind the shocking succession decline is two-fold. First, intangible assets such as values, skills and networks, although commonly found among the first generation entrepreneurs, are difficult to be passed on to the next generation. Second, Chinese families also face various family, industrial, and institutional obstacles such as family brain drain, regulatory changes, and political uncertainty, which can destroy or ruin the families and their businesses.

To be continued.

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A tool to manage family conflict

MY talk in Singapore last week is one for the books.

Seven out of 10 questions that were asked by family members during the forum focused on why conflict persisted even after they drafted and signed a family charter (constitution). In the hundreds of talks where I am invited to speak every year, I have never experienced being bombarded with almost similar questions.

Why are relationships among family members still fragile or uncertain even after a family constitution has been signed?

To finally put to rest this dilemma, I ended up writing an article on my flight back to Manila. The gist of the article addresses the core reason why conflicts persist.

Family business is always about emotions

A family business is a business of relationships and relationships are at the heart of the family business. The potential for conflict is typically due to a clash between business and emotional concerns. How conflict is managed is a determinant of the degree to which a family and its business remains healthy and strong. Failure to manage conflict leads to the splintering of family business firms.

However, conflict can be seen as a challenge — or even as a positive driver for change. For example, a disagreement between family members on the strategic direction of the business may result in a much-needed rethinking of the business plan and a new agreed vision for the business.

Post-constitution goal: Activating the family council

One of the most effective tools in managing family conflicts is the organization of a family council. Its primary purpose is to facilitate free and open communication between family members in a formal and organized manner to minimize internal or interfamily conflict and hostility. It can also be a forum for discussing issues of continuity and succession. The key to the success of the family council are actual family business meetings, which falls under its main activity. A family meeting serves to resolve family business issues and help maintain social relationships among its members.

Families may encounter initial difficulty in engaging in open and candid discussion on sensitive subjects. Address relatively non-controversial subjects first to pave the way for talks on more difficult issues. It may be advisable to tap the services of a professional as facilitator.

The family council and the constitution

If a family council is activated, it is also mandatory to prepare a written and comprehensive family constitution, which is a critical requirement for it to succeed. Basically, the family constitution defines the family’s vision of the future and its core values and beliefs. It likewise spells out the purpose and responsibilities of the family council, the family assembly and the board of directors.

The family assembly and the family council can co-exist. Since only a select group of family members get to participate in the council to discuss more relevant business-related issues, it might be necessary to establish the assembly to provide a venue for other family members not included in the council, to thresh out conflicts and air their opinions.

There are various components of a family constitution such as a code of behavior and policies governing family members working in the company. Some components worth mentioning here are dismissal and retirement policies. There can be a rule such as “All family members should automatically retire at age 60 and can serve on the board of directors only until the age of 70.”

Changing of the guard must be a gradual and graceful exit

In my experience coaching family enterprises in Asia, in order for me to motivate the family member, especially the founder who still clings to his position even past retirement age, I would normally specify certain incentives and benefits for the retiring members. For the founder, he can continue to have an honorary title such as chairman of the board or something that would make him feel he is useful to the business, knowing that his expertise and experience are duly acknowledged and respected by all concerned.

I also request next generation leaders to prepare and present a business or strategic plan on how to attain positive income projections in the next five years to make him feel secured in the thought that the company’s profitability continues even after his retirement. In short, make the transition gradual and done with grace and style. The candidate for succession should be endorsed by the family council based on meeting certain meritocracy criteria and strong leadership.

Suspending or firing a family member

Dismissals are sensitive matters that should be addressed directly. One policy may state “The authority to fire a family member rests solely with his or her direct superior. Prior to dismissal, the general manager should inform the family council, so that the ramifications of the dismissal can be anticipated and properly managed.”

Establish a fair process to build safety and predictability. Put stock redemption policies, job descriptions, performance appraisal systems, non-competition agreements, etc. The constitution should spell out the specific process by which the successor is to be chosen.

Perhaps, putting up the above organizational tools will prove difficult for most Filipino and Chinese family businesses given Asians’ non-confrontational attitude. But if they are to achieve economic takeoff and maintain stability, the effort must be undertaken, otherwise the family constitution is just a piece of paper.

With a clear strategy, growth is assured

SINGAPORE-I am back in Singapore to continue facilitating a strategic planning session for a family-owned enterprise with 7,000 employees. It is managed by second generation family members and engaged in several businesses (agriculture, real estate, investments and food). Just like any startup business with limited capital, the business that was started 40 years ago initially ventured into the trading of commodities like rice, sugar and corn.

Throughout its 40 years of existence, the patriarch has expressed his desire to retire. When he engaged my services as family business coach, he intimated two things as a pre-condition before he steps down–he wants to know where the business is heading (vision) and whether his children are capable of assuming a bigger role in managing the business (governance). I am on my third year as board advisor and this year’s thrust is to expand to Vietnam.

Before I was tapped by W+B to advise the enterprise, the patriarch admitted that these two questions keep him awake on some nights. Now he looks forward to a gameplan covering an expansion mode in ASEAN that he never thought was possible. After three years, his function is purely under an oversight mode now minus the day to day involvement.

Family constitution is a game changer

After helping the family craft a family charter (Constitution) which took a little more than a year to complete, the family and business relationships have been harmonized. Of course, there are occasional bumps on the compliance side but the governance process put in place plus the defined roles of the family members has dramatically eased the tension experienced prior to the constitution.

What has made the family members more focused now is due to the activation of the constitution into several councils (family and business councils), where I periodically attend and observe how the next generation family members behave during meetings and how they adhere to the governance policies enshrined in the agreement.

For now everybody’s gearing up to take the business to the next stage: ASEAN growth.

Your growth strategy must be competitive and relevant

A personal favorite that I use in most of my family strategic sessions is Harvard Prof. Michael Porter’s three “generic competitive strategies”. These are cost leadership, differentiation and focus.

Cost leadership strategy-a strategy of achieving leadership in an industry or line of business by offering products or services at a lower cost than your competitors.

Porter’s Cost leadership strategy requires a focus on efficiency, tight cost and overhead internal controls, and relentless cost minimization programs.

Differentiation strategy-a strategy of achieving leadership by creating a product/service that is perceived throughout the industry as unique. A differentiation strategy may take the form of design, brand image, technology, features, service, or other dimensions. Ideally, the company will differentiate itself along multiple dimensions. A focus on quality could be a key differentiator.

Focus strategy-a strategy of achieving leadership within a particular target market by serving that market more effectively or efficiently than competitors. This may enable the focused strategy firm to have cost leadership or differentiation within a tightly focused target market, or both.

What is your competitive and compelling strategy?

Your business growth requires a clear strategy. Your strategy could be based on cost leadership, differentiation or focus. So in my strategic growth sessions (which lasts two to three days) with family members and executives, I usually challenge them to get some pre work done and create a strategy go-to team to formulate and come up with a clear competitive strategy with a vision and an action plan that will cover the whole of 2017.

Family business leaders and professionals must not delay the strategic planning exercise. As what I highlighted in my previous article, everything you do now is meant for the future of your family business.

A business goal and a compelling strategy

“Everything you do now is for your family business’ future.”

I LOVE this line from an online quote: Give a man a bow and arrow and tell him to shoot and his first response would be, “At what?”

When there is no target, there is no purpose for shooting.

On the other hand, if you gave the archer a target and challenged him to hit the bullseye, everything changes. You now gave him something to aim at, something to challenge his skills against, something to measure his progress with, and something that gives all of his effort purpose. All by adding in a simple target.

The goal of strategy is to describe how and why the company is going to achieve its goals and objectives and to that end, the company must ensure that its strategies are aligned.

According to a research paper by John Ward, co-founder and principal of The Family Business Consulting Group, Inc., the term “strategic planning” typically refers to the process of developing a business strategy for profitable growth. It is designed to create insights into the company and the environment in which the company operates. It provides a systematic way of asking key business questions.

Such an inquiry challenges past business practices and opens the way for choosing new alternatives. The result should be a well-prepared strategic plan—usually a written document—that spells out specific steps to improve customer satisfaction, increase profit, and revitalize and prepare the company for the next generation. The plan also states the chosen mission of the business, identifies the direction of future growth, and describes programs that can help to achieve that growth. It thus indicates ways in which the business can compete more effectively.

Jane Hilbert-Davis, founder of Key Resources, an international business consultancy based in Boston, defined strategic planning as simply creating a plan of action. Originally from Greek words, “ster” which means to spread out, usually in a military sense, and “ag” to drive or to lead, the word “strategy” conjures up images of preparing for battle, or competition. It’s different from “vision”, which is a future imagined, a hope of how things can be in the “farther into the future” horizon, 10 to 20 years from now.

A strategic plan describes how you can get there. It’s about making decisions in the present for the future and usually involves a three to five-year time frame. It is both written and lived. It cannot be pieces of paper stuck in a drawer and forgotten, but must be thought through carefully. It should reflect a flexibility and readiness to whatever the future may bring.

Analyzing the critical 3s

As a strategic planning facilitator, my initial efforts as I begin my intervention is to profile the current situation using financial, competitive or customer analysis, and to interview the senior managers on what they see as the key strategic issues facing the firm. The interviews often uncover all sorts of family business issues, such as uncertainty about succession, rivalries among family members, and discrepancies between position and performance.

Strategy is the result of relevant research and analysis, as appropriate; and synthesizing the parts into a cohesive unit to develop a Strategic Plan. If you want a plan that will cover three years, my advice is to formulate a strategic plan. If you want to phase your plans and not “rock the boat” due to the conservative nature of the family members, you may opt to explore starting with formulating a business plan. The latter is an action plan covering 12 months.

But actions taken alone are just tactics.

Compelling strategy

For the family business to survive and grow, its marketing strategy must be compelling and competitive.

Marketing strategies should identify customer groups the company can serve better than its competitors and tailor its product offerings, prices, distribution, promotional efforts, and services to those target market segments. Good marketing strategies help the company concentrate its efforts on the markets it can serve best.

It is crucial that the compelling strategy takes into account all aspects of the company, so that the whole organization (and the executives) to quote Julie’s CEO, Opep Gandionco, “rides one bus” and proceeds in the same direction with the same purpose.

In the end, the company’s strategy is more likely to yield positive results if all employees understand, embrace and buy into them.

Watching out for the 3C’s

BOSTON — What do large family-inspired business conglomerates like the SM Group, Unilab, Jollibee, Ayala Corp., JG Summit andAboitiz Group have in common?

Every year, around the third quarter, the business unit heads of these companies are busy finalizing pre-strategic work plans for 2017.

Multinational corporations (MNC’s) are also abuzz with dedicated calendars all pointing to their much awaited strategic planning calendar.

ASEAN business advisors like us consider August to November as our busiest and most punishing four months facilitating strategic sessions in the region. August and September alone will take me to five countries! Work is more fun than fun.

Strategic plan as your compass

Most business owners or managers recognize that a strategic plan is a directional map for where their companies are headed and how they intend to get there. However, it is much harder for them to understand what goes into the strategic planning process. Why? Family business leaders belong to a transactional culture, meaning a very selling-oriented environment where the only discipline they know is sales and more sales year-in and year-out. To them, strategic planning sessions are a waste of time and will not result in any concrete and visible result in the immediate term.

Businesses must watch out for the 3Cs and the Real C

When doing Strategic pre-work planning, you must always focus on the three main C’s–competition, competitive advantage (company) and customers. But due to the volatility of the market, I deem it imperative to incorporate another C: complexity. The borderless competition and the complexities of the market have made strategic planning very crucial.

The latter is best done when a company looks at its past, present, and future in light of its changing environment. It is the process of thinking about the company and its related environment as an integrated whole. A process during which an executive “planning team” is organized to consider three key questions on a continuous basis:

What is our business?

Where do we want to go, and when?

How do we get from here to there?

Strategy is a continuation of a long-term plan of action designed to accomplish a desired set of goals. Your strategy relates to why and how your plan will work, relative to all the influences upon your company and its activities (in particular, its customers and competitors). I have seen throughout many consulting engagements that something has been missing.

Managing a family business is tough

A successful business is often the best thing that can happen to a family – and the worst.

“Keeping a family business alive is perhaps the toughest management job on Earth,” says John Ward. But without a clear management strategy, things could get even more awry for everyone – from the family patriarch who heads the business down to its members and staff.

It all starts with a vision you have for your company. Is that vision still relevant? Is it being accurately and concisely communicated throughout the company? If not, the outcome can be far from what you envisioned.

Vision Mission Values (VMV)

Jack Welch of General Electric fame accurately points to VMV as a powerful starting point and he says, “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.”

While reading this article, why don’t make a review :

1. Vision – Is the original vision still appropriate in terms of market trends, opportunities and threats?

2. Re-energizing – What is the best management structure for the future, especially in terms of outside advisers and non-family managers?

3. Values – Do the values, skills and ambitions of the next generation in the family match their wishes, abilities and views?

4. Continuity – What is the company ethos, family involvement and how are decisions delegated?

5. Governance – What strategies can be adopted by which the family can resolve conflict?

6. Resources – What actions, support and resources are required to maintain the business into the future?

For instance, if you plan to expand to another territory or introduce a new product or upon the prodding of your son (working in the family business) launch a social media marketing campaign to appeal to a broader, younger, Internet-savvy audience, did you initiate some form of survey for your marketing team whether they are familiar with social media?

How about your sales team? Do they have the experience in generating online leads? And most importantly, does your product make sense for this new audience?

To be continued…

Learning from the demise of the Cosmos empire

“Today is hard. Tomorrow will be worse, but the day after tomorrow will be sunshine.”

NEW YORK – When confronted with a crisis, it’s all about preparing for the future says, Jack Ma, Alibaba founder.

Family-owned and closely held businesses endure or die out depending upon how effectively they plan for the future. Similarly, even small and medium-sized family businesses must respond to a crisis. No company or family can escape some crisis at one time or another.

What is a crisis?

It’s any unplanned event, occurrence or sequence of events that family businesses have not had to deal with before. A crisis might be external to the business,-an economic downturn, a calamity, and earthquakes-or internal such as the death or disability of the founder, workplace violence, product failure or management failure.

Whatever the cause, the key to survival is planning way ahead and the ability to “take the long view”. The irony is that the very definition of a crisis is that it is an event that can’t be fully planned for. However, there are things you can do.

Prevention is best. Preparation is better.

Evaluate the ways in which your family or company are most vulnerable to a catastrophe. Identify possible risks and what can cause them. Any company should have an internal ‘alarm system’. Pay attention to the warnings. A patriarch suffering a stroke and given six months to live, like in the case of Henry, would have given the family sufficient time to transition and prepare the process for a leadership change.

The Cosmos family’s failed succession plan after the untimely demise of its patriarch, Henry Wong, is a valuable lesson for family business leaders to prepare for the worst case scenario.

Cosmos patriarch should have prepared a succession plan early on.

Without a clear succession plan, many businesses fail after the original owner passes away. The key is to plan well ahead. Succession is a long-term complex process, not a one-time event.

Business leaders must think what his or her long-term goals and objectives are, both in business and personal terms. They must ask themselves many questions before they even begin to consider the actual process of transition, such as whether they will play any active role in the company’s future operations, how the transition or even sale will affect the employees, customers, suppliers, and other stakeholders in the company.

The criteria must be made very clear, including the qualifications of the successor, to whom ownership of the business will go to, exactly when that will occur, and under what conditions.

Planning for the sudden death of the leader/owner of the company

As the saying goes, “Failure to plan is planning to fail.” Founders of companies that don’t plan can cause financial as well as emotional chaos in the company they have nurtured and spent their lives on. I have listed the following immediate steps when confronted with the warning signals. For SMEs with 100 percent or majority family ownership, you can also simplify the process:

Create a family council or an executive leadership team who will meet with advisors and stockholders. Decide who will be the leader albeit interim for the team.

Develop a written document describing who does what and what is to be done. For companies with many shareholders, it is better to prepare a corporate management statement that includes the following:

Guiding philosophy: What overriding principles of your business are important for your successors to continue?

Interim structures: How should the company be managed, the family organized around it and ownership handled in the interim and in the future?

Direction and outside support: Who should be involved in determining key issues related to company direction, and how should that input be organized?

Benchmark: What metrics, or key success factors, need to be monitored—and what should those benchmarks be?

Location of documents: Where do you keep the important personal and business documents that will be needed in handling that transition?

Appoint a family spokesperson or lead communicator with your customers, suppliers, banks, and other stakeholders to give assurance that it’s business as usual. Articulate the truth and tell it fast with openness and consistency, realistically upbeat and reassuring.

Involve the stockholders, board, executive management team and family to put into operation the plans that were made before the leader’s death.

It is better to incorporate in the plans the succession programs and the estate plan.

Keep your plans current and review them regularly.

The short life of family enterprises

FAMILY-OWNED enterprises (FOE) constitute the world’s oldest and most dominant form of business organizations.

According to Prof. John Ward, in many countries, family businesses represent more than 80 percent of the overall businesses.

It is also a fact that most family businesses have a very short life span beyond their founder’s stage and that some 95 percent of the family businesses do not survive the third generation of ownership. This is often the consequence of a lack of preparation of the subsequent generations to handle the demands of a growing business and a much larger family.

Strengths of family businesses

Several studies have shown that family-owned companies outperform their non-family counterparts in terms of sales, profits, and other growth measures. This high performance is the result of the inherent strengths that family businesses have compared to their counterparts. Some of these strengths include:

Commitment. The family as the business owner shows the highest dedication in seeing its business grow, prosper, and get passed on to the next generations. As a result, many family members identify with the company and are usually willing to work harder and reinvest part of their profits into the business to allow it to grow in the long-term.

Knowledge continuity. Families in business make it a priority to pass their accumulated knowledge, experience and skills to the next generations. Many family members get immersed in their family businesses at a very young age. This increases their level of commitment and provides them with the necessary tools to run their family business.

Reliability and pride. Because family businesses have their name and reputation associated with their products and/or services, they strive to increase the quality of their output and to maintain a good relationship with their partners — customers, suppliers, employees, community, etc.

Why do family businesses still fail?

Indeed, about two-thirds to three-quarters of family businesses either collapse or are sold by the founders during their own tenure.

Only five to 15 percent continue into the third generation in the hands of the descendants of the founders.

This high rate of failure among family businesses is attributed to a multitude of reasons. Some of these reasons can be due to the state of the industry or some external event like the regulatory environment or the economy. But clearly, the real danger points to the three major issues below:

Complexity. Family businesses are usually more complex in terms of governance than their counterparts due to the addition of a new variable: the family. Adding the family emotions and issues to the business increases the complexity of issues that these businesses have to deal with. Unlike in other types of businesses, family members play different roles within their business, which can sometimes lead to a non-alignment of incentives among all family members.

Informality. The family tries to do it all and there is usually very little interest in setting clearly articulated business practices and procedures. As the family and its business grow larger, this situation can lead to many inefficiencies and internal conflicts that could threaten the continuity of the business.

Lack of discipline. Many family business owners especially the next generation members who have never experienced struggling to survive have this sense of entitlement and often times do not pay sufficient attention to key strategic areas.

While many businesses that are owned and managed by families recognize the importance of ownership and management transition, “few know where and how to start in developing a governance and succession plan.”

For advisors out there, the key is to challenge FOEs to pursue governance and succession. Doing so will improve their odds of survival.