LEE-CHUA, (1997) defined a successful family business as “one that has existed for at least 10 years, is still existing, and has made a name for itself in its field. The founder may still be alive and thinking of succession, the second generation may already be in charge, or the third generation may even be running the business.”
A family business moves from one generational stage to another during the first three generations. The three stages are the Controlling Owner State (1st generation), Sibling Partnership (2nd generation) and Cousin Consortium (3rd generation). Transition becomes more complex with successive generations, due primarily to the greater number of family members involved and the consequently greater number of options available. Statistics show that only one in three family businesses survives to the next generation. Less than 1/3 survive the transition from 1st to 2nd generation ownership. Of those that do, about ½ do not survive the transition from 2nd to 3rd generation ownership.
However, these findings do not assist in identifying factors which influence the decision to pass control from one generation to the next.
Emotional Ownership (EO) underwrites the future existence of a family business. This conclusion is based on the research supported by the Swiss private bankers Lombard Odier Darier Hentsch & Cie. It identifies that EO is strongest between the ages of 31 and 40, when it rises to a mid-life peak.
Power likewise is intricately tied up with the issue of succession. There have been countless tales of a founder’s unwillingness to let go of the reins for fear of losing power. This can be related to a personal loss of identity, fear of loss of significant work activity, fear of loss of influence, even fear of mortality or impending death. With this in mind, it is not surprising that succession can be a difficult issue to manage, both for incumbents and aspirants.
Since family members run the business, family issues are brought into the business and business issues are carried over into the family. A case in point was the rivalry between the two children of a deceased textile magnate which have made the headlines. One business columnist reported that the family had been divided into two camps. The only recourse may be was “to break up the properties and distribute them among the heirs”.
Because of the duality or multiplicity of roles (i. e. as father, husband and president of the company), problems can occur where one family member acts out a role inappropriate for the situation.
Doud and Hausner, (2000) developed a list of power related statements that encapsulate many of the concerns in an incumbent’s mind. Some of them were:
“Without me, this business is nothing” — the incumbent believes that without him, there would have been no business and incumbent’s fear of not getting credit for becoming the founder.
“The kids want to change the way the business is run. If I’m not there, they will change what I’ve built” — the incumbent does not realize that change is constant and that the business will thrive on an infusion of fresh ideas and energy.
c) “The business is my income source. I have to stay active to protect my cash flow” — the founder has not established strategies for developing retirement income sources that are independent of the business.
Relative to the last statement, many aging founders are still dependent on their business for most of their income stream and asset base. Often when incumbents let go, they equate it to a limitation of financial freedom as well. Doud and Hausner (2000) believe that if the incumbent is found in this situation, then he will never really let go. They want an income that will provide for a comfortable life after their years of sacrifice.
Sometimes, it’s not financial power that makes the founder stick to his job. There’s a push factor that’s quite convincing enough such as giving him a new interest or challenge to overcome. The patriarch of a giant corporate chain’s thirst for adventure and conquest was satisfied when he successfully climbed a mountain peak. I guess to boost the ego of some entrepreneur-founders, they should be given plenty of opportunities to look for other interests to conquer (hopefully, not a new love interest).
Because of the critical importance of family businesses to the economy, it is imperative that every effort is made to ensure continuity from generation to generation. However there has been very little indigenous research into the factors which facilitate or impede successful generational transition. I hope this column can add more relevant insights into the family business succession dilemma, particularly in the Philippine scenario.
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Prof. Enrique Soriano is a member of Corruption Monitor, a global agency that tracks corruption in Asia. He is also the CEO of AdvisoryAsia.com and the Founder of Asia America Policy Institute for Real Estate Studies, an advocacy group that protects the interest of homebuyers and promotes integrity and best practices amongst private developers and housing agencies. He teaches Global Marketing at the Ateneo Graduate School of Business and has doctorate units in Public Administration at the UP National College of Public Administration. For comments, e-mail [email protected]
