Why Can’t Family Businesses follow the JG Summit Succession Model?

By Prof. Enrique Soriano

The most recent successful succession (and transformation) in Asia happened in 2019. It was initiated by the late industrialist John Gokongwei of the JG Summit Group with headquarters in the Philippines. The group is a regional player and has a major presence in close to a dozen countries in the Asean and the Oceanic region. With a market cap of almost US$18 billion and a workforce of 75,000 employees, it is involved in food and beverage production, retail, property development, banking, aviation and petrochemical.

Mr. John, as he is fondly called, prepared the transition 30 years ago when he gathered his immediate family, senior executives and formally introduced his successor, Lance. With six children in tow and a very supportive wife, he was able to excellently manage and navigate the perilous transition journey.  When Mr. John was once asked what else he would like to achieve for JG Summit, he remarked that it is to “make sure the company is in good hands, will do good for the country, good for the family, good for the stockholders.”

When he passed away more than 2 years ago at age 93, the “changing of the guard” was flawlessly executed minus the drama that comes with most transitions. It was a class act!

For family advisors tracking succession plans in Asia, the succession model of the JG Summit Group should be closely watched and emulated by other family owning businesses. The handover was the culmination of his lifelong dream of seamlessly passing the baton to his children, effectively immortalizing his legacy and embedding a culture of stewardship.

Why do 80% of the founders continue to struggle with succession?

Well respected Family Business consultant John Ward points to an important fact, “The most critical issues facing business-owning families are family-based issues more than they are business-based issues.  In an article penned by FBCampden’s editor, James Beech, he quotes Prof Tapes’ statement about the reluctance of founders to let go, “Fear in the mind of a founder is one of the greatest obstacles in planning for succession in a family business.”

A patriarch or matriarch’s fear for their own future, their fear of running out of resources to live on and their fear of having nothing to do sometimes manifested when the time came to transfer control of the business they had often spent a lifetime building.

Prof Josep Tapes, Family-Owned Business chairman at IESE Business School in Barcelona, highlighted that such feelings of dread were among the reasons why some family leaders were not adequately preparing heirs to replace them when they resigned, retired or died.

Beech went further to highlight critical research findings, “Some principals hesitated, postponed or ignored their task of arranging their successors due to their lack of trust in the next generation or because of an earlier failed attempt to plan. Such psychological hindrances were becoming acute as one of the biggest intergenerational transfers of wealth in history loomed and the sustainability of generational family businesses and associated jobs, services and suppliers was at stake. The fearful founder often cannot imagine life without being in daily contact with the company project that had been so absorbing.”

Tapies added, “The only solution to this is if one is able to fill their life with other things besides work. Financial worries may weigh on the minds of founders, from concerns over running out of assets to live on, to waiting until enough assets had been accumulated to divide among children. These fears may tend to originate with a lack of trust in the next generation.”

Test of Greatness

Educator and management expert Peter Drucker once said, “The final test of greatness in a founder is how well he chooses a successor and whether he can step aside and let his successor run the company.”