For legacy and stewardship to succeed, families must plan – Part 2

By Prof. Enrique Soriano

“The lack of trust, transparency, and openness are responsible for 80% of family business failures in Asia.”

In my experience helping families reconcile after years of senseless conflict, I can conclusively say that the lack of communication, the absence of a shared purpose, and the belief that family unity is paramount are the major reasons family-owned businesses do not last two or three generations. I have lost count of family-controlled firms that did not survive a generational transition.

While other conflicted families have managed to keep themselves under the radar, they are not spared from vicious infighting. Many continue to grapple with bruising succession issues, and most of these acrimonious business-owning families will never get the chance to transition. A generational transition process, therefore, is one of the biggest challenges facing family firms, as most fail to remain a family business past the second generation.

The Family Must State its Collective Position

A powerful purpose collectively crafted for the family and the business must be formulated, articulated, amplified, and shared with every family member. It must be revealed or expressed without vagueness, implication, or ambiguity and must leave no question about the spirit and intent. It must state its own set of objectives why family members must work together, own assets together, and make difficult decisions together while maintaining peace within the family and the business. Without the structures and the needed clarity, misalignment can be expected between all stakeholders. In corporate governance parlance, we refer to the misalignment as a significant material risk that can compromise both the family and the business.

Alexandra Sharp, Deloitte’s UK Head of Enterprise Consulting, could not have said it better, “Alignment within a group of family owners is the “holy grail” of a family business. The ability to speak with one voice, provide patient capital for a common set of objectives and provide clear direction to the business is the ideal.”

She further adds, “A lack of alignment between the family members involved can very quickly lead to poor decision making processes and even conflict. We find a frequent contributing factor here is a lack of agreement on the role of the family in relation to its business. This question of how the family fits in with their business (otherwise known as “family governance”) is an important one. However, time and time again we see families struggling to answer it in practice because they are seeking to do so within a vacuum, without the input of the individual family members involved. If the family members themselves are not the starting point when it comes to a conversation about role and purpose, there is a danger that it is not grounded in reality.”

Test Yourself, Test the Family

There are guide questions below that will serve as a starting point for any family member to raise issues related to family, business, and ownership alignment. Start by asking important and profound questions. Ask yourself, ask your siblings (and cousins) and ask your clan leader:

• Why am I in business with my siblings and/or cousins? Is it purely out of my sense of duty to represent my branch?
• What is my role in the current business? Is it crucial?
• What is the organization’s five-year plan? Is it aligned with what the previous generation desired? Is it headed in the right direction?
• What do we want to be known for in five years? Ten years?
• What binds me in this family business? Is it purely economic interest?
• Whose voice is being listened to when it comes to strategy and change? Are we all in sync?
• What kind of ownership structure do we want? Should in-laws or non-blood be included as future owners? Would they have an influence on ownership transfers?