Preparing for the ‘What ifs’

Part 1 of 2

WITHOUT any doubt, crafting a Family Constitution or a Charter is one major step to every founder’s dream and aspiration of ensuring that his blood, sweat and tears (legacy) is cemented for generations to come. The objective therefore in any governance undertaking is to anticipate the “what ifs,” create harmony, and unite family members. The key is to prepare solid family and ownership agreements.

Today’s column will focus on family agreements and in what my industry colleagues Lansberg and Gersick refer to as “institutionalizing control.” They went on to highlight that “Governance is concerned with all of the ways that the interests of owners are reflected and implemented in the organizational system…”

Formalize agreements

Formality is very important in family businesses. Assuming that one’s relatives would forever be supportive to the family business and consistently remain productive may not be a good way to set one’s frame of mind. We should always accept the reality that there are different types of family members working in the family business. Some of them may exhibit exceptionally good performance, are committed and trustworthy. There are some that are plain indifferent, selfish and would always look at his last name and employment as his or her birthright. For some entitlement is all there is to it in a family business.

Behaviors change

According to a Business Week article, family business leaders must always recognize the family members’ individual differences (types of personalities, attitudes, and behaviors), varying opinions, values, demands, expectations, and capabilities and changing or evolving priorities in life. What you know of your younger or older siblings’ behavior when you were in your teens may no longer be the same in midlife.

With all these likely scenarios happening, family business leaders must anticipate and expect the difficulty in meeting the kind of certainty that is needed from its pool of family members to operate a business on a professional level and direct it towards specific objectives. 

The core group of any family business would be the members of the family itself who could either be catalysts for positive outcomes or a major source of problems if they do not agree with certain guidelines.

Familiarity and entitlement

The issue with members of the family boils down to familiarity and entitlement and they will naturally have the tendency to be complacent and presumptuous since they are related by blood or marriage with the president or any family business leader with significant influence, they would not be made accountable for underperformance or weakness they might have.

In most cases, “free riders” in the family can also compromise the business. They think that being entitled will allow them the advantage to put little or no effort at all in the development of the business. Without any performance metric and a semblance of accountability, they continue to draw their salary every payday and benefit from dividend sharing. And to add salt to the wound, they moonlight and put up separate businesses outside of the family business. 

Another cause of major conflict is in dealing with different personalities in the family. Some could be very intellectual, capable and productive, but are greedy, overly controlling and manipulative for their own good. Some are usually quiet and have the penchant to question every policy laid out by a family member or sibling disrupting initiatives for growth.

Start by crafting solid agreements and policies  

There are different kinds of agreements that could be created and followed in the family business to keep family relationships in harmony and espouse professionalism in the industry. Based on my experience coaching family businesses in the Asia Pacific region, the most important documents and policy to unite and harmonize family members are the following:

Family Constitution or Charter incorporating Governance Policies covering Employment, Compensation Policy, A Code of Conduct, Job Description of working family members and a Statement of Vision and Values

Shareholders Agreement, on the other hand, covers agreements on ownership and Board level accountabilities

(To be continued next week)

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Prof. Soriano is a National Agora Awardee for Marketing Excellence, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory. He has close to three decades of real estate experience and is currently the Program Director for Real Estate at the Ateneo Graduate School of Business.

Professor Enrique Soriano

Professor Enrique M. Soriano is the Chair and Professor of Global Marketing at the Ateneo Graduate School of Business. He has held key positions in a number of Asia – based corporations such as Group CEO of the Belo Medical Group, CEO of Intelligent Skin Care, Inc., Chairman of publicly listed Empire East Suntrust Developers, and Country President and CEO of Singapore based Electronic Realty Associates, Inc.

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