Alvin Lao
There is a famous Chinese saying that goes “Fu Pu Kuo San Tai,” which literally means “wealth does not pass three generations.”
The first generation patriarch works hard to build the business. The second generation inherits it and grows the family fortune while the third generation squanders it and destroys the business.
This was the concern of the Lao family when they started exploring the idea of going public.
D&L Industries was founded by brothers Dean and Leon Lao in 1963. The business, which sold colorants to the plastic industry at that time, was so successful that, several years later, three other brothers, Alex, Edwin and John, joined the company and helped grow the business.
Today, 54 years after the company was founded by the Lao brothers, D&L Industries is the largest chemical company in the Philippines with a market capitalization of over P90 billion. It is now managed by the second-generation Lao family.
Aware of the need to prepare the family business for the future, Alvin Lao, president and CEO of D&L Industries, shares how his family plans to ensure longevity and beat the third generation curse.
1. Avoid hiring in-laws to prevent family conflicts
No matter how competent they are, hiring of in-laws may put family relationships at risk due to potential differences with family members in how to run the business.
“We don’t hire in-laws. Not because they are not qualified, but we have seen in many family businesses that the presence of in-laws can be a source of conflict,” Lao says.
2. Work for someone else first before joining the family business
Encouraging family members to work outside first to gain experience can help prevent the sense of entitlement from creeping into the family business.
“Family members must graduate from college and work outside for at least two years. When they start with us, they should start from the bottom”, says Lao, who worked for a real estate company prior to joining the family business.
3. Keep communication lines open and promote mentoring within the family
The business wisdom one gets from someone who has learned from experience is valuable and is not found in regular textbooks.
“The first generation family members are always there for us. They are great mentors to us and are our main source of advice and wisdom. Once a week, family members who work in the business have to meet together,” Lao says.
4. Professionalize the management team and follow best practices
Transitioning a family business structure to a more professional setup can be difficult. Family members must be willing to share some aspects of control in the business with non-family professionals. But for the business to sustain growth, it has to upgrade its systems and processes and strengthen corporate governance.
“My family was already concerned about the third generation curse, so we started to implement a lot of things to help us professionalize. The idea is if you are professionalized, there will be less chance of confusion in the future,” Lao says.
“Listing the company was also in line with our goal to professionalize. If you are listed, you have to have independent directors, corporate governance and better transparency,” Lao adds.
5. Make mistakes and learn from them
Encouraging family members to take risks opens up opportunities for learning.
“Many family businesses are known to have a strong patriarch who dictates what goes on in the business. In our case, we do have patriarchs, but they give us a lot of flexibility and leeway to do our own thing and make our own mistakes to learn and grow,” Lao says. —CONTRUBUTED