By: Prof. Enrique Soriano
Let me share the story of Dr. Wang, the founder of a once distinguished global giant and NYSE publicly traded Wang Laboratories. Long before Apple became a household name, Wang Lab, founded in 1951, lorded over the technology landscape.
In 1982, Wang generated revenues of more than a billion dollars, and by 1989 sales registered $3 billion. The growth also produced 24,800 dedicated employees but in just a matter of three years, the group filed for bankruptcy protection. The group’s fatal flaw? Its founder thought it was a family business, until it was too late.One of the major causes that contributed to the company’s failure was Dr. Wang’s insistence that his ill equipped and unprepared son succeed him.
A 1992 Computerworld piece about Wang Laboratories’ demise pinned the problem on a strong desire to build a company with a family lineage. And when Dr. Wang made his son Fred, President, the report noted that many people within the company had concerns:
“For years, there have been quiet concern about Fred. Members of the board of directors had worried that Fred did not have the experience, the judgment—the overall heft—to lead the company. Ever since the middle of the 1980s, outside directors had made repeated efforts to persuade the Doctor to bring in a professional manager—to give Fred an impressive title if needed but to avoid placing the young man in operational control of this sprawling, worldwide corporation in the thick of the most competitive industry on earth.”
Doc Wang would not yield. To the directors he said: “He is my son. He can do it.”
Every family story highlights nepotism as having a negative effect on a company’s future. Dr. Wang saw his namesake company as a family business. That legacy mindset contributed to the demise. In one of his book interviews, Dr. Wang even remarked, “All other things being equal, my children should be more highly motivated than a professional manager because of their substantial stake in the ownership of the company,”
Forcing Children to Join the Family Business Is Wrong
Most business owners commit a major blunder when they make their children feel obligated to join the company. This wrong method of employing children can compromise the business as it breeds owner/managers who are entitled, not committed, unprepared and indifferent.
When an offspring exhibits any of these traits (parent, child, sibling relationships becoming strained, no clear vision of the future or non-family employees bypassed in favor of an entitled child), you can expect conflict to manifest in many forms. This toxic situation translates to a lot of time wasted for all parties and the business inevitably takes a direct beating.
Children who are apathetic or lack the drive should not have worked in the enterprise in the first place. Nonetheless, if parents insist, the tradeoff can cause serious consequences:
- A miserable but entitled child can bully his or her way to gain respect
- Non-family executives are demotivated
- Parents end up regaining control and restrain young members’ activities
- Governance and succession initiatives sidelined
In my experience coaching dozens of family enterprises in Asia, I have seen ill-prepared next-generation members slugging it out and inevitably destroying the business. As governance colleague Henry Foley remarked in his Harvard Business School article he co-authored… “despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.”
To escape the trap, Foley suggest intervention on proper training and screening. He continues,” it’s natural for a family business to welcome members of the next generation, and it’s healthy to expose them to the company at an early age, so that they can make an informed decision about whether to pursue a career there. But a job with the company shouldn’t be an entitlement. Those who want to join deserve no special accommodation.We now see an emerging best practice in which families formally require any child who wants a job to (a) earn a university degree—and in some cases a graduate degree, (b) gain several years of relevant professional experience outside the family business, and (c) apply for open positions in competition with non-family applicants.”
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Prof Enrique Soriano is a 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.
