A GOOD number of corporations in the Philippines are run and owned by families. Indeed, corporate history is replete with examples of how the family bond can become a significant advantage, if the business is led and managed effectively.
“[But] when roles and governance are not clearly articulated and formalized at the onset, it is highly likely that conflict can escalate,” says Enrique Soriano III, senior advisor of the Wong + Bernstein Advisory Group, a strategic consulting group that deals with Asian family businesses, organizational change and competitive strategies.
He is a Certified Professional Marketer, a National Agora Award for Excellence in Marketing Education, a family business coach, author, columnist and professor. He recently launched his best-selling book “Kite Runner” and will release another book meant for family businesses within the Association of Southeast Asian Nations (Asean).
Soriano was chair of the marketing cluster of the Ateneo Graduate School of Business and the former president of the Association of Marketing Educators.
Every year, he delivers more than 200 talks in the Philippines and the region on strategic innovation for emerging businesses. He received his MBA from De La Salle University and pursued postgraduate studies at the National University of Singapore Business School.
Here, Soriano shares insights on questions related to managing a family business.
Question: What are the challenges faced by a family business when second or even third generation comes in?
Answer: Very challenging as the family business transitions from a founder/controlling ownership phase where the founder has limited corporate governance issues (since both control and ownership are still in the hands of the same person) to the sibling partnership phase. The latter stage offers more challenges, as more family members are involved
Some of these are the following: First, maintaining sibling harmony; secondly formalizing business processes; thirdly, setting up a communication process and conflict management mechanism; and lastly addressing a professional succession for key positions.
Thus, for the transition to be less problematic, the founder should make every effort to initiate succession plans for the next generation leaders with clearly defined protocols.
Q: Is it advisable to include cousins and/or in-laws in a family business?
A: With my extensive experience coaching Family Business in Asean and North America, my one piece of advise is and if it can still be avoided… try not to involve engaging in-laws and extended family members. Of course there are exceptions where in-laws end up as exceptionally talented and made significant contributions to the family business. But whatever the composition of the family business is, it is really important and nonnegotiable that family and business governance and accountability be set up early.
Q: What if a child does not want to join a family business because he wants to have his own but a parent forces him? Should the child be firm in following his own path or be respectable of the family legacy?
A: The family member or child should never be forced or be compelled to join the family business. Again, allow the child to find work experience outside the family business so he can gain a certain level of confidence.
In my work, we encourage parents to allow their children some form of independence so they can find their self worth. Parenting is tough in itself, so the key is giving the child wings to do what he really desires. Give him options because when you really think about it, the children will never be like their parents and may never share the same dreams. Forcing the child to work can lead to a generational conflict. In most cases, he will find it in his heart to go back and help the business.
Q: What is one thing a family business in the Philippines usually lacks that should be given importance to?
A: There are three perspectives that must be given equal importance. Harvard refers to this framework as the “3 Circle Model” and it is directly related to family, business, and ownership. They are inextricably link together and the only way to manage these dimensions is through governance. You disregard or neglect one circle and you risk destroying the whole system.
Another burning issue that has created so much conflict with the family is the issue of patriarchal control where complete power rest on one founder or the senior generation leader. One event like death, a medical condition or retirement can cripple the business overnight. Another thorny issue that have compromised many family businesses is the younger generation’s sense of entitlement where they feel that having the same last names as their parents will entitle them to do whatever they want as if its their birthright.
Finally, unresolved issues related to succession and ownership can also compromise family businesses.
Q: How do you set rules in the business with the family members without creating any emotional drama?
A: Intervention of a trusted experienced and unbiased family business advisor is critical. His role is to align the vision of the founder and prepare a plan that will seamlessly transition the business to the next generation.
In a research conducted by Wong and Bernstein, only six percent of family businesses are open to engaging family advisors. Most family businesses prefer solving their conflicts amongst themselves or at worst choose not “do anything” until its too late.
Mr. Eric Soriano will be the resource speaker for the workshop on Families In Business Sustaining And Growing The Legacy on Nov. 9-11, 2015 at the Inquirer Academy Building, Chino Roces Avenue corner Ponte Street, Makati City.
The professional workshop is brought to you by Inquirer Academy and is designed for family members involved in the family business.
To know more about the workshop or Mr. Soriano, you may write to ask@inquireracademy.com or call 8341557. Look for Astrud De Castro or Arvin Maghirang.
Inquirer Academy is the learning center for professionals who want to get ahead, be ahead and contribute to society.