IN LAST week’s article, I highlighted the importance of family values and the guiding philosophy that makes every family business unique. We are all aware that differing family members’ goals and expectations can jeopardize and create rifts among family members. Jealousy and interference from some disgruntled family members including the cousins and in-laws can likewise plague the operation of the family business. Aggravating this conflict is the delicate situation of the business as it depends on one individual, namely, the principal owner-manager.
It does not help any that many family business managers tend to be consumed with short-term operational issues such as taxes, finances, marketing, and day-to-day operating problems. Family businesses are commonly at a disadvantage when it comes to acquiring resources, largely because their owners are more conservative
With all these issues developing into a volatile brew, I cannot stress enough the importance of each family member defining and embracing the values passed on from generation to generation as they inspire people to do things that are sometimes difficult, to make commitments that require discipline and to stick to plans for the long haul.
An enduring commitment to values is the greatest strength and competitive advantage family ownership can bring to any company.
In today’s column, we will complete the rest of the important components of creating peace and harmony in the family business. We will start with two of the most neglected governance initiatives that have caused many family businesses to collapse and family relationships strained.
Participation or entry plan for family members
I must highlight the need to develop a family participation plan wherein the roles will be clearly stated and duties completely described including
qualifications and entry timeframes. Family members who want to join the family business must embrace the business expectations as well as success indicators of the enterprise.
A major part of a participation plan is an agreement that establishes processes and procedures to ensure an orderly and effective entry of an individual into the family business. It also answers the following questions: Who is eligible to join? How does one make his or her wishes known? What are the requirements? Who oversees the application process? How will a family member employee be held accountable? What happens if there are problems?
This agreement can be helpful in guiding the next generation’s career choices. It promotes the idea that family employees must have the preparation, commitment, and good attitude for working in the business.
The plan helps the family business avoid hiring an ill equipped or unqualified family member as a result of a lack of any policy related to the entry of family members. Finally, it also helps ensure that family members who move up the management chain into senior positions are well prepared.
The owner’s agreement is a contract among shareholders meant to protect the rights of owners. It specifies the legal and contractual agreements among shareholders on ownership and governance issues. Policies agreed upon must be consistent, normative and legally enforceable. According to family business Professor John Ward, this agreement is important “because it is the blueprint for the transfer of ownership. Without any agreement in place, transfer of shares can be mired in difference of opinion.”
Commitment to duty
There is peace when the members of the family are committed to their duties, because it lessens the chances of conflicts if expectations are not met when tasks are not completed. When someone fails to be responsible, it is a chain reaction. Someone else will have to suffer the consequences and sacrifice for that failure to deliver.
In family business meetings, topics about the governance of the company, objectives, expectations, rights to stocks, profit distribution, training, policies and product/service development, among many others, can be discussed.
Peace is having tolerance. Allowing the members of the family to have reasonable options and to do what makes them creative and empowered is practicing tolerance. Gain control over the family business by not imposing, but by inspiring the members of the family to prevent and solve problems in their unique and efficient ways. Provide opportunities to be honest and healthily assert one’s thoughts and express feelings and preferences during family business meetings.
Open-mindedness and forgiveness
Being open-minded gives way to forgiveness. Emphasize the importance of admitting one’s mistake/s, apologizing and forgiving to maintain harmonious relationships within the family business.
(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.)