By Prof. Enrique Soriano
In periods of extreme economic uncertainty, family owned businesses can suddenly tumble, some may recover but sadly others will not be able to make it. The high levels of stress and intense pressure coming from all angles can cause conflict and strained relationships among family members. Compounding this “elephant in the room” is a myriad of unresolved issues with some dating back during childhood. Predictably, these issues include the lack of communication, unclear roles, ego, sibling rivalry, pride, power struggle, etc. In most conflicts that I was tasked to mediate, money was never the primary motivation. When a black swan event like COVID19 suddenly disrupts the market, family owned businesses (FOBs) with a weak governance system may see themselves compromised.
MIT Family Business Professor John Davis correctly explained that “when you are at the top of the curve, you don’t really know it’s going to go down. Fear of failure and fear of change are often the twin evils preventing a family from moving forward.” Davis also points the finger at “internal conflicts, suggesting failing to have the right governance or decision-making processes in place can be the downfall of a family business.”
With the debilitating effects of the quarantine about to make a hard landing, we recognized that most FOBs are running out of fuel. The very restrictive mass quarantines forced business leaders to confront substantial challenges that instantly broke the lifelines of many enterprises. And panic has engulfed these enterprises exacerbated by a myriad of factors that rendered the chances of some to recover, while those fortunate enough were able to reign in their tight grip around their resources.
As a family business governance advisor operating in Asia, my message to every founder and business owner is that employing governance within your family-owned business shouldn’t be overlooked, especially in a pandemic that has morphed into an economic crisis severely impacting businesses and sparing no one. Crossing it off as unnecessary will be tragic for the family and the business.
I would always constantly remind founders and their management team that governance should never be set aside. It would be a huge mistake and tragic for families to consider governance as one of those non-essential variables that make up the business. It is never a cost driver and setting it aside will lead to a confused, scarred and ultimately a failed family business. Unity within the family is key to survival and growth. In my years of advising families, I refer to governance as the glue that keeps the family in check, constantly aligning family member’s expectations to its vision, mission and values. Without governance, there is no honest communication. In essence, growth becomes elusive as family members will continue to struggle internally due to conflicts over underlying, sometimes petty issues that transform into a volatile brew. Now more than ever, it is important for family members to come together as difficult, painful decisions will have to be made in order to survive this crisis.
When you mend relationships, and renew the feeling within family members regarding their purpose in the business, other crucial requirements such as cash flow management and preservation will follow. This may be a temporary setback to what you have built through the years but with the right process, a concerted effort to push for recovery is sure to take place. As Davis remarked “adversity and crisis can either lead a family and its enterprise into decline, or into renewal and regeneration. It can go either way.”
Without a doubt, governance is the very backbone of every family business aspiring to stay committed, united, and driven to pursue growth consistent with the founder’s vision and legacy.
If this article has enlightened you, I encourage you and your family members to join me on July 16, 2020, Thursday at 10 AM to 12 NN in a private international webinar entitled, LEADING THE FAMILY BUSINESS IN EXTRAORDINARY TIMES: What it takes to be a United Family. I have been invited as the resource speaker and it is my task to demonstrate how a united family can effectively navigate this crisis, align business plans as well as clarify roles of each and every family member. This is very timely as it will highlight economic challenges as well as important tools that key business leaders can use while leading the family enterprise through this difficult period. For inquiries, you may reach Caiz Aquino through 09175091735/ 09293131225 or send an email to inquiries@wbadvisoryasia.com.
