Setting rules: Remedy to confusion and conflict in family businesses

BY PROF. ENRIQUE SORIANO

IN SHORT, initiate the following four Cs:

* Craft Your Family Constitution/Charter

* Clarify Roles

* Create a Code of Conduct

* Commit and Enforce the Signed Agreement

In my previous columns, I extensively discussed the necessity of pursuing Governance in Family Business. Undoubtedly, crafting a Family Constitution or Charter is a major step toward fulfilling a founder’s dream of cementing their legacy for future generations. The objective of any governance undertaking is to create harmony, unite family members, and prepare effective family and ownership agreements.

This week’s column will focus on family agreements. When done right, these rules will immensely benefit family relationships. Governance in a family-owned business simply underscores the importance of “institutionalizing rules and regulating behavior for the greater good.”

Institutionalizing Rules

Formality is crucial in family businesses. Assuming that blood relatives will forever be supportive and consistently productive is a flawed premise. There is a saying, “blood is not thicker than water; they can cross you anytime when you least expect it.”

We must recognize that there are different types of family members involved in the business. Some may exhibit exceptional performance, commitment, and trustworthiness. Others may be indifferent, selfish, and see their last name and employment as their birthright. For some, entitlement defines their role in the family business.

Behaviors Change

According to a Business Week article, family business leaders must recognize the individual differences among family members, including personality types, attitudes, behaviors, opinions, values, demands, expectations, capabilities, and evolving life priorities.

The behavior of your younger or older offspring may change significantly from their teenage years to midlife. Given these potential changes, family business leaders must anticipate and manage the difficulty of meeting the certainty needed from family members to operate a business professionally and achieve specific objectives.

The core group of any family business comprises family members, who can be catalysts for positive outcomes or major sources of problems if they disagree with established guidelines.

Familiarity and Entitlement

Issues with family members often boil down to familiarity and entitlement, leading to complacency and presumptuousness. Because they are related by blood or marriage to influential family business leaders, they often believe they will not be held accountable for underperformance or weaknesses. In many cases, “free riders” within the family can compromise the business. They believe their entitlement allows them to contribute little to no effort toward the business’s development.

Without performance metrics and accountability, these individuals continue to draw salaries and benefit from dividend sharing. Adding to the problem, they may moonlight and start separate businesses outside the family business.

Another major source of conflict is dealing with diverse personalities within the family. Some may be intellectual, capable, and productive but also greedy, overly controlling, and manipulative. Others may be quiet but tend to question every policy laid out by a family member, disrupting growth initiatives.

Start by Crafting Solid Agreements and Policies

Creating and following various agreements in the family business can help maintain harmonious relationships and promote professionalism. Based on my experience coaching family businesses in Asia, the most important documents and policies to unite and harmonize family members include:

* Family Constitution or Charter: This should incorporate Governance Policies covering Employment, Compensation Policy, a Code of Conduct, Job Descriptions for working family members, and a Statement of Vision and Values.

* Shareholders Agreement: This document covers agreements on ownership and Board-level accountabilities.

Due to limited space, I will explain these agreements in the succeeding columns.

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The W+B Family Governance Leadership Series: A Resounding Success!

I want to personally thank everyone who attended the three-day event, which culminated in a captivating fireside chat in Binondo, Chinatown.

We had the pleasure of hearing from Mr. Gerry Chua, the visionary third-generation leader, and his eldest son, Mr. Geric Chua, the fourth-generation successor of the renowned Eng Bee Tin Group, a beloved family business operating for the last 112 years!

Due to numerous requests, the organizer, ICON Events, is considering another run, possibly in the Visayas and Mindanao. Stay tuned for updates.

If your family is experiencing confusion or conflict and you’re interested in learning tools and strategies to navigate the complexities of family business dynamics with clarity and purpose, please reach out to Christine at wb@wbadvisoryasia.com.

Don’t let unresolved conflicts hold your business back./PN