In an interview with family business advisor Harry Martin, he was emphatic in stressing that “the two main enemies that threaten the very survival of family businesses are the controlling patriarch/matriarch and the next generation sense of entitlement.”
Those two factors are working against a family business that is why it is estimated that close to 70 percent will not survive into the second generation and 90 percent will never make it to the third generation.
The average lifespan of a family owning business can be as short as 24 years. That number also coincides with the average time that the founder is associated with the business.
Martin went on to advise owners to “treat family members joining the business like you would treat non-family employees. Be sure they would have to live to the same standards of work and performance.”
Clearly, Martin’s statement hit home especially in the context of the Asian culture where family relationships are deeply interwoven in the business.
The overlapping of family, business and ownership breed natural tension and, when left unmanaged, can lead to real, emotionally charged conflict.
The challenge is to confront this predictable danger and reverse the current situation. Unfortunately, a good number of owners do not know how to start the change process.
Therefore, I am sharing a list of initiatives to guide business leaders to do what is best for the family and the business:
-Business owners must primarily focus on being good parents that espouses values such as love, God fearing, respect, integrity, hard work and being fair to everyone.
-Never hand over and never promise your children ownership on a silver platter. To be future and qualified shareholders, they must deserve to be one and must exhibit full commitment and a work attitude that exemplifies hard work.
-My advice to a parent/business owner is to stop behaving like a father or mother on business related matters involving the children. Never ever reward bad behavior.
-Compensation must be commensurate to credentials and must be based on what the child can contribute to the business. Equal pay among employed family members breed resentment and is an unacceptable business practice.
-Continue to ingrain in your children the importance of separating the concept of being an owner and an employee. Children would always fall into the trap of choosing an owner rather than an employee mindset.
-If your children are still in college and have shown interest in joining the business, make sure that (as parents and business owners) you impose strict conditions on their employment before they are accepted. Pre-employment requirements include an employment contract stating their Job descriptions and performance metrics. Employment means qualifications, commitment, performance, meritocracy and accountability
- Discard the “Eldest Child Syndrome”. Family business owners who don’t appoint the most competent leaders available—be they family or non-family members—are also taking a great risk.
-Business owners must enforce the rules of employment (entry and exit polices) of any family member interested to join the business.
-In anticipation of any future conflict, a family constitution, shareholder’s agreement and the activation of the family council are necessary governance tools to manage and mitigate any future tension.
To effect a seamless handover in the future, it is necessary for parents to spend more time in molding their children so they will learn the value of hard work and fair play.
Undeniably, the objective is to embed the right values so they can become solid, decent, responsible people before they assume the mantle of succession and leadership.
ARTICLE
Enemies that threaten family businesses
Enrique M. Soriano
Senior Advisor
Wong Advisory Group
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There are many ways to prevent children from becoming entitled. The most effective approach is through role modeling and communication.
January 10, 2023
Baa, Baa, Black Sheep
Tagged "black sheep" family members are indeed quite a character.
January 24, 2023
The Consequences of being an Absentee Father (Mother)
As an exasperated parent-founder once said, "It is easier to run a conglomerate with thousands of executives, but it is far more difficult managing an offspring." But why do 'black sheep' family members really exist?
January 31, 2023
Is It Fair to Divide Your Wealth Equally?
The question that begs to be answered is: “Is giving equal ownership really fair, or is fairness in the context of wealth transfer never equal?”
February 07, 2023
Giving Your Children Equal Compensation Is Wrong
Conflict is normal in family businesses, but the unresolved ones classified as excessive can ultimately create damage and instability that, when not constructively dealt with, can open a prolific source of deep-seated problems like a pandora's box.
February 15, 2023
Poorly Crafted Family Compensation Policy is Divisive
Without understanding the concept of compensation, the children may end up disillusioned, confused, frustrated, and constantly asking why their salaries are equal.
February 21, 2023
A Tale of Two Siblings Fighting a Lost Cause
Conflicts in life are unpleasant. It destroys relationships and zaps the energy of individuals and their families, so many families try to avoid conflict at all costs, which is a big mistake.
March 01, 2023
50/50 Estate Split is a Double-Edged Sword: A Parent’s Dilemma
With the businesses going full throttle, the couple became worried that if they gave the business to son B, which seemed fair to do, they would not have any means to treat son A equally, which seemed unfair to him.
March 08, 2023
50/50 Estate Split is a Double-Edged Sword Part 2
Splitting assets and shares of the family business between your children can be tricky as it puts to the test the parent owners’ fairness to everybody
March 15, 2023
50/50 Estate Split is a Double-Edged Sword Part 2
Splitting assets and shares of the family business between your children can be tricky
March 15, 2023
You Can Never Manage Your Business From The Grave
The stakes are high, the consequences of a wrong decision are devastating
March 21, 2023
Rights of the Next Generation's Spouses
As a family business grows and is passed on to the children, concerns arise regarding the rights of the next-generation family members and their spouses to own and control the company.
March 29, 2023
When Shares Are Carelessly Passed On To In-Laws
Having in-laws owning shares in a family business has challenges
April 12, 2023
How to Effectively Manage In-Laws Last Part
If you really believe that in-laws deserve to be future shareholders, it is absolutely necessary that clear policies and procedures must be in place for in-law employment, share ownership
May 17, 2023
Advantages and Disadvantages of Family Members Working in the Family Business
In my experience mentoring next-generation successors, their biggest handicap is that they were never exposed to work in the real world.
May 23, 2023
The Advantages of Family Members Working in the Family Business
All businesses face challenges and family-owned businesses are not immune to these, but by the very nature of a family business structure, there are also unique sets of opportunities that family businesses can take advantage of.
May 31, 2023
Did You Hire Your Children Based on Talent or Birthright?
As a founder, did you consider talent or base your decision solely on birthright when you appointed family members? Was the last name of your son or daughter the sole reason? Was it purely trust? Would you have done it any other way?
June 06, 2023
Rules for Eliminating Nepotism in the Family Business
When employing people who are related to the founder, either by blood or marriage, it should always be based on the following non-negotiable metrics: outside experience, credentials, exceptional work in the past, and merit.
June 14, 2023
The Real Dangers of Nepotism in Family-Run Businesses
Why has nepotism gained more attention? The number of family businesses today is growing, and so is the awareness of the negative effects of nepotism prevalent in the context of a family business
June 21, 2023
If You Can't Avoid Nepotism, Set the Rules of Engagement
Family members in leadership positions should lead by example, demonstrating professionalism, competence, and a commitment to the success of the business
June 28, 2023
Family Business Covenants Against Nepotism
Regardless of blood relations, employment should never be guaranteed
July 04, 2023
Wealth Will Not Last Two Generations Part 1
"Transferring wealth to your children can be dangerous if not done thoughtfully and responsibly." - Prof. Enrique Soriano
July 18, 2023
Is Inherited Wealth Evil?
Oftentimes, children of affluent parents have not had time to establish their own identities separate from the wealth and status of the business.
July 19, 2023
A Founder's Adversity Quotient
Armed with nothing but grit, founders experience firsthand the struggles and setbacks that come with creating something from nothing, which hones them into extraordinary entrepreneurs with unmatched AQ.
July 24, 2023
Wealth Will Not Last Two Generations: The Consequences of a Low AQ
It is a fact that many next-generation family members have a Low Adversity Quotient (AQ). Consequently, when next-generation successors have low AQ, there is a significant risk that the business they inherit will suffer.
August 01, 2023
The Significance of Strategic Planning in Family-Owned Businesses
In a recent strategic planning session for a family-owned business, powerful questions emerged: 'Why are we in Business Together?' and 'Where do we want the business to be in 3 years and 5 years?'
August 09, 2023
The Dangerous Mindset of Many Next-Generation Leaders
What will it take for the next generation to break the cycle of adopting detrimental behavioral patterns and mindsets?
August 16, 2023
A Fail-Proof Succession Starts with Your Successors AQ
Often overshadowed by the larger, publicly traded corporations, family businesses operated quietly, keeping their successes and struggles within the family circle, but the landscape is changing rapidly.
August 23, 2023
From Comfort Zone to Resilience: A Next-Gen Transformative Journey
In my extensive experience helping families in Asia, the concept of Adversity Quotient (AQ) has emerged as a pivotal metric for assessing an individual's capacity to adapt and thrive in the face of adversity.
August 30, 2023
Succession Planning: The Cornerstone of Family Business Legacy and Prosperity
In family enterprises, a sobering truth prevails: With each generational transition, the odds of a company's survival diminish.
September 06, 2023
Unraveling the Pervasive Father-Son Conflict in Family Businesses: A Complex and Compelling Tale
September 26, 2023
Resolving the Father-Son Conflict in a Family Business: A Path to Harmony and Success
October 03, 2023
Fair Should Not Be Equal in a Family-Owned Business
Enforcing strict equality within a family-owned business can pose significant challenges, especially because family members often bring varying levels of expertise, experience, and commitment to the table.
October 12, 2023
From Family-First Leadership to Meritocracy: It's Time to Shift Part 2
His father's passing thrusts him into the role of President, a position that always seemed destined for him, but as he embarks on critical operational decisions, questions that echo through family business corridors are raised.
October 24, 2023
The Aimee and Allan Sibling Conflict, Solved! Last Part
Even siblings with harmonious childhoods can face rivalry in the professional realm due to the unique challenges a family business presents.
November 29, 2023
Founders Must Lead The Way! Part 1
In an evolving and growing family business, the key to sustained success is for the founder to recognize that the business is now a team sport, where cohesion and collaboration are paramount to winning games.
February 06, 2024
Entitled Family Members Can Undermine Business Success (Part 1)
Stewardship is the key to ensuring the long-term sustainability and success of family-owned businesses. In contrast, entitled family members can pose a significant threat to business stability.
February 20, 2024
A Hidden Crisis: 90% of Directors Are Unaware of Their Fiduciary Duties!
The intricate dynamics of familial relationships can complicate decision-making processes as they may pose a threat to the family members' commitment to their fiduciary obligations.
March 20, 2024
Upholding Non-Negotiable Values: Humility, Discipline, and Respect
As founders and mentors, we observe with deep concern the gradual erosion of humility, discipline, and respect among the next generation of leaders—a trend that threatens the very essence of our businesses.
April 03, 2024
