Can family firms survive?
Credit to Author: TYRONE JASPER C. PIAD| Date: Sat, 19 Jan 2019 16:22:30 +0000
YES, but their founders will die. No ifs about it. Let me be brutally honest and straightforward: When a business owner dies or becomes permanently disabled, his or her business may itself die or become permanently disabled that day, not because something wrong was done, but because nothing was done!
As the founder or owner of a business that you built from hard work, is it prepared for such a major transition? Whether the family, business or ownership (wealth), everything is in transition. When illness, incapacity or death of a key family shareholder strikes, or when events like marriage, separation or dispersed ownership happens, its impact on the family business system may cripple it overnight.
By default, business owners procrastinate, asserting that they are “super healthy humans.” With a mindset bordering on immortality, they totally disregard any form of transition. But when a sudden event like death occurs, it would leave everybody broken, gasping for breath, barely surviving and being dragged under by the overwhelming weight of the business and the family. There is no doubt that any business will face some very difficult choices in the months and years to come, so being prepared is critical.
As the leader of the clan, you cannot bury your head in the sand and pray that challenges to your family business will magically work themselves out. Owners must anticipate these predictable events. They must think of the future of the family first and not be tied up with daily sales and operations all the time. Finally, they must craft solid agreements and make the right decisions now to prepare for the future.
So how does one navigate changes like these in the business?
In my last column, I highlighted the Aboitiz family’s 130-year journey that started with a small abaca business in Ormoc, Leyte. Years later, the family business ventured into inter-island shipping to transport its goods across the Visayas. Fast-forward 100 years later, it has become one of the largest, oldest and most respected conglomerates in the Philippines. The group has spanned five generations, blending family and professional management. And behind its business success is a powerful and enforceable family constitution that is meant to ensure the sustainability of its wide range of businesses all over Asia.
To quote what fourth-generation CEO Erramon Aboitiz replied when asked what the family’s enduring qualities were: “What makes the family stick together is a question asked of us many times.
There is no simple answer, but trust, mutual respect and the love of being together are foremost in my mind. Promotion within the family and company is based on respect and merits. Family members are professionals in every sense of the word. No family member has a right to work for the company. All of us, whether male or female, have gone through the ranks.”
He also went on to articulate the value of the fairness principle that must be upheld within the clan. And to avoid any misunderstanding and encourage open communication, the members, as mandated in their constitution, must hold regular meetings where transparency is promoted among the leaders. Similarly, to prevent unnecessary misunderstandings and minimize role conflicts, their agreements explicitly say that governance forums will be created as avenues for family members to raise their grievances. These governance forums are classified into family, business and ownership councils, and prevent petty issues from exploding in the wrong forum.
And finally, to perpetuate the legacy of the Aboitiz family business, a well-designed leadership program is in place to shape expectations of members of the next generation with respect to their competence, roles in the business and, most important, their future stewardship.
As expressed by Chief Human Resource Officer Xavier “Txabi” Aboitiz, another fourth-generation member: “The fifth generation of the Aboitiz family may soon be ready to take over the company. We’re definitely in the process of passing on the torch into their capable hands.”
Staying true to the tenets of the family constitution, the Aboitiz family continues to inspire family businesses in Asia and has kept itself united, with every single family member that signed the constitution committed to the future of the family business. For them, succession has always been smooth, despite studies saying that family-owned businesses tend to die out by the third generation.
Prof Enrique Soriano is a World Bank/IFC governance consultant, senior advisor of Post and Powell Singapore, and the executive director of Wong + Bernstein, a research and consulting firm in Asia that serves family businesses and family foundations. He was the chairman of the marketing cluster at the Ateneo Graduate School of Business in Manila, and is currently a visiting senior fellow of the IPMI International School in Jakarta.
He is also an associate member of the Singapore Institute of Directors and an advisor to business families worldwide, a sought-after governance speaker at conferences, and author of more than 200 articles and publications, including two best-selling Family Business books. He currently mentors and advises family businesses, CEOs and top-level entrepreneurs on how to successfully systemize their businesses so that they can increase revenue, scale, and even exit their business.
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