Death and succession

Three high profile deaths happened last November.

Most notable was that of JG Summit founder and industrialist John Gokongwei. He was 93. The day after he died, the President of PAL Holdings and heir apparent, Lucio “Bong” Tan Jr., succumbed to brain herniation. He was 53. The son and namesake of billionaire and industrialist Lucio Tan Sr., Bong collapsed while playing basketball. A week after, the cofounder and chair of food giant CDO Foodsphere, Jose “Pepe” Ong, also passed away. He was 78.

In 2018, in the same month, Metrobank founder George S.K. Ty died at 86. A week later, another business leader, Jon Ramon Aboitiz, chair of the 130-year old Aboitiz group and fourth generation leader of one of the most revered family conglomerates in Asia died at the age of 70. The business community mourned the passing of these industrialists, founders and an heir apparent. They all helped shape the country’s economy to what it is now.

However, from a family governance and succession perspective, how do their family members make sense of their deaths?

Was there a formal transition? Are the next generation offspring prepared to assume the mantle of leadership?

With their vast resources at their disposal, we can assume that they have a solid transition plan, right? It does not follow.

Succession planning

Even when succession plans are developed, they often fail to deal with the many quantitative and qualitative issues necessary to properly transition a family enterprise to the next generation.

In a poll conducted by ExCeD Institute Asia among a select number of high net worth business owners, less than 10 percent are seriously pursuing succession and 25 percent have thought about initiating one. And the rest have not even considered any form of transition. There lies the danger.

When these business leaders die or become incapacitated, the business suffers a hit, from which many do not recover.

In the case of second-generation Bong Tan, his death was so sudden and unexpected.

Just like any parent who expects to die ahead of their children, his father, Lucio Tan, with wealth estimated at $4 billion was unprepared. It was only four months earlier that the son assumed the president and COO role of PAL Holdings.

But my question is now directed to the founders of small and medium sized businesses.

If you are a business owner, ask yourself: If you would die tomorrow what would happen to your business? Would it thrive and provide a long-term source of financial support for your family? Or would it gradually disintegrate amid squabbling among family members and lawsuits and poor management until the remaining assets are sold for a fraction of their original value?

Abruptly passing the family business to your children is fraught with a minefield of risks. The problem with every key business leader is they are exceptionally good at generating wealth but notoriously poor at preparing for his or her death. During unplanned generational transitions, many family businesses are sold due to sibling rivalry and power struggle among the surviving family members.

The current battle royale involving the Yanson Ceres family members (locked in an intracorporate conflict) is a good example of what happens when there is an inadequate or a poor succession plan.

Death is inevitable, but what happens to your business is another story, and any sudden and untimely demise can disrupt the very foundation of the businesses and the institutions on which many employees and stakeholders depend.

As what I would emphatically share with my audience in speaking engagements, “when a business owner dies or becomes permanently disabled, the business itself may die or be permanently disabled not because something wrong was done but because nothing was done!”According to psychologist and author Kathy Marshack, “founders are notoriously poor at planning for the future of their businesses. As a result, most family businesses don’t live beyond the first generation. And death is not an easy subject to talk about, nor is retirement. But it is a subject that needs to be addressed by all members. Is the business merely a reflection of the founder? What parts do other family member play, shareholders and stakeholders alike? Who will run the business after the founder steps down? When will the founder step down?”

Admittedly, succession plan

ning is a difficult subject for the current generation to face. Such discussions often trigger a range of deep emotions, among them fear, conscious acknowledgment of personal aging and death, loss of personal identity defined by involvement in the business and a desire to avoid family conflict.

However, if you follow the succession model of John Gokongwei, who planned the leadership and ownership transition almost 30 years ago, the chances of successfully forging ahead are high.

In conclusion, Josep Tàpies of IESE Business School drives home a very good point, “All companies are subject to risks committed by governments and managers, but family companies, because of their very nature, can more easily succumb to a series of mistakes. The succession process is a key issue that the family company must confront. It is a long process that requires planning and collaboration with outside advisors. A well-prepared succession requires the intensive training of one or several different successors. It also requires you to establish conditions that will regulate relationships between shareholders, managers and corporate personnel in the future.”

Finally, succession is a new beginning, a process, an ever-evolving phenomenon. Most of all, it is a journey that every family-owned business must go through without exception.—CONTRIBUTED INQ

Soriano is an author, World Bank/IFC

Governance Consultant, Senior Advisor of Post and Powell Singapore and Executive Director of Wong + Bernstein Family Advisory Group, a research and consulting firm in Asia that serves family businesses and family foundations.