Making family businesses work
For a family-run company to be considered successful, it must remain, throughout the years, significant and sustainable—and the only way to ensure this is for the company’s leaders to follow good stewardship principles.
There are seven principles, according to Singapore-based Stewardship Asia Centre (SAC), which it recently published in a paper titled “Stewardship Principles for Family Businesses.”
Speaking to reporters in Makati City, SAC CEO Ong Boon Hwee laid out these key principles: Be driven by purpose, [and] anchored on values; cultivate an ownership mentality; integrate short-term and long-term perspectives; expect changes, nurture agility, and strengthen resilience; embrace inclusiveness and build strong stakeholder relationships; do well, do good, do right [by] contributing to community; and be mindful of succession.
“Stewardship Principles for Family Businesses” (available on http://www.stewardshipasia.com.sg) was created after a series of consultations with successful and enduring family businesses in Asia-Pacific, organizations which have worked closely with such businesses, and experts on family business leadership.
A key part of this process was the Meeting of the Minds held last June, which brought together leaders of regional family businesses and associations.
There, participants shared their knowledge and experiences, and contributed valuable insights and comments to refine and help support the principles into becoming a relevant and useful guide for family-run companies.
To apply the first principle, leaders of family-run businesses must be clear about their purpose, states the report.
This can be communicated through a family constitution, the business philosophy, and organizational vision and mission.
Such purpose and values should also “be embedded in the daily language, actions, and thinking processes of all stakeholders.”
Affirmation of those who exemplify company values, and the education of those who do not, can also help all stakeholders remain true to their purpose.
The second principle focuses on cultivating ownership mentality not just among the company’s leaders, but also among employees.
To do so, there must be a personal and collective accountability in a company, the report states, but at the same time, diversity of perspectives must be valued.
“Family owners should not misconstrue ownership as having the entitlement to use company resources to benefit themselves,” the report further reads.
As the third principle posits, family-run businesses must think long-term while still dealing with short-term issues.
“Act today with tomorrow in mind,” the report states.
This means spending must be done prudently, investments done patiently, reinvestments done strategically, and risks taken calculatingly.
An understanding of the business’ history will also help in building its legacy.
The fourth principle focuses on how a company should adapt to constant change.
Investments in research and development can help raise stakeholders’ competency and professionalism, the report says.
Instead of just guarding current wealth and traditional practices, family-run business must also cultivate a growth mind-set.
The fifth principle deals with the establishment of stable relationships among internal and external stakeholders through good governance.
A culture of open communication and tolerance is key, according to the report.
Arbitration mechanisms such as people-centered policies, a family council and soft persuasion are just as important.
Board diversity, employee rewards and merit-based hiring also help.
A family-run business’ social impact is also important when it comes to good stewardship.
“By giving back to society, noneconomic wealth such as social capital, communal ties, family reputation and core values will be preserved and transmitted,” reads the report.
Finally, the last principle deals with having a robust succession plan.
Hwee made an example of Ayala Corp., which he said “really grooms its next generation, while bringing in new professional talent.”
According to the report, a healthy environment where older and younger generations can freely exchange views is key to avoiding conflicts when it comes to succession.
“The unifying thread in succession is the family’s sense of purpose and value system. If there is a strong will to take over [among the younger generation], the business model can always be modified,” added Hwee.
These principles address key issues which family-run businesses currently face, such as dilution of ownership, short-term lifespan and the loss of a company’s sense of purpose.
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