Soriano: Out of chaos comes order (Part 2)

Inside Family Business

A GENERATIONAL transition from the founder to offspring generation is a critical point in the life cycle of a family business.

Owners believe they have a fool-proof succession plan in place, having accumulated wealth by single-handedly growing the family business, but problems arise when the time comes to pass the torch.

This story is the last part of the article I wrote last week involving four siblings that bitterly fought after the founder, their father, had passed away. The conglomerate has vast operations in different countries in Asia.

Race against time

Our first year was quite a challenge. It was a race against time. We were confronted with irrational behavior from all sides, so we shifted to one-on-one engagements with the two warring factions.

Session after session, we continued to reinforce their sense of duty by educating them regarding their respective shareholder roles and responsibilities and emphasized that family harmony energized with a commitment to continue the founder’s legacy can fuel enterprise growth and preserve their wealth.

After reintroducing the importance of having a family constitution, our team made sure we roped the social document with ownership agreements. We were confident that securing agreed upon shareholder rules and documenting them would define the foundation in building sibling confidence, enthusiasm and effectively restore trust within the family. Moreover, by clarifying their roles, the lines of communication continued to remain open. In the end, our mission was to stop the hostility at all cost.

Building and fostering mutual understanding among stakeholders is key to wealth preservation and growth. Every family member must understand that a majority of family businesses have failed as a result of internal factors, rather than external factors. And these internal factors included the failure to set in place owner/manager policies, a plan for succession and managing family conflicts.

Defiance to trust to sense of duty

To the consulting team, our mission was to build trust and openness. After a few more sessions of getting everyone understand our governance mandate, we saw a change in attitude from sordid defiance to a deeper sense of duty in continuing the founder’s legacy. With the sessions gaining traction, the siblings soon realized that only through unity and a shared vision can the family business move forward. They also acknowledged that family unity comes with some sacrifices.

And our role was to inculcate the family member’s fiduciary role of single-minded loyalty to the business. This means that family members must be willing to give up some of their own personal freedoms “for the greater good.” In summary, what objectives did we achieve in finally reuniting the family and saving the business from breakup?

Objective 1: Strengthened family unity with a 100-year vision

Diffused the tension.

Educated, mediated and pursued governance.

Institutionalized a code of conduct.

Reintroduced the family constitution and shareholders agreement.

Objective 2: Created a communication platform

Activated the family council.

Put family policies and ideas into practice.

Enforced the policies signed by family members.

Prepared for possible relapse and complacency.

Created a problem-solving and conflict resolution platform.

Objective 3: Improved the level of individual competencies

Required education and training to reinforce raw competencies covering stewardship, shareholder knowledge, in-law and next generation entry and exit rules.

For my team at Wong and Bernstein, it was a grueling two years of constantly pounding the true essence of family harmony and the significance of having open and honest communication. Our initiatives and the family members’ willingness to give peace another chance averted what would probably have been a disastrous consequence for the family and the business.


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