Sunday, May 26, 2019

Soriano: A major event changes everything

Inside Family Business

IS YOUR family business prepared for a major transition?

When illness, incapacity or death of a key family shareholder strikes, or events like marriage, separation or dispersed ownership happens, the impact on the family business system may cripple the business overnight.

With a mindset bordering on immortality, stubborn leaders totally disregard any form of transition. But when a sudden event like death occurs, it will leave everybody broken, gasping for breath, barely surviving and being dragged under by the overwhelming weight of the business and the family. There is no doubt that any business will be faced with some very difficult choices in the months and years to come, so being prepared is critical.

Being the leader of the clan, owners must anticipate these predictable events, and must think of the future of the family first, and not be tied up with daily sales and operations all the time. Finally, they must craft solid agreements and make the right decisions now to prepare for the future.

So how does one navigate change like this in the business?

In my last column, I highlighted the Aboitiz family’s 130-year journey that started as a small business trading hemp (abaca) in Leyte. Years later, the group ventured into inter-island shipping to transport its goods across the Visayas. Fast forward 100 years later, what was once a general merchandise business has transformed into one of the largest, oldest and most respected conglomerates in the Philippines. The group has spanned five generations, blending family and professional management. And behind its business success is a powerful and enforceable family constitution that is meant to ensure the sustainability of its wide range of businesses all over Asia.

To quote the fourth generation chief executive officer Erramon Aboitiz when asked what their enduring qualities were, he replied, “What makes the family stick together is a question asked of us many times. There is no simple answer, but trust, mutual respect and the love of being together are foremost in my mind. Promotion within the family and company is based on respect and merit. Family members are professionals in every sense of the word. No family member has a right to work for the company. All of us, whether male or female, have gone through the ranks.”

He also went on to articulate the value of the fairness principle that must be upheld within the clan. And to avoid any misunderstanding and encourage open communication, the members as mandated in their constitution must hold regular meetings where transparency are promoted within the leaders. Similarly, to prevent unnecessary misunderstandings and minimize role conflicts, it was explicit in their agreements that governance forums will be created as avenues for family members to escalate their grievances. These governance forums are classified into family, business and ownership councils, and prevents petty issues from exploding in the wrong forum.

And finally, to perpetuate the legacy of the Aboitiz family business, a well-designed leadership program is meant to shape expectations of the next generation members with respect to their competence, roles in the business and most importantly as future stewards.

Staying true to the tenets of the family constitution, the Aboitiz family continues to inspire family businesses in Asia and has kept the ownership united with every single family member that signed the constitution committed to the future of the family business. For them, succession has always been smooth, despite studies saying that family-owned businesses tend to die out by the third generation.


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