BY PROF. ENRIQUE SORIANO
THE PRESENT state of a family enterprise will inevitably determine its future existence or demise. And much, of course, depends on the family’s shared purpose, values, and the creation of unifying structures (governance) that are essential in managing generational change.
In pursuing governance, families will also make complex decisions while navigating the complexities of being part of a globalized economy. For business leaders, it is always a balancing act. On the one hand, they have to constantly manage a volatile marketplace and confront change with innovation. On the other hand, they will need to produce a family talent pool (intellectual assets) to sustain the business.
Are these essential elements sufficient? Will it preserve the legacy of the founder?
There is a more powerful value that serves as a beacon of light for family firms, and it is a clear and collective purpose that everybody must embrace.
Five years ago, a charismatic entrepreneur of Asian descent by the name of Charles (not his real name) approached me after I delivered a talk on family business in Toronto. He shared how he started his export-import business 30 years ago. His partnership with his younger brother helped propel his small business into a diversified group ranging from food manufacturing to real estate development.
With his son and daughter helping in operations a decade after, the business grew into one of the leading diversified businesses in Ontario. Eventually, his brother fell ill and retired from operations.
However, at the height of the global financial crisis in 2008, the business went on a free fall due to debt borrowings and lack of innovation. But emblematic of a founder, Charles told me that he immediately assumed control, “I have gone through many worst crises in the past, so the subprime crisis was not new to me.”
But the children had a different narrative. “It was clear that our father was in denial, and we knew then that we had to reset fast enough as the business was facing its biggest challenge not just in debt servicing but also in the online distribution space and the entry of cheap China-made product substitutes.”
Sensing the danger of a prolonged crisis, they constantly reminded their father that change must happen, or the explosive growth of technology would instead weaken many of their core businesses and squeeze them dry.
However, Charles was adamant, stubbornly refusing to listen to everyone. On many occasions, the family meetings would escalate into heated exchanges and, being a founder with so much ego and pride at stake, Charles would often dare his children to resign if they did not toe the line.
Exasperated, the son tendered his resignation. Charles called him out as ungrateful, and for more than a year, they refused to talk to each other.
Thankfully, the business survived after the founder unloaded some of his real estate assets to pay off maturing debts, but noticeably there was a heavy cloud pervading among family members. Even if it slowly recovered, their relationship was no longer the same. For the traumatized children, there was no more enthusiasm to move forward.
The daughter, questioning the stability of the family business at one point, innocently asked whether it was worth keeping the business or if it was more befitting to just sell it to finally have peace within the family.
Charles reacted in disbelief, “How can my children just casually contemplate on selling the business that I nurtured and cared for all my life?”
After hearing Charles’ story, it was clear that the family needed outside help to crystalize a powerful sense of purpose./PN
