Soriano: Family businesses are built to last

IN one McKinsey interview a few years ago, Ayala Group’s (established 1834 in Manila) 7th Generation successor, Jaime Augusto Zobel de Ayala, was asked how the family formulated its ownership philosophy and values. “It began with informal family meetings that my father encouraged as a way to exchange views and share information. He felt we needed to have a more structured framework to exchange information, reach a common understanding on the values and principles that defined our actions, build trust, and create unity in decision making. We started by defining ourselves as a family unit, understanding our responsibilities, and reaching a common platform on the values that defined us as a family and a business. We wrote a constitution that encompasses these agreements.”

Jaime added: “One key component of this understanding is that we have a fiduciary role to add value, in a progressive way, to an institution that has been part and parcel of the economic history and growth of this country. This has been a strong part of our tradition and legacy. So, in a way, we are active and engaged caretakers. We also agreed that we have a responsibility, as defined among ourselves, to pass this heritage on to future generations. To be successful in this respect also means keeping the company dynamic, growing, relevant, and engaged in the economic future of the Philippines.”

His answer amplified the concept of purpose.

In a family enterprise, purpose goes beyond money. It is overarching and provides clarity on why committed family members have decided to go into business together in the first place. As wealth transfer and baby boomer power shifts to the next generation, we are also experiencing unprecedented market dynamics transforming at a rapid pace.

Adding to the instability of family businesses globally is the unsettling fear of business owners that the next generation leaders often see purpose differently than their parents and grandparents.

Recently in one of my regular virtual sessions with a family owning business based in Malaysia, I asked a second generation leader his biggest challenge and this was his response: “How can I and my siblings immortalize the values of our founding parents? My siblings and I lived with them in the same house. We embraced their values of hard work 24/7. We were inspired by their stories of survival, frugality and success. But my children and their cousins never had that privilege of living and breathing their grandparents’ stories. We are now challenged, and we continue to seek creative ways for the next generation leaders to instill in their consciousness their deep and abiding commitment to stewardship.”

The question for a family-owned business is how can it strengthen its purpose to sustain the enterprise through three or more generations? McKinsey has a good rationale why family enterprises are rattled when a generational transition happens, “Every chain is only as strong as its weakest link.” The old adage remains apt for family businesses, whose weakest link is typically between the second and third generations of ownership. Nowhere do the dispiriting seeds of value destruction take root as quickly as in this transition, which eventually results in the problematic fact that only about 13 percent of family firms make it past the third generation.”

For a family business to endure generation after generation, it must strike a powerful balance between adhering to the past and embracing the future and still internalizing the essence why the family business must move forward. Despite internal pressures, family members must never waiver in slowly reinforcing a purpose built to last. Clarity and unity of purpose bring great strength.


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