The problem with figureheads

“My son the president is really just a figurehead,” says Nena (not her real name), a matriarch of a retail group in Manila. “Actually, I think he calls himself CEO now. But however fancy the title is, everyone knows that the real power lies with me as chair of the board.”

At first glance, the organizational chart of the company looks impressive. Family members dominate executive positions, from president to various vice presidents (marketing, finance, operations, production, even information technology).

When I praise the inclusion of vice president for IT, Nena says, “My six children just placed themselves into those positions. The eldest is president. The others want to be vice presidents, and since my youngest son likes computers, he became VP of IT.”

Does the son function well as head of IT? Nena shrugs. “I turned down his intention to buy software costing more than a million pesos. Our current system is fine. He should do a better job.”

Interfering with each other

Nena is happy with the performance of only two of her children: A daughter as head of finance and another son as head of operations. “They take charge of everything. Finance head also does marketing. Operations head does production. Both take over human resources, because no one else wants to deal with employees.”

Don’t the work overlaps cause conflict? “Of course. My children accuse each other of interference. But I tell them that everyone should work for the sake of the business, so it should be OK.”

The president? Nena shrugs again. “He spends his days playing golf and going to the beach. My other children don’t like it, but he does not interfere, so they let him be. Malakas din naman ang PR niya. He represents us in functions and whatnot.”

Shouldn’t the capable ones succeed Nena? “I have already announced that upon my passing, my daughter in finance will be board chair. My son in operations will be president.”

What about the current president? “He will remain a member of the board, of course, as an owner. But he knows that all day-to-day management should be turned over to his sister and his brother someday.”

When I suggest that Nena slowly turn over part of her responsibilities, she resists. “As long as I am alive, I will head the company. My husband and I started the business, and when he died, he turned over everything to me. My two children are good enough, but they don’t know how to deal with the realities of society, with suppliers that cheat you, customers that don’t pay on time or don’t pay at all, corrupt people who ask for bribes.”

Shouldn’t Nena start training her successors now? “They are exposed now. They are learning on the job. But none of them can take over my role yet. When the time is right, then we’ll see.”

Lack of Structure

Many family businesses do not have a formal organizational structure, which means that management responsibilities are based on seniority (the eldest son is president even if he is not up to the job) or interest (the youngest son is IT head only because he likes computers).

The informal structure exists because family members, especially the founder, expect collective responsibility, as seen in Nena’s injunction for “everyone to work for the sake of the business.”

The informal structure of many family businesses is often seen at as a disadvantage, but I disagree. The setup can work—but only if managers and other executives are qualified. That is the reason why many family businesses require that their children take a business course in a top university here or abroad, and work in other companies for a couple of years before entering the firm.

Once inside the business, children are encouraged to prove themselves and develop their potential. They often do not start from the top (as vice-presidents), but work under the mentorship of a qualified professional (whether family member or not).  Only after they have shown their worth are they given huge responsibilities, plus the titles and benefits that go with them.

Sadly, this is not the case with Nena and her children. Lack of structure results in blurred roles and friction. “[With] low specialization of task with practically no clear job descriptions and work procedures,” says A. B. Susanto and Patricia Susanto of the Jakarta Consulting Group, “reporting relationships are interchangeable, thus resulting in role conflicts.”

As long as Nena is still around, the family business can probably still survive, however tenuously.  But when she dies, you and I know that chaos will ensue.

Next Friday: Training the next generation

(Queena N. Lee-Chua is on the Board of Directors of Ateneo de Manila University’s Family Business Development Center.  Get her book “Successful Family Businesses” at the University Press (e-mail [email protected].)  E-mail the author at [email protected].)