Succession of family businesses made easy

ILLUSTRATION BY ALBERT ADRIAN RODRIGUEZ

As a result of the global pandemic, our world is changing in profound ways that we have never seen before. One of the most important success factors for the sustainability of any business, but especially family businesses, is good succession.

It is estimated that 80 percent of businesses in the Philippines are family owned or family controlled. Research shows that often 70 percent of wealthy families lose their wealth in the second generation and 90 percent lose it in the third generation. Only one in three businesses moves on to the next generation. And only about 10 percent of family businesses pass to the generation of grandchildren.

Why is this happening and how can we stop it?

Succession – the ugly truth

Even some of the world’s most famous business leaders and CEOs have blind spots. Too often we only see what we want to see but we don’t face the facts. It’s also why every prominent business leader, from CEO of Google to Bill Gates, has a coach.

Due to the blind spot, owners and senior management often put in place successors they like but are inadequate for the job.

A negative example: a family business in the Philippines where the potential successor simply did not have the motivation to do the job. The owner could not accept this fact. Instead, he forced his child to play the role and the whole business suffered.

A positive example: a German multinational family business whose owner approached us. The first of the children clearly had talent and desire for the role. The second did not. Solution: The former became an active board member but had the foresight to know that he was not fit to lead the whole organization. Thus, a non-family member became the CEO. The second child, who had neither the desire nor the skills to take an active leadership role, instead turned to philanthropy and took over the group’s corporate social responsibility (CSR) activities. Today, the company has revenues of over $ 20 billion and is still privately owned. It’s good succession planning in action.

Are your children fit to lead?

A business should be governed by meritocracy: people should be selected on the basis of their abilities. If you own a family business and your son or daughter isn’t fit to lead, they shouldn’t be running your business. At least not yet!

How do you know if and when they are fit to lead? Ideally, an external committee of experts should determine whether there is one person who has the capacity for a prominent place in your organization, not you or the people in your organization.

I remember sitting down with the Patriarch of a well-respected family business empire in the Philippines for our first meeting, which lasted for several hours. At the end, he said to me, “Now I finally have someone telling me the facts. “

In the Philippines, you face an additional challenge as a homeowner – Filipinos naturally respect wealth and higher authority more than in many other countries. It is always good to be respectful. But if that means no one is telling you the truth when you’re in power, you’re in trouble.

Great frames are made, not born

This is good news for you if you are a business owner. This means: if your children are not ready, they can be with the proper guidance.

Don’t make the mistake of forcing one of them to fit into a job before they become the best person for the job. This is bad for many reasons.

The most obvious is that the business suffers immediately. If an unqualified person is placed in a higher position, it has a direct negative impact on profits and growth.

The family member in question loses respect from other executives who say behind their backs that the only reason they got the job is because they are family. This lowers management morale and further decreases overall productivity throughout the company.

We have seen many instances of unproductive family businesses where an additional circle of executives was put in place around the incompetent family member simply to protect him from losing face and the downfall of the business due to its insufficiency.

Remember this rule: the productivity of leadership directly determines the productivity of all lower ranks. If employees see a family member in a leading position that works, why should they, in turn, be the best they can be every day and outdo themselves and the competition?

Sugar Coating – Board Disease

In the Philippines, there is another challenge that stands in the way of proper succession: “the sugar coating in the meeting room”. Senior leaders of the organization are afraid to speak the truth because they are afraid of conflict, of weakening their own position, or of exposing the weaknesses and mistakes of others.

If you are going to have a test, do you want the doctor to tell you the truth or to lie? Of course, you want to know the truth, because only then can you cure your illness. It’s the same with any business: if you don’t face the facts in brutal honesty, you can’t win.

When a family approached us to ask us to increase the profits of their group of companies, we found that in one of their companies, the CEO had assembled a council of “yes men” who did not. would oppose anything he had proposed. The results? The company missed out on many important opportunities, profits stagnated, and the best talent left because they couldn’t freely express their opinion.

Another example from one of our clients in the Philippines, a family business conglomerate: the board of directors had so much respect for the CEO, who was also the owner, that no member of the board of directors did. never told the truth. Constant coating. Everyone was talking behind the owner’s back. There were no open and honest conversations about chess, who was to blame for them and what needed to be done.

When the owner’s family asked us to make their business sustainable, we first had to have one-on-one conversations with all of the board members and senior management so they could finally open up. and tell us the real facts with confidence.

Practical solutions

If you’re a business owner or CEO and faced with a tough decision about who to appoint to a senior role, or who might even replace you, here are the practical steps you can take.

Face the facts. Because we all have blind spots, get an outside expert to help you assess whether the person is suitable for the job.

If not, give them the coaching they need.

To avoid “the watering down in the boardroom”, here are two solutions that should work in parallel: First, you need to encourage a culture of more open communication. Second, as your culture changes, ask outside advisors to guide you who will give you a view of the facts and reality as they are, not as you would like to hear them.

Despite the natural respect people have for a higher authority, encourage open but uncomfortable conversations, motivate people to express their opinion freely and even to disagree with you. And reassure them constantly, they will not be reprimanded for it.

See you next week! INQ

Read more

Don’t miss the latest news and information.

Subscribe to INQUIRER PLUS to access The Philippine Daily Inquirer and over 70 other titles, share up to 5 gadgets, listen to the news, download from 4 a.m. and share articles on social media. Call 896 6000.