What differentiates family businesses that last for generations from the majority that disappear after one or two is the formulation and implementation of strategies to guide the enterprise. Family business survival cannot be left to fate or wishful thinking.
Such is the central message of UBS Wealth Management in an interview with Thomas Zellweger, who specializes in family businesses and entrepreneurship at the University of St. Gallen in Switzerland. Thank you to Ateneo de Manila University president and economist Fr. Bobby Yap, who sent me the interview clip, titled “Keeping Wealth Over Generations.” We in the Ateneo Family Business Development Center (AFBDC) continue to help Filipino business families craft governance and strategy.
“Family governance is the processes and strategies that the family puts in place vis-à-vis the assets and businesses it holds,” says Zellweger. Many families believe this entails “maximizing control,” but governance also includes “how owners themselves behave and how they are reliably acting,” in company management, ownership and wealth management.
To succeed, business families need to “develop a shared understanding that to succeed in the long run, there is a need for coordination and alignment,” says Zellweger.
Through the years, we in AFBDC have successfully helped hundreds of families develop a constitution to guide governance. But sometimes, as early as the initial briefing, there may already be signs of trouble.
“Sometimes, members don’t show up, or some are late,” says Ricky Mercado, AFBDC director. “These may indicate problems in family dynamics” and must ideally be resolved before attempting a constitution.
Zellweger describes a “two-pronged structure” in successful family enterprises. The first involves corporate assets, which are “dedicated, concentrated” long-term investments in legacy firms. Traditionally, managing such assets is the bread and butter of banks such as UBS.
The second involves noncorporate assets, which include not just liquid or real estate holdings (condos, houses), but also activities like philanthropy or social gatherings. Noncorporate assets are increasingly managed by family offices in the West, and in Singapore and Hong Kong in Asia. (See “Should We Go for a Family Office?” May 25, 2021).
Part of governance involves defining values that form the basis of family policies. If inclusivity is valued by a family, for instance, then qualifications for next-generation entry are openly discussed, together with career paths, mentorship and so on.
The root cause of problems in family enterprises often lies not so much in insufficient knowhow, but more in dysfunctional relationships, attitudes and habits. Before starting formal facilitation, when we in AFBDC sense that members are in major conflict (even if they deny it), we recommend them to first seek therapy elsewhere.
“If not,” says Ricky, “doing a constitution is a waste of everyone’s time and resources.” I advise problematic clients that throwing money at a problem does not guarantee success, and it is futile to facilitate sessions we doubt will succeed. (See “The Family Constitution,” February 2, 2018).
AFBDC helps families manage council meetings and provide communication tips, but it is not a therapy center. We opt not to delve much into why the patriarch practices favoritism, why siblings do not get along, or why the younger generation acts in entitled ways.
“Telling clients about investments is easy,” a private banker tells me bluntly. “Telling parents not to spoil their heirs is infinitely harder.”
“It takes time to set up these sorts of discussions, and it is not something you can do overnight,” says Zellweger. “Advisors can help you sort out technical details, but aligning family members towards a joint goal and committing to it takes time.”
Visit AFBDC at ateneofamilybusiness.weebly.com.
Queena N. Lee-Chua is on the board of directors of Ateneo’s Family Business Center. Get her print book “All in the Family Business” at Lazada or Shopee, or e-book at Amazon, Google Play, Apple iBooks. Contact the author at blessbook.chua@gmail.com.