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Wednesday , June 20, 2018

Soriano: Family businesses at their best

IN my last article, I warned about the dangers of ignoring and abetting the red flags in family-owned businesses and the natural confusion the dual role family members play, both in the family and business ecosystem.

In today’s article, I will cite family businesses at their best and how they continue to remain resilient after overcoming generational challenges and family conflict.

The strengths of a family business are plentiful. In terms of organizational metrics, family-owned businesses outperform non-family owned companies in sales, profit, and other growth measures by a mile. Some of the inherent characteristics unique to family members are their high commitment as business owners, their willingness to work long hours and their natural instinct to reinvest profits into the business that will enable long term growth.

Indeed, family businesses provide a good opportunity for wealth creation and the secret lies in a well-structured governance system that promotes harmony, improves communication and promotes accountability.

The reality is, as the family and business become more complex, effective governance structures increase. Unfortunately, as the business leader continues to generate wealth for the business, governance and succession take a back seat.

So when a major event or risk happens (illness/death of key family figure, major fight among siblings, among generations) the business goes into a free fall. For some businesses that I have helped, it can be a daunting task to reverse the tide. For a handful, it has become irreversible.

To quote the eighth generation successor of the Philippine’s oldest conglomerate, Jaime Zobel de Ayala, when asked how they have managed to survived two world wars and still came out stronger, he said: “Ensuring the continuity of a multi-generational business is not easy. It is a challenge in itself to run a business successfully, while family dynamics and relations can often be very complex. Each generation introduces new challenges. No family leader can plan beyond one or two generations, but if each one values continuity and the legacy that has been passed on, they will always look for ways to strengthen the foundations for the next generation.”

Without any question, the Ayala model of governance is something every family enterprise must strive to emulate. They have stayed the course and relentlessly pursued governance through the years.

Today, Ayala is a preferred brand by investors promoting “shared value”. As Jaime succinctly puts it, “Promoting shared value means aligning company success with social progress.”

Another Asian model for governance is the 130-year Hong Kong-based Lee Kum Kee Group (established 1888), the world leader in sauces and condiments. Misunderstandings on the way the business was run, unclear succession plans, greed and power almost took the life out of the LKK family business in the third and fourth generation.

After two successive buyouts, the next generation leader finally decided to exact governance and raised compliance and accountability standards by introducing unorthodox rules like prohibiting members from sitting in the board if they married late, engaged in extra marital affairs, etc.

With more rules introduced, the group extended their longevity streak. Undoubtedly, one very important value that is at the core of LKK is their concept of “Si Li Ji Ren” or “Put others first before yourself”. The traditional and overseas Chinese also refer to this powerful value as “Xian Ren Hou Ji”.

These rules, safely embedded in their family charter and reinforced by a family council, continues to educate, regulate and inspire the fifth and sixth generation family members to be stewards rather than owners of the LKK Group.


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