BEFORE a family business can succeed, it first has to establish a strong relationship among its members, experts on the field said.
In a seminar on sustaining a family business organized by the Ateneo Family Business Development Center and Pages Holdings Inc., speakers told participants that the issues affecting relationships among family members need to be resolved first before they can proceed to strategically plan for the future of their business.
Ricardo Mercado, director of the Ateneo Family Business Development Center, noted that in surveys they conduct of seminar participants, harmony in the family is considered the most critical issue facing a family business.
“This surprised us. I thought money would be the top concern. But if there is no harmony in the family, it is hard to have a unified direction of the business. If you don’t have harmony, you can’t talk about transition because other members may not be supportive of the one chosen,” Mercado said.
Other concerns included growth direction and succession transition. Financial issues only came in fourth while other business-related concerns followed.
Mercado urged families to set up their own family councils and create their own family constitutions while the business still has its founder and members of the next generation present.
The family council is a formal structure where members meet and discuss issues about the family business and other personal issues that could affect the business. A constitution is a set of guidelines and policies set by the council to make decision making for the business easier.
Mercado said establishing these would ensure the family maintains a good relationship
because these support and improve the family harmony. He added that strategic planning becomes easier when these rules have been established.
Mercado and his colleague Pilar Tolentino, cluster head of the center’s Business Family Relationship department, noted that not all business problems are caused by the actual business but come from family issues that have not been addressed in the past.
Citing a study of 40 global family businesses that have successfully transitioned to the fourth to sixth generation by Dennis Jaffe, five of seven qualities are related to having a good family relationship. These include having a shared purpose and values that are not all about money, having a family community across generations, continual adaptation and resiliency, the free choice of members to remain partners and the active development of human capital.
Tolentino said the key to this was that these organizations made a conscious decision to work on their family relationship. “This is more difficult than building the business. Family relationships are complicated,” she said.
She said that generally, if a family has a healthy relationship, the business also stays healthy.
She admitted that families cannot escape conflict but what makes the difference is their ability to face it. “A fulfilling family relationship is not the absence of conflict but to have the capacity to face and surpass the conflict together, even using conflict as an opportunity for growth.”
Tolentino pointed out the ability of members to balance the need of the family and the needs of the business without seeing both as opposing sides. Problems arise when the needs of the family is put ahead of the business or if it is the other way around.
Tolentino acknowledged that the needs of the family can come in conflict with the needs of a business and that there is a danger of making business decisions based on family criteria or using business criteria to solve family problems.
Quoting a 2010 study by Best, Carlock and Ward, she said neglecting the needs of either the family of business will threaten the future of both and that creatively resolving the conflict between the two is the best way to go about it.
For Tolentino, one thing that spells the difference is empathy. She said understanding each member’s feelings and views can make big changes. One of these is communicating effectively by being empathetic in listening and speaking such as being careful in the tone, facial expressions, body language and other actions when interacting with one another.
Mercado pointed out many different practices that affect either the family system or the business system.
These include employing and paying family members into the business, even if they are not qualified or competent enough to be part of the organization. He said some organizations insist on putting only family members in top positions and that all family members are accommodated into the organization regardless of competence and are entitled to salaries, benefits and other perks.
He also urged founders to listen and respect what their children have to contribute, saying the younger generation could become frustrated working in an organization where there is no room for personal growth. Another practice he discouraged is giving out “slave wages” to family members employed in the business.
“I know some of you will struggle with this, but you have to be open if you care about the family business,” Mercado said.
In holding family council meetings, Mercado suggested having a more formal approach as opposed to being in a regular family setting. He said all members must be on time, introduce the matters to be discussed, keep to the agenda and have the minutes recorded. He also recommended having each of the members take a turn acting as chairperson for the meeting.
He said the family meeting should include members who are not employed in the company but have a stake in it, and that everyone should be on equal footing and be given a turn to raise any concern.