By Prof. Enrique Soriano
In the intricate world of family-run enterprises, a narrative unfolds, bearing the weight of tradition and the future’s promise. In this second chapter, we delve deeper into the story of a 42-year-old son, who shoulders the legacy of his family’s empire. His father’s passing due to a debilitating illness thrusts him into the role of President, a position that always seemed destined for him. His unwavering dedication and hard work among his siblings set him apart. Yet, as he embarks on critical operational decisions involving substantial capital expenditures (CAPEX), a storm brews on the horizon, raising questions that echo through the corridors of family businesses.
Navigating the Storm
In a pivotal meeting, his siblings, who had never been directly involved in day-to-day operations, question his authority. “All your decisions must now pass through us,” one boldly proclaims. “Dad is no longer with us, and we all hold equal shares. You need our approval.”
The President stands at a crossroads, contemplating an unthinkable decision – resignation. His palpable frustration surfaces as he utters, “We can’t move forward with this practice. I shouldn’t have to seek their approval for every decision. It’s a waste of time. Dad should have addressed this while he was still with us.” It’s a stark example of a founder’s failure to define each family member’s role within the business.
A Widespread Challenge
This narrative is not an isolated incident but a thread woven into the fabric of numerous family businesses. It serves as a poignant reminder that addressing nepotism, clarifying roles, and establishing clear decision-making boundaries for the next generation is not just a noble endeavor – it’s a vital strategy for securing the future of family enterprises.
The Unforgiving Reality
Consider this journey as a transformative odyssey. The shift from legacy-driven nepotism to merit-based employment practices is not just a route to prosperous shores; it’s a lifeline that can rescue your business from the turbulent waters of favoritism and familial disputes.
Inefficiency in Decision-Making: Nepotism often results in family members occupying pivotal roles without the necessary qualifications or experience. This leads to suboptimal decision-making, eroding competitiveness and efficiency. The consequences are vividly portrayed in our previous case: an underqualified family member entrusted with critical decisions, causing the company’s struggle to adapt to market dynamics and eroding growth and profitability.
Conflict and Resentment: The ill winds of nepotism sow discord and resentment within the family. Sibling rivalries, disputes over responsibilities, and conflicts regarding unequal compensation disrupt family relationships and cast dark shadows over the business environment. As we witnessed in the same case, favoring one child over others brought heightened tensions within the family, intensifying sibling rivalries, disputes over responsibilities, and compensation disagreements, ultimately undermining the essence of family business success.
The Stakes and the Solution
The stakes rise even higher when the torch is passed, and the founder or leader is no longer present or is incapacitated. So, what steps should be taken to chart a course towards a harmonious and prosperous future for your family business?
Founders Must Set the Gold Standard for Professionalism
In your role as a leader, initiate a dialogue among family members to determine the future of the business, particularly regarding professionalization and the vision that will guide it. This journey might be fraught with challenges, but it’s a pivotal step in aligning everyone’s ambitions and prioritizing the success of the business over personal interests.
To be continued…
Seeking to shelter yourself from the perils of nepotism? Discover the crucial secrets of harmonizing tradition and progress — or prioritizing whichever is best for your family business — before time runs out and your legacy suffers from the worst possible scenario. Join us on December 2 for an absolute must-attend webinar, “The Family-First vs. Business-First Dilemma,” and safeguard your family’s future success! Reserve your seat now c/o Pat at rplatorre@wbadvisoryasia.com. Don’t let this opportunity slip away!
