ACCORDING to the Family Business Institute, only 30 percent of family business organizations last into the second generation, 12 percent remain viable into the third, and three percent operate into the fourth generation or beyond.
Family businesses face major challenges in working through ownership and management succession and family business leaders acknowledge the problem. However, few know where and how to develop a governance and succession plan. Let me continue the second part of the article.
b. The Romero Group, a Philippine conglomerate with interests in construction and port services, got thrown into a turmoil when the son allegedly refused to cede control of the port business to his father.
This led to a volley of court cases filed between them amid allegations of fraud, betrayal and financial improprieties.
The son was a co-faculty member at the Ateneo Graduate School of Business in the late 90’s and the father, a colleague in another business association. Common friends asked me to intervene, but it was too late. The lawyers were already swapping accusations and the courts ended up taking over jurisdiction over the brewing conflict.
c. Another Philippine company is the Manila Cosmos Aerated Factory, a beverage company started by Wong Ning in 1918 and successfully steered by the second generation, only to fail in the third generation due to the sudden death of the patriarch and the lack of succession planning.
This led to a power struggle between the uncles and the cousins ending with a sellout to the RFM Group. Cosmos would have celebrated their 100th year next year. The third generation leader, Prof. Danny, is one of W+B’s family business advisors.
d. Family conflict is universal. In the US, the New England grocery chain Market Basket faced six weeks of mounting employee protests losing a hefty $583 million in sales as two cousins-both grandsons of the founder—publicly and bitterly fought for control of the company.
The employees refused to follow the directives of the newly installed CEO after removing his cousin Arthur T. Demoulas. With pressure coming to a head, the feud ended with Arthur T initiating a buyout and reclaiming his old post as CEO of Market Basket.
I have written in my column successful cases of family-owned businesses overcoming hardship and triumphantly extending the founders legacy (Eu Yan Sang, Royal Selangor).
Visionaries need not go through the same periods of adversity. To preserve their wealth, they must initiate governance and succession at the onset and not when they are old, sickly and dying.
Imagine the benefit, if the company mastered the art and science of governance, people management, leadership development, and succession practices?
Imagine the enormous rewards, if governance is reinforced with a shared vision supported with powerful values that the founder passed on to the next generation.
Imagine legacy-building benefits, if the founder put in motion the training of the next generation leaders so they can whole-heartedly embrace the value of fairness and meritocracy and the importance of making decisions based on “what is good for the company”.
The real challenge is to make every family member and future stakeholder understand early on the all-important concept of stewardship rather than ownership.
How? By learning from the best in their class: large family-owned businesses and their leaders that have defied the odds, went through rough patches in the second generation, summoned extraordinary strength to set things right, and deftly overcoming the third generation curse. They continue to prosper with some becoming certified century-old organizations.
Governance and succession is non-negotiable. It is your wonderful gift to the next generation.