By: Prof. Enrique Soriano
There is absolutely no doubt that leadership, competence, shared values and a strong sense of vision will ensure the survival and continuity of any family owned business! When a family shares a clearly articulated picture of the future, they have the foundation for making decisions related to the use of resources, selecting members to carry out responsibilities and setting guidelines on how the family will move forward. When family members understand that they are all trying to achieve the same objectives, respect and recognize their interdependence, they will naturally take better care of their relationships.
Every attempt to promote family unity requires the introduction of a governance process that every family member must embrace and real and effective governance means going through the following process using the three critical elements namely S.P.A. (Structure, Policies and Accountability).
Treating the family in a more formal, structured way can feel a bit strange at first. And based on experience, it usually takes a year or two for the family to grow into a more structured way of interacting. But the value of going through a governance process is demonstrated in the pocket successes many families have achieved by simply having a system covered with accountability. They have learned that in discussing issues that can be sensitive and raise complicated feelings, a little structure is a family’s best friend.
To continue my wish lists for the New Year, I want to reiterate the importance of an authentic, competent board or executive committee (ExCom). After wish number three about succession (previous article), I am highlighting below the remainder of my wish lists:
Wish No. 4: An Authentic, Working Board or ExCom can make a big difference
Having a real working board/Executive committee should be in every business owner’s must-have list. I do not know of any business enterprise that became sustainable without the oversight and direction of a board comprising objective and impartial decision makers. Even not for profit organizations have a working board!
For family owned businesses, an authentic board is a powerful antidote to avert the next generation curse, punctuated by the Chinese version, “From peasant shoes to peasant shoes in three generations”, and highlighted by an even more striking Mexican version, “Father-merchant; son-playboy; grandson-beggar”
It is therefore important that family members be acquainted this early due to the fact that family dynamics (unconditional love, equality) naturally encompasses management (performance, meritocracy) and ownership (stewardship mindset) interests. Initiating a board comprising a mix of family and non-family members can accelerate the governance process with less emotions.
Wish No. 5: Directors or Advisors must be highly Qualified with proven integrity
Appointing non-family directors or advisors in the Board or ExCom far outweigh the concerns that owners feel when adding them to their boards. It is not unusual for owners to resist having non family members and the reasons are highlighted below:
- Owners have no experience having non family members participate in the decision making process
- Family members cannot differentiate how to separate Ownership and Management
- There is the perception of business leaders that by having Non family member in the Board or ExCom, they may end up giving up control
- There is also the issue of sharing confidential information with outsiders
- The perceived cost of having to compensate the members of the Board and
- The ignorance of family members on how a real board or ExCom operates
My advice is to initiate real change this year. Believe me, having a Board or ExCom is a great way to jumpstart governance. A Merry Christmas and a bountiful New Year to all!
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Prof Enrique Soriano is a Book Author, World Bank/IFC Governance Consultant, Senior Advisor of Post and Powell Singapore and the Executive Director of Wong + Bernstein Family Advisory Group, a research and consulting firm in Asia that serves family businesses and family foundations. He was formerly Chair of the Marketing Cluster at the ATENEO Graduate School of Business in Manila, and is currently a visiting Senior Fellow of the IPMI International School, Jakarta.
