AS family businesses stay aggressive on their expansions plans, they should not forget one critical aspect needed for their businesses to last long—the adoption of a family constitution and shareholder agreement.
Of the 75 percent of family businesses in the country, less than five percent have a family constitution due to lack of awareness and ignorance, said family business consultant and SunStar Cebu columnist Prof. Enrique Soriano.
The Philippines is the second country in Asia that has the highest percentage of highly-stressed family businesses next to Indonesia, said Soriano.
Some 48 percent of the family businesses have difficulty in removing family members from positions of power while 43 percent experience disagreements between family members over the direction of the company.
Soriano reiterated his advice to family business owners to start crafting their family business constitution at the early stages of their business, preferably before the second generation enters the business.
“The goal here is to deter conflict by preventing future problems,” he said, adding that business founders should not wait until they reach old age to craft one.
“Usually business and ownership conflicts arise when the founder is dead. To avoid this, family business owners should clearly define the roles and responsibilities of family members joining the business,” said Soriano.
He noted that out of the 10 family businesses that seek his counsel, Soriano said some 70 to 80 percent are on the verge of a breakup.
Soriano was in Cebu to promote his upcoming talk about family constitution dubbed as the “Family Constitution: Your Greatest Gift to the Next Generation”, a one-day seminar on May 18 at the Hotel Elizabeth.
Soriano said having a family constitution provides the business with clear-cut ways of dealing with such problems and discouraging unprofessionalism among family members.
“A family constitution or charter is needed in order to run the business professionally and to unite and harmonize family members. It incorporates governance policies covering employment, compensation policy, a code of conduct, job description of working family members and a statement of vision and values,” he said.
“It serves as a road map to family businesses—where they have been, where they are, and where they’re going. It defines goals and values, recognizes dysfunctions, and supports your family relationships,” he added. (KOC)