The family constitution
Thank you, readers, for catapulting “All in the Family Business” to the National Bookstore’s bestseller list. Call Jeanette Escuro at 0915-421-2019 if the branch nearest you ran out of stock.
In 2013, US family business consultant Dennis Jaffe studied 38 enterprises that overcame the three-generation curse.
Though I wish the sample size had been bigger, the odds are against family businesses: The average chance of the third generation in terms of survival range from 8 to 15 percent in most countries.
In the Philippines, majority of top family businesses are still being controlled by the second generation today.
Jaffe’s research revealed one constant factor in successful transitions: a family constitution that spells out in detail the ownership and management mechanisms for governance, employment, compensation, wealth distribution, dividends and so on.
The figures don’t lie: 71 percent of business families on their third generation have a family constitution, 96 percent on their fourth generation also have one, and a whopping 100 percent of those on their fifth also have the same.
The Ayalas and the Aboitizes, now on their sixth or later generations, have strong family constitutions. And what is more important: They are able to implement the principles well.
Implementation
A family constitution is like any other document of shared vision, values and principles. It is only as effective as the bonds of the people it governs.
Like our country’s constitution, ideal principles (or the wishes of the founders) are put in place, but the reality is more complicated.
Just as our citizens try but often fail to practice the principles and embody the values enshrined in our national constitution, so too do family business successors struggle to put into practice the family constitution principles they idealistically crafted.
The family constitution, though necessary for family business continuity, is not a miracle tool. Families already wracked by conflict should first seek the help of a psychologist or counselor and make a decent attempt to resolve personal issues rather than turning to a business consultant for a constitution, samples of which abound on the internet.
I have turned down countless requests to do a constitution for families whose members have not talked to each other in decades, those with entitled and incompetent heirs whom everyone knows cannot manage the enterprise, or those whose members come armed with multiple lawyers ready to do battle.
Other consultants might succeed where I dare not tread. But for me, life is too precious to squander on families whose members do not even truly care for each other.
The cases I take on (and those I recommend to the Ateneo Family Business Center) are those I perceive to have more than a glimmer of hope: families who deep down yearn for stronger connections even if pride and tradition have made them distant from one another; multi-generations who deep down are open enough to work together for the good of family and business even if they are often at odds; founders who deep down are humble enough to admit mistakes even if they are feared in their enterprise; successors who deep down treasure family legacy even if they make painful tradeoffs in the meantime.
These families are all too human, but they are all good people.
We start with therapy, and when relationships improve, only then do we try to craft a family constitution.
Even the best families struggle to implement all constitutional provisions. As times change, constitutions also evolve, in step with business families.
