Founder’s death and its unintended consequences

Credit to Author: The Manila Times| Date: Sat, 26 Jan 2019 16:24:40 +0000


In November 2017, Metrobank founder and business magnate George S.K. Ty died at age 86. A week later, another business leader, Jon Ramon Aboitiz, chairman of the 130-year old Aboitiz group and fourth generation leader of one of the most revered family conglomerates in Asia, died at the age of 70.

The following month, the second generation scion Victor Consunji of Semirara Mining and Poweer Corp. and the globally recognized construction giant DMCI Project Developers Inc. also passed away. And just last Saturday, January 19, the country’s wealthiest man, Henry Sy Sr. died peacefully in his sleep. He was 94. Forbes magazine estimates his wealth at $20 billion.

The business community mourns the passing of these industrialists, founders and business giants who in one way or another helped shaped the country’s economy right after World War 2. But from a family governance and succession perspective, how do family members make sense of the vast empire these industrialists left behind? Was there a transition? Are the next generation offspring prepared to assume the mantle of leadership? Did these owners prepare the leadership and wealth transition way in advance or left it to chance? Everybody plans to live, but nobody really prepares for his or her death.

The death of a founder whose fixation was always about growth and expansion can shake the very foundations of the businesses and the institutions whose lives depended on it. We have heard countless stories of an autocratic owner who builds the business, then suddenly dies leaving the family totally unprepared to continue the business. The business gets sold, and the family legacy dies with the founder.

According to psychologist and author Kathy Marshack, “founders are notoriously poor at planning for the future of their businesses. As a result, most family businesses don’t live beyond the first generation. And death is not an easy subject to talk about, nor is retirement. But it is a subject that needs to be addressed by all members. Is the business merely a reflection of the founder? What part do other family member play, shareholders and stakeholders alike? Who will run the business after the founder steps down? When will the founder step down?”

These questions reflect what we envision the founder must do before death comes knocking. He will do a succession plan. While founders are often aware of the importance of crafting a succession plan, they also experience psychological resistance to prepare and manage their eventual exits. Admittedly it is tough to plan ahead, but it can be exciting and rewarding to know that your vision and legacy will live on and prosper under the guidance of a trusted family member.

Marshack further stated that “while it is too late to work on a succession plan after the death of a founder, it is never too early to plan, even if you have no successor or just started your business or your kids are too young to even work yet. Succession plans can evolve over time to fit the changing needs of the family or the business.”

Prof. Josep Tàpies of IESE Business School in Spain is correct when he remarked, “No one assumes that the son of a great violinist will also be a virtuoso on that instrument,” So, when do we consider a succession successful? First, it is when the founder hands over the business seamlessly to the children, along with their spouses, without any fanfare nor disturbances in any of the three critical pillars: family, business and ownership systems.

Second, it includes the transfer of power to the most qualified and deserving next generation leader, who will navigate the enterprise together with his or her siblings. The transition to a chosen successor is a critical decision made unanimously by all the siblings, the Board and the senior executive team.

The third element in the succession journey is that every strategic move is guided by a family agreement or a charter where governance issues are raised to the family council for approval using pre-agreed barometers. It is also essential for every member of the family council to be involved in a consensual decision-making process under a culture of transparency and respect.

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 chaiman of the Marketing Cluster at the Ateneo Graduate School of Business in Manila, and is a visiting Senior Fellow of the IPMI International School, Jakarta.

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