By Prof. Enrique Soriano
I want to share a story of an old friend and founder of a business that decided to pursue governance, engaged the services of an experienced consultant, and is now riding the crest of a successful transition, all because he made the decision to do the right thing!
More than eight years ago, Rey (patriarch) experienced severe chest pain while having dinner with friends. Still, he wasn’t concerned and continued to banter with them. “I can sense the pain was starting to build,” Rey said, “My heart felt like it was being squeezed, and it traveled to my shoulder and arms and radiated to my jaw.
After Rey realized what was happening that night, he asked his friends to bring him to the hospital. He recalls vividly, “I was in so much pain I struggled to walk to my car.”
Having since undergone open-heart surgery, Rey was thankful he lived to tell his story. As the founder/manager of a 35-year-old construction business, Rey became fearful of what might have happened if he did not survive the ordeal. His only conclusion was that the business he started from scratch would have disintegrated immediately right after the memorial service.
To allay his fears and anticipate a future event without him at the helm, Rey asked for my help. I politely declined for the fundamental reason that he was a personal friend and one of his children was my godson. I just knew that my objectivity as a consultant would be clouded with biased judgment. Nevertheless, I assured Rey that I would provide oversight and endorse a consultant to help his family craft governance agreements with the overarching objectives of making the enterprise resilient, institutionalizing rules amongst family members, and pursuing a generational transition with growth and legacy in mind.
On top of what I shared last week, I am consolidating the standards I shared with Rey that I consider non-negotiable qualities that a family must find in a family governance consultant:
a. Promote a change in mindset among family members.
A seasoned consultant can explain, educate and assert (meant for many stubborn, ego-centric owners and entitled offspring) its influence over family members that governance requires a separation of roles as a family member and a business executive/operator. Separating both roles can minimize emotion and reduce tension.
b. Experience Matters.
Seasoned consultants can explain and articulate to family members the need to wear the hat as business partners when they are active in the business. Consultants must also educate members regarding the world of difference from being a full-time or non-active family member to an executive or non-executive Board director and/or a passive or active shareholder. Family members should always be classified according to the level of their engagement in the business.
Will they be full-time, part-time, purely working on the Board, or just a shareholder when it comes to owning shares?
c. Encourage family members not to take any issue for granted.
Experienced consultants will go to great lengths to explain and simulate scenarios, including consequences, before the founder or sibling partners make critical decisions, especially regarding succession and the varying roles family members occupy.
d. Encourage siblings or cousins to ensure the lines of communication are open.
Whatever the purpose of a family business is, open communication is critical. Individual family members need to share their personal aspirations as a starting point for any family conversation about values, vision and purpose. When the business does something that contradicts the family’s priorities, there needs to be a governance process for addressing it.
I cannot emphasize enough to my readers that open communication is key to harmony, yet this risk-mitigating process is still the most neglected strategy in the family’s list of priorities.