Crisis awaits PH family firms

When a business owner dies or becomes permanently disabled, the business itself may die or be permanently disabled on the same day—not because something wrong was done—but because nothing was done.

According to a Forbes article, when Samsung Electronics chair Lee Kun-Hee suffered a heart attack in May, investors began to consider the impact that a sudden, accelerated leadership succession might have on the company.

Lee is expected to eventually hand the reins to his son, Lee Jae-yong, 45, who has worked at the company in various capacities for 23 years.

Does the younger Lee have what it takes to steer Samsung forward in today’s competitive business environment?

Critical period

The founders of most family businesses are now looking at their own children and wrestling with this same question.

For them, the next five years is critical. This is the peak succession period as 30 percent of family-owned firms will experience a change in leadership due to retirement or semi-retirement.

The Forbes article added, “after decades of hard work and sacrifice to make their enterprises successful, they want to ensure they are “built to last”—a legacy that will help support future generations.”

In my work as a family business coach in         the region, one of the most important factors that affect family business transactions is the lack of a clear, well-defined business succession plan.

The lack of such a plan may create conflict between the potentially inconsistent goals of family unity and the continued financial success of the business.

Control issues

Another very important factor is the failure to address the issue of who will run the business—the issue of “control.”

In an intergenerational (second generation) or multigenerational (third generation) family of several siblings and cousins, choosing a successor poses quite a challenge. The search can cause sleepless nights for the patriarch and senior generation members.

Another issue is the failure to ensure that the surviving spouse has a market for the inherited business and sufficient income that will last the rest of his or her life.

Without a well-defined business succession plan, the family business will ultimately collapse.

The reason why we are talking about these issues is that proper business continuation planning can ensure the future succession of the business. It can also help avoid conflicts between the remaining owners and the family of the deceased owner.

What events do we need to plan for?

There are many events that can disrupt or put the business at risk, but the most common ones include:

1. Death of an owner

2. Disability of an owner

3. Bankruptcy or divorce of an owner

4. Retirement of an owner, and

5. Withdrawal for whatever reason of an owner prior to retirement

Succession plan

When we use the term “business succession plan,” it actually has several components.

First of all there is the human component. The second major component is the agreement itself.

The human component is often the most difficult and challenging part of the succession planning process and the reason why many owners never get their planning finished.

For starters, you need to look at your business and ask yourself:

1. Who are my key players?

2. Have I promised ownership to anyone other than my existing partners?

3. Are there family members already working in the business and how do I judge their commitment to the business for the long haul?

4. Is there an “heir apparent” for control of the business? Did I promise that person control?

5. Are there family members or in-laws who are not currently involved in the business but will want to be a part of it in the future?

There are many other important questions that affect the long-term survivability of the business. Due to space constraints, I will tackle those questions separately.

For now, the message to the founding and senior generation leaders is loud and clear.

Do not neglect or set aside the issue of business succession as the “do nothing” option has dire and irreversible consequences.

It is the least logical, the most costly and most destructive option. Yet, sadly, it is far and away the most popular.

(The author is an Asean Family Business Advisor and chair of the Marketing Cluster of the Ateneo Graduate School of Business.)