CEBU

Soriano: The dangers of an ownership mindset

Inside Family Business

Despite all the patriarch or matriarch initiated-gatherings, no family is immune to the dangers of handing ownership to the next generation solely by blood alone. Nor is it a guarantee that there will be sibling harmony based on the children’s regular Sunday brunch with their parents. As a family governance advisor doing the rounds in Asia for the past decade, I still get a front row seat when offspring relationships erupt into a bitter fight immediately after the death or incapacity of the key business leader with the added flavor of lawyers fanning the flames in disputes over poorly and hastily crafted succession arrangements.

Why is this happening? The answer lies in the wanton neglect of the founder to institutionalize governance, the struggle of separating family and business, the confusion between ownership and stewardship and the generational priorities of the children leading to a dramatic change in their value system. It is therefore important for founders preparing the leadership transition to acknowledge that they have the potential to destroy their families through poorly planned and unclear succession processes.

There are many graphic examples from around Asia of how failure to instill a stewardship mindset and plan for succession almost always has disruptive family repercussions and leads to damage to the business. Let us dissect the unfortunate story of the Chadha brothers of India. When the patriarch Kulwant Chadha died in 2011, there was a division of rewards and responsibilities among the brothers. Unfortunately the division did not clarify ownership and succession issues. After the distribution of their shares, the youngest offspring Hardeep felt that the overall deal on his father’s estate was unfairly distributed, giving him less than what he believed was his rightful share. After many attempts for reconciliation failed, an incident pitting the two brothers sometime in November 2012 imploded.

Accompanied by their bodyguards, the siblings led by liquor baron and eldest son Ponty were seen arguing with Hardeep over their inheritance. Both were obsessed about a particular farmhouse that their father had left to Hardeep. Ponty had contributed hugely to the family business and believed he deserved the property. A source said that Hardeep had phoned a media friend earlier that morning and told him that “he was going to finally settle the dispute with Ponty today.” Cops claimed that both sides had “planned in advance to settle scores.’’ The confrontation ended with Ponty dying in a hail of bullets at the hands of his own brother Hardeep. This led to an exchange of gunfire between the two sides with Hardeep subsequently killed by one of Ponty’s police escorts.

For a family reported to have assets worth more than US$10 billion, it would be hard to imagine that Ponty and Hardeep’s father had ever dreamed that his sons would die in a gun battle over an inconsequential asset (farmhouse) one day. Beyond the subject asset in dispute, the conflict emanated from unclear distribution of ownership, poorly crafted transfer of power, sibling rivalry, past hurts, betrayal and unfair inheritance. It was apparent that the father failed to address the brewing issues of the children that led to the bloody conflict. The Chadha brothers’ senseless death could have been avoided if the father prepared a thorough succession, wealth transition and stewardship plan covering five, even 10 years earlier. With the deaths of the siblings, there is no doubt that families of the warring Chadha branches and the relationships in the succeeding generations have been scarred permanently.

Like most founders, owners have the tendency to focus more on wealth generation over wealth preservation and in most cases deliberately set aside sibling issues until it’s too late. Such do nothing mindset will naturally aggravate an already volatile and simmering relationship. Just like the case of the Chadha siblings, the father’s death effectively ignited the flames. Ominously, it was a disaster waiting to happen.

As one relative said, “Is it God’s will? Both brothers had an amazing life but suddenly everything fell like a house of cards.”


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