Soriano: Can family firms survive?

-A A +A

By Prof. Enrique M. Soriano

Family Business Forum

Monday, June 23, 2014


THE two main enemies of the survival of family businesses are the controlling patriarch and the sense of entitlement.

The question is not “Can someone in the 80s run a family business, but should they?” business psychologist Caroline Gourlay said. In companies where an 80-year-old is in charge, there may be two generations waiting for their turn at the helm.

“Even where the generations below are in senior positions, they rarely have full autonomy and the organization can get stuck,” she reckons.

In most cases, children could become frustrated and bored in family businesses where an older member dominates, leading the next generation to feel alienated from the business. From my experience working with family businesses all over Asia, I realized that leaders who have not made an exit plan in their 60s are unlikely to leave the company. They still believe that they are the best and the most qualified to run the business.

What’s the best advice? Family businesses must establish protocols for family members joining the business as well as implement a fixed retirement age to avoid conflict in the future.

Transition

Many patriarchs do not want to retire. The sensitive topic brings up thoughts of being put out to pasture, losing control, or even death. The senior generation through the family council or the family business advisor must plan the process of retirement early.

According to Prof. Keanon Alderson, the danger of a poorly planned transition or retirement is that the senior leader does not fully retire and continues to meddle in the business. “This murky role confuses stakeholders, employees, customers, and suppliers regarding who is in charge. It also undermines the current leadership, which needs to solidify its power and authority.”

Alderson further adds that this is a common reason next-generation members become frustrated and leave the firm, placing the company’s continued future in serious doubt.

On the other hand, if the retiring leader has transitioned to a positive role that he can be proud of and is making a valuable contribution to the continuing organization, he is more likely to enjoy the new role and improve the chances for a successful transition of leadership.

Surveys show over 90 percent of family business owners have their entire wealth invested in the company. If the business falters, the family wealth dissolves. By having outside investments and using business diversification, the family business eases the way for successful retirement of the former leader.

In summary, I have listed some of the options the founder or senior generation leaders and the next generation leaders can do to make the transition successful and painless.

a. The family business must initiate immediately Family Business Governance by creating protocols and agreements.

b. Start the process of transferring leadership to a successor.

c. Senior leaders should start exploring business opportunities as well as outside interests.

d. The family business can create a position where the senior leader/founder can act as an external relations face of the firm. His network and influence in the industry is priceless.

e. Explore the option of having the founder who steps down take charge of the philanthropic arm of the family business.

f. Create a division or unit where the founder’s acquired skills and experience can be used to develop new products for the family business.

g. Formalize shareholders and ownership agreements.

h. Make sure the senior generation leaders’ lifestyle and daily needs including their medical requirements are addressed.

Vishesh Chandiok, of Grant Thornton India, states: “As family businesses grow and achieve critical mass, owners are required to make important choices in order to balance risks and returns. A family clearly can’t physically occupy all roles, and would not even necessarily have the right skills to manage the growth of the firm.”

Unlike the West, Asia, especially the Philippines, seems to lack in succession planning, but the trend is slowly changing. As family businesses become more sophisticated, hiring of qualified non-kin for key posts has become essential, experts believe.

To conclude, the objective of this article is two-fold: It wants to convey to senior generation leaders the perils of unplanned transition (due to poor health and death) and to challenge them not to prolong and delay the process of generational succession.

We are all one heartbeat away and if the founder or senior leaders die without any clearly articulated governance rules and mandate to the next leaders, the business will collapse.

**********

(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 24, 2014.

Business

DISCLAIMER: Sun.Star website welcomes friendly debate, but comments posted on this site do not necessary reflect the views of the Sun.Star management and its affiliates. Sun.Star reserves the right to delete, reproduce or modify comments posted here without notice. Posts that are inappropriate will automatically be deleted.

Forum rules: Do not use obscenity. Some words have been banned. Stick to the topic. Do not veer away from the discussion. Be coherent and respectful. Do not shout or use CAPITAL LETTERS!

Today's front page

Sun.Star Cebu front page for September 02, 2014

Other front pages

Sun.Star Jobs
  • Obituary
  • Festivals
  • Filipino Abroad
  • ePaper
  • Pacman blog
  • Calamity Report
  • Technology
  • goodearth
  • Philippine Polls
  • tell it to sunstar
  • SunStar Celebrity
  • Sunstar Multimedia
  • Sun.Star Zup!
  • Habemus Papam
  • Sinulog
  • Pnoy