The Curse of an Ownership Mindset 

By Prof. Enrique Soriano

 

“Is it God’s Will? Both brothers had an amazing life but suddenly everything fell like a house of cards.” 

Despite all the patriarch or matriarch initiated-gatherings, no family is immune to the dangers of handing ownership to the next generation solely by blood alone. Nor is it a guarantee that there will be sibling harmony based on the children’s regular Sunday brunch with their parents. As a family governance advisor doing the rounds in Asia for the past decade, I still get a front row seat when offspring relationships erupt into a bitter fight immediately after the death or incapacity of the key business leader with the added flavor of lawyers fanning the flames in disputes over poorly and hastily crafted succession arrangements.

Why is this happening? The answer lies in the wanton neglect of the founder to institutionalize governance, the struggle of separating family and business, the confusion between ownership and stewardship and the generational priorities of the children leading to a dramatic change in their value system. It is therefore important for founders preparing the leadership transition to acknowledge that they have the potential to destroy their families through poorly planned and unclear succession processes.

There are many graphic examples from around Asia of how failure to instill a stewardship mindset and plan for succession almost always has disruptive family repercussions and can lead to damage to the business.  Let us dissect the unfortunate story of the Chadha brothers of India. When the patriarch Kulwant Chadha died in 2011, there was a division of rewards and responsibilities among the brothers. Unfortunately the division did not clarify ownership and succession issues. After the distribution of their shares, the youngest offspring Hardeep felt that the overall deal on his father’s estate was unfairly distributed, giving him less than what he believed was his rightful share. After many attempts for reconciliation failed, an incident pitting the two brothers sometime in November 2012 imploded.

Accompanied by their bodyguards, the siblings led by liquor baron and eldest son Ponty were seen arguing with Hardeep over their inheritance. Both were obsessed about a particular farmhouse that their father had left to Hardeep. Ponty had contributed hugely to the family business and believed he deserved the property. A source said that Hardeep had phoned a media friend earlier that morning and told him that “he was going to finally settle the dispute with Ponty today”. Cops claimed that both sides had “planned in advance to settle scores.’’ The confrontation ended with Ponty dying in a hail of bullets at the hands of his own brother Hardeep. This led to an exchange of gunfire between the two sides with Hardeep subsequently killed by one of Ponty’s police escorts.

For a family reported to have assets worth more than US$10 Billion, it would be hard to imagine that Ponty and Hardeep’s father had ever dreamed that his sons would die in a gun battle over an inconsequential asset (farmhouse) one day. Beyond the subject asset in dispute, the conflict emanated from unclear distribution of ownership, poorly crafted transfer of power, sibling rivalry, past hurts, betrayal and unfair inheritance. It was apparent that the father failed to address the brewing issues of the children that led to the bloody conflict. The Chadha brothers’ senseless death could have been avoided if the father prepared a thorough succession, wealth transition and stewardship plan covering five, even ten years earlier. With the deaths of the siblings, there is no doubt that families of the warring Chadha branches and the relationships in the succeeding generations have been scarred permanently.

Like most founders, owners have the tendency to focus more on wealth generation over wealth preservation and in most cases deliberately set aside sibling issues until it’s too late. Such do nothing mindset will naturally aggravate an already volatile and simmering relationship. Just like the case of the Chadha siblings, the father’s death effectively ignited the flames. Ominously, it was a disaster waiting to happen.

 

On Mon, Jan 11, 2021 at 12:17 AM Enrique Soriano <esoriano@wbadvisoryasia.com> wrote:

 

Stewardship Vs. Ownership Part 2

I remember Papa telling me after graduating from high school that “whatever you choose to do with your life, whatever pursuits you wish to achieve, we will always support you. If you find interest in the family business, you are more than welcome to join, but you have to be just like any other employee. Being family does not give you any entitlement. Always remember that respect is earned, not given. But one thing is clear, Mama and I have found it very rewarding to have our own business, but there is no substitute for hard work. The family business is one of your many options, and we will support and encourage you no matter what you decide.”

 

In 2005, at the age of 28, I decided to join, and it was one of the best decisions I have ever made. I believe my siblings feel the same way. Despite the pandemic, the business is still running and thriving today, with a workforce of more than 6,000. We want to credit our mother’s nurturing skills, our father’s leadership and mentoring skills, his operating principles in retaining great employees, his never-ending pursuit of transforming to a better culture, his leading by example, and his determination to create a legacy. Lastly, I often cite his advice: “Never ask anyone in the company to do anything you would not do.”

 

“Papa and Mama, all the values you taught me and my siblings have served us well. As a second-generation steward of the family business, I am aware of the responsibility that has been given to me. To our beloved father, your shoes are too huge to fill, but we are also conscious of the obligation to pass on our business to the next generation in a healthier condition than we inherited it.”

 

It was a wonderful and fitting tribute to the parents and their perseverance in holding up despite the many hurdles the family had to overcome along the road to this initial success. The father beamed with pride and was somehow relieved of the huge weight taken off his shoulders. He finally slayed the “elephant in the room!”

 

Owners favor the Do-Nothing Option

Complex forces are at work in family companies, favoring the “do-nothing” option when it comes to transitioning to the next-generation set of leaders. These forces operate within the founder, the family, and the business, and understanding them is the essential first step in successfully managing the transition process. “We are all mortals,” the father said as he formally announced his power-sharing plan to his senior executives broadcasted in all their offices, “for years, I struggled with the thought of holding on to power. I was healthy and I could not imagine my day without thinking of the business that I started through sheer hard work. But one thing kept me on track that to safeguard the continuity of the business, I should always regard succession as a precondition for stewardship. And that there will never be success without succession.”

“I still recall Prof. Soriano, our governance and succession advisor, repeatedly asserting that succession is a journey that if I, as the leader, cannot embrace the process, the family business will not have stability. I must say that the first three years were tumultuous, but we needed it. Prof. Soriano calls it an organized and gradual process that cannot be rushed as there are major transformative changes from decades of being informal to building a formal structure. But I call it a detox process, and with that, we are grateful for the experience.” 

 

Owners should always think of the greater good over their desires. They should regard planning for stewardship as their principal contribution. They must make sure that succession takes place smoothly with less fanfare as possible. It is just unfortunate that despite the logic of this apparent natural transition, the “do-nothing” option is the one founders most frequently adopt. Perhaps it is the fear of losing power or maybe the fear of facing one’s mortality. Whatever it is, it just does not make sense.