The Strongest Surface is Not Necessarily the Hardest

By Prof. Enrique Soriano

 

There is a Chinese saying, that “the strongest surface is not necessarily the hardest.” In Japan, the same message resonates, “study the water running down a small current.” When you have water going over a stone for 1,000 years, it will eventually cut a hole through it, says Deloitte’s William Chou, as he describes family enterprises in much the same way. If you want to preserve the value and be the best of the best, it’s not about being the quickest to change. It’s about being the most enduring.

 

Building a family business legacy is always fraught with danger. The challenge is making family members realize why they need to do extraordinary things related to governance so they can continue to be in business together. What structures are needed to minimize internal conflicts and what agreements are crucial in hastening decision making while maintaining family unity.  And critically, what steps are important in preparing for a future that  is different  from the  present? Chou adds, “a clear purpose is fundamental to any family business, and those with the strongest sense of purpose are often the most successful. Purpose for a family business is not just about the purpose of the business; it is also about the purpose of the family and defining how it fits in with the enterprise and establishing why family members are in business together in the first place.”

 

It is a fact that many family businesses struggle with governance and leadership transitions. Many have failed while some are still going through painful transitions. Consider some of the few high-profile examples in Asia that went through or are going through a tumultuous yet predictable and preventable conflict. If only they were made to embrace the vision, mission and values of the founding generation, these senseless “declaration of war” among family members would have been avoided:

 

a. The Lotte Group, a South Korean conglomerate with an asset base of US$97 billion, was thrown into turmoil in 2015 when the two male siblings, known as the Shin brothers got involved in a much publicized tug-of-war that led to younger brother Dong-Bin to oust his own father and founder Shin Kyuk-Ho and sidelines older brother Dong-Joo. Now that Kyuk-Ho has passed away early this year, it remains to be seen as to what the outcome of the conflict will be as the drama is still unfolding this time involving the other investors and shareholders.

b. Then we have the Yanson family of the Ceres and Vallacar Transit fame,  the Philippines dominant transportation carrier group with close to 5000 buses ferrying a quarter of a billion passengers annually. What may have started as petty misunderstandings among siblings during their childhood has now turned into a full scale court drama. The conflict turned into a hostile corporate takeover by one group comprising four siblings. This brought into the open the messier underpinnings to the conflict and offered a revealing glimpse into a highly successful family business that has been haunted by internal squabbles. It took one triggering event and brought into the open what was suspected ever since the founder’s death in 2015, that the battle for control of the spoils that afflicts most Asian families, when a powerful patriarch passes away, had visited itself on the country’s most admired transportation company. For now, the battle rages.

 

The present state of a family enterprise will inevitably determine its future existence or demise. And much of course depends on the purpose, on the business (compelling business model) and the family talent pool (intellectual assets), three critical and predictable elements where the legacy of the founder hangs in the balance. The other hurdle is overcoming external factors like the current global pandemic that turned our world upside down. But more than these elements, a clear collective purpose is fundamental to any family business successful transition, and those with the strongest sense of purpose are often the most successful.