Pages: Family business survival

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Business Is A Team Sport

STATISTICS on family business longevity are pretty scary: less than 30 percent survive into the second generation, only 12 percent into the third and a mere three percent into the fourth generation. These startling figures were shared by one of the speakers at the Mandaue Business Summit at the Cebu International Convention Center I moderated two years ago.

Talking about the nature and challenges of family businesses, the speaker, Ricky Soriano of the Ateneo Graduate School, told participants that 97 of 100 family-owned companies go out of business by the time grandchildren are supposed to take over.

The reason for this? It’s not money problems or market conditions. Most family businesses go under because of the falling out among members. In other words, unresolved disputes or conflicts within the family are the main reasons why family businesses fail.

Since I run a family business, I found the revelation frightening. We’ve all heard talks about family businesses experiencing difficulties during the transition between generations but it was an eye-opener to be presented with a number as dire as a three-percent survival rate.

I consider working with all five of my children as a big blessing in my life. We have fun doing things together and we learn a lot from each other. My wish is for my
children to have this chance with their own kids, as well.

At the end of the summit, I approached Ricky Soriano about my own situation. He referred me to Ricky Mercado, an expert on family business (his family owned Red Ribbon and sold it to Jollibee for P800M 27 years later). He also founded the Ateneo Family Business Development Center.

I contacted Ricky Mercado who graciously came to Cebu a week later and held a briefing with my family. His advice as a first step? Come up with a Family Business Constitution or FBC as soon as possible. This document spells out the values of the family and how members should relate to each other while operating within the business setting. Most important, this has to be done while there’s no major conflict or deep hurts in the family yet. You wait too long and it could be too late.

After the briefing, everyone saw the wisdom of taking Ricky’s advice at the earliest time possible (the Aboitizes made their FBC a generation ago). Engaging Ricky and his team of two other experts in crafting our own FBC was one of the best decisions I’ve ever made in my life. I say “our own FBC” because all the inputs, agreements and language are ours. They only facilitated the process, which took two full days to finish. But we couldn’t have done it without them. After agreeing on the final draft, we all proudly signed our FBC mid this year. Now if there are disputes, we can go back to that document to guide us in dealing with issues. Better still, I can feel that this document has strengthened my family’s foundation going forward between generations.

Conflicts are not uncommon among family members, especially for those who are in business together, and we also have our share of these. One example that I learned from working with my children is that it was difficult to put one child under another.

Now they handle their own companies independently and I work with each one of them.

We have a Board of Directors (referred to as the Family Business Council in our constitution) that meets monthly, an incentive scheme as well a dividend policy in the company.

Slowly but surely I can see that my children are gaining competence, confidence and experience in running our businesses. Many times they’ve proven to be even smarter and wiser than me, which is one reason why I’ve decided to step back a bit now in our day-to-day operations.

By crafting its Family Business Constitution today, a family business is simply laying the foundation for its future generations to flourish for a long, long time.

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