By Prof. Enrique Soriano
This article allowed me to reflect on a lot of initiatives related to my role as a family business consultant when I flew to Europe for two weeks to address family enterprises in need of direction and guidance. Due to the pandemic that ravaged many economies all over the world during the last two years, my visit to Barcelona and Rome, a first in two years, was long overdue but thankfully I was finally able to re-energize families on the need to pursue governance.
Volatile Interaction between the family and the business
Family-owned businesses face major challenges in working through ownership and management succession and family members especially its leaders acknowledge that there are problems that need to be addressed. Usually, at the first sign of family conflict, families would attempt to resolve their differences amongst themselves. However, when the conflict escalates and leaders, usually parents, sense that despite their intervention, many issues continue to simmer (sibling rivalry, entitlement, intergenerational conflict, in-law issues, leadership dynamics, ego, pride, etc.), the family scrambles to engage a family business consultant to facilitate family governance and the usual end goal is to diffuse the tension, promote family unity and use the family constitution as a platform to manage conflict and regulate behaviors of working and non-working family members. When the family signs and promises to faithfully implement the rules, in theory, it looks doable but in reality, it can be daunting. So, the mindset of continuous improvement must always be top of mind for all members.
Governance is a Process, Not an Event
Families must recognize that the journey does not stop when families sign and enthusiastically show their expressions of support to abide by the rules of the constitution. The signing simply signifies that it is just the beginning of another process. What’s worse is that families stop short of implementing what was agreed upon. It is also rather unfortunate that when the consultant is no longer around to help in the process of internalizing the agreement, the problems return with a vengeance.
Why is this happening? That was the question raised to me by a founder many years ago. They engaged a consultant and immediately right after the signing of the constitution, they disengaged his services. Six months later, the conflict returned.
Why is it extremely important to energize family members by way of providing post-constitution family council oversight? Was subjecting the family to a long and rigorous exercise of drafting family agreements like the Code of Ethical Conduct, the Covenants and in most cases completing the process of getting them to adhere to the terms of the agreement sufficient enough? It is not enough
The Dangers of DIY Governance
In my years advising families, I have noticed a natural tendency for family members to “slack off” right after the agreements have been signed. In some cases, families would even lean towards a DIY (Do It Yourself) type of governance for the flimsiest of reasons…”take a break from months of governance session, they want to prioritize and focus on making money, cost consideration and the ‘feeling’ that the family is talking again.” When this happens, the likelihood of compliance takes a backseat, gets derailed and the “old practice” of mixing family and business issues surfaces. Family members only react when a major conflict or incident happens. By that time, the family is already gripped in a state of emotional tension and another round of escalating conflict is already taking shape. By that time, intervention may be too late and litigation lawyers are now being floated by warring members.
After pursuing the DIY route and disaster ensues, business owners, out of desperation, are forced to call in the professionals to clean up their mess. Unlike a typical DIY TV show, where the show’s producers cover the DIYers’ costs, the costs of fixing a legal DIY disaster rest solely on the business. So, when we are called to intervene, we usually decline 90% of the time and part off with a “See I told you so but you never listened” response.
