Doing nothing is a founder’s biggest mistake

By Prof. Enrique Soriano

“My children respect me, I nurtured them and made sure they extend their love to their mother. They definitely like what they are doing as I have instilled in them the values of hard work and integrity. I am confident they will love and respect each other when I am no longer around. Every time we have our regular Sunday lunches, I have constantly reminded them that they will be managing the business together. I know deep in my heart that they will all follow my desire of having a united family business. The wealth I have accumulated is more than enough to last another generation. Therefore, I believe there will be no succession issues as they are aware that I will divide ownership equally.”

Undoubtedly a reassuring statement coming from a business owner, but is this aura of invincibility enough to create a legacy that will last for generations? Absolutely not! Take note, the last sentence (I believe there will be no succession issues as they are aware that I will divide ownership equally), when not addressed fairly and equitably, will be the death blow for the family.

A generational transition is a critical point in the life cycle of a family business. Founders and business owners believe they have a fail-proof succession plan in place just because they have submissive children, nephews, and nieces. However, problems will surface when the leader dies or becomes incapacitated and has no succession plan or pre-agreed rules of engagement. In my experience, when a triggering event happens, we will naturally see the rise of mini ‘emperors’ jockeying for power, with some offspring bringing their own set of personal agendas into the boardroom. We will also witness misalignments like never before, effectively negating the direction that the deceased leader wanted. Furthermore, we will see relatives having different aspirations and may opt to cash out.

It is, therefore, (very) important that as the business transitions from the first generation (owner-managed) to that of sibling partnership (second generation) or cousin consortium (third generation), careful collaboration is needed to accommodate the diverging needs of the next generation leaders and the new set of expectations related to leadership, management, ownership, and succession. The failure of the leader to set the rules of engagement early on can inevitably spark next-generation conflict. And it is always attributed to petty unresolved age-old issues that were largely ignored by the parent/owner.

A 42-year-old son (Butch) was appointed officer in charge of the family business after his founder/father suffered a major life-threatening heart attack. Butch was the eldest of four siblings, and prior to the pandemic, he was the company vice president. A few months after he assumed his father’s role, his executives noticed he was no longer as passionate. One of them even remarked, “Sir Butch somehow lost the competitive drive when he assumed the leadership role suddenly vacated by the big boss.” It became worse after he got infected by Covid-19. All of a sudden, Butch was no longer accessible. Almost all of his engagements were passed on to his executive assistant. One of his siblings even noticed something different, “He preferred just staying at home. He only logged in at the office twice a week and his reports and meetings with his senior team were becoming less frequent.” When his attention was called by his closest sibling Ben, he snapped at him and resented being called out, “I have been working here for the last 20 years and instead of being recognized for my sacrifices, all I am getting is a useless complaint of tardiness. Not once did I receive any recognition from any of you.” This reaction did not sit well with the siblings and relationships started to sour. Productivity also suffered. Employees got confused. Many are wondering about the future state of the business now that the leader is incapacitated.