Family Business Succession and Covid-19 Last Part

By Prof. Enrique Soriano

“Only when our business, including our own, is managed by the most professional and competent managers can we create higher value for ourselves and our shareholders.” – Stan Shih Co-Founder Acer Computers

The Aboitiz family business is one of Asia’s most inspiring and enduring governance stories. Recently news came out in business that the family controlled Union Bank acquired Citigroup’s consumer banking business for a cash consideration plus premium of P45.3 billion.  Union Bank Chair Erramon Aboitiz in an interview declared that “This acquisition further cements our position as a leading bank in the Philippines, as well as fast tracks our growth aspirations in the retail banking segment.” The deal includes Citigroup’s consumer banking operations in the Philippines comprising credit cards, personal loans, wealth management and the retail deposit business.

From being an abaca and general merchandise business that started in Leyte in the late 1800s, it has since diversified its core businesses to power generation, distribution and retail electricity supply, financial services, food manufacturing, real estate, infrastructure, and portfolio investments.

What made the Aboitiz business endure five generations spanning 130 years? What is its formula for longevity? The secret lies in having solid family agreements and very clear entry and exit rules for family members. The principle of meritocracy applies to all, regardless of who the person is or his or her parentage.

This connects to what I mentioned last week that the family must make an honest and realistic assessment of its gene pool. Do the children have the commitment or even the interest to do it? Is the eldest capable of leading the business in this pandemic? Is he passionate and have the requisite skills to grow the enterprise? The key is evaluating the strengths of all possible successors and not just the first born offspring. Whatever the outcome, it is important to continuously recruit the best professional talents so that in the event a key business leader dies or becomes incapacitated or the successor underperforms and falters, the business will not be compromised.

Let me continue the last four crucial governance guidelines so business leaders can reflect and decide on what is really good for the family business. They must always answer this question: Is it a family business or a business family?

4) Fair is equal, equal is never fair. Equal shares in the Business is discouraged

While equality is a nice idea in theory, it may not be in the best interests of the business. It may be better for the successor that has been chosen to have a larger share of business ownership than other family members who are not active in the business. Another possible option that you can incorporate in the shareholder’s agreement is to impose voting rights for family shareholders who are active and non-voting, non participating rights for those not active.

5) Institutionalize a Family Training Office for successors and next generation members

Quoting our training partner in Asia, Excellence in Education (ExcEd), “if you think education is expensive, try ignorance!” How can you expect the next generation members to take over and run your business successfully if you haven’t spent any investment in educating him or her on the rudiments of leadership and management? These two interventions will propel the growth of the business.

6) Get Professionals to Implement the Succession Plan

A qualified family business coach can guide the family business in the succession process. Our firm has even created a dedicated team comprising former senior executives to take the lead in helping operationalize a successful succession plan. If the intention is to handover your family business to the next generation, putting off business succession planning is the worst thing you can do. A good succession plan can ensure that shared family and business vision and values are aligned.

7) Choosing a Non Family Professional as Successor 

When family members are not qualified or too young to assume a sensitive position, the leader can explore other options like hiring a non-family professional to assume the mantle of leadership while mentoring the next generation members. Business owners should learn from Stan Shih. As founder and CEO of global giant Acer Computers, Shih not only prohibited his family from joining in the business, but passed the top position in 2005 to a veteran executive who had helped Acer establish its brand in Europe. This move won praise from suppliers, customers and investors alike, enhancing Acer’s reputation in the highly competitive tech market.