Can family firms survive? Yes, but the founders will die

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Monday, June 16, 2014


Enrique Soriano
Inside Family Business

TODAY, I will focus on patriarchal control. Wikipedia defines patriarchy as a social system in which males are the primary authority figures central to social organization, occupy roles of political leadership, moral authority and control of property, and where fathers hold authority over women and children.

It implies the institutions of male rule and privilege, and entails female subordination. Many patriarchal societies are also patrilineal, meaning that property and title are inherited by the male lineage. The female equivalent is matriarchy.

Letting go is the toughest job of all. As life expectancy rises and the Baby Boomer generation prepares to transfer an unprecedented amount of wealth to the next generation, an increasing number of business leaders are in their 70s and 80s and demographic trends will ensure this rises further in the future.

But does it make good business sense to let them run the business? According to Prof. Joseph Fan, family succession issue in Asia is “extremely challenging” as many dominant family-run firms are in a transition period with the founders being very elderly.

Wisdom, relevance

A founder/client in the Southeast Asian region, at 82 years old remained heavily involved in his company with 9,000 employees up until 2013. When he “retired” in 2004, his children and managers complained that he continued to do micro decision-making.

When the family requested me to step in as family business coach in 2010, it took me eight months to convince him to hire professional managers (HR, Operations), 14 months to hire a CFO (Chief Finance Officer), 24 months to finally shortlist successors and 30 months to complete the Family Constitution. After more than two years of painstakingly transitioning the organization from family first to business first, we then formulated a strategic plan that outlined the organization’s vision for the future.

At present, I am still mentoring the 45-year-old successor (not the eldest) and casually meet the founder for tea to talk about strategic initiatives. He is still the chairman but he confesses that has never been happier about his decision to detach from the daily affairs of running the business. He has since invested on a new business venture and has requested me to prepare a road map, this time with the mandate to engage professional managers in the start-up phase.

“Family-run businesses are often very patriarchal and if the head of the family is still at the helm, it can be extremely difficult to change the way things are done,” according to psychologist Caroline Gourlay, who works with family businesses, helping them prepare for the transition of management to the next generation.

“Older people are often the keepers of organizational wisdom in a company, understanding what does and doesn’t work in their industry but there may be a tradeoff between wisdom and speed as people get older. Although some still maintain very sound judgment, they undoubtedly slow down once they reach their ninth decade,” she reckons.

Another issue Gourlay highlights is that “they may not stay relevant”, adding that while many octogenarians are as technically savvy as people in their 30s, others will refuse to engage even with basic business tools like email. Their judgment is based on experience in a pre-internet world, a world that doesn’t exist anymore.

In my collaborative work with fellow family business advisors in the Asean region, we have concluded that older leaders need to change with the business world as it develops; otherwise they will run into problems if they continue believing that what made them successful in the past would still work in today’s business environment.

Nevertheless, just being 80 doesn’t mean that business leaders are any less sharp.

Asia’s richest billionaire and Hutchison Whampoa Founder Li Ka-shing and JG Summit Founder John Gokongwei, to this day, still show razor-sharp business acumen. But both may be an exception.

It is a fact that succession and wealth can be fraught with potential conflicts and burdens, but the world’s high net worth individuals still remain committed to passing on their assets to the next generation.

The real danger is the founder’s (un) willingness (when?), to whom (who?) and the process (how?) of generational transition.

Part 2 of the article will be next Tuesday. It will highlight solutions to the generational succession.

(Prof. Soriano is an Asean Family Business Advisor and Chair of the Marketing Cluster of the Ateneo Graduate School of Business. He is a National Agora Awardee and book author of “Kite Runner, a book on family business governance and succession.” For comments, you may email him at sorianoasia@gmail.com)

Published in the Sun.Star Cebu newspaper on June 17, 2014.

Business

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