Creating 100-year-old family businesses
IS creating companies that last forever really possible? I am always grilled by stubborn clients and fellow researchers in Southeast Asia on this, and my usual response is: If Japanese enterprises were able to last for centuries, could their counterparts in Asia, notably those in South Korea, Indonesia, the Philippines, Malaysia, Singapore, Thailand and Hong Kong, attain the same longevity? Doubtful. Longevity, Japanese style, is more than just a business model or having a “eureka” product; it is something deeper that transcends blood relations. For Japanese family-owned businesses, the quest to continue the enterprise is embedded in their culture.
Let me digress a bit: On Saturday, I shared the stage at the Manila Marriott Hotel with prominent business and governance leaders from the Institute of Corporate Directors, Bank of Singapore, Deloitte and Mega Sardines in the biggest annual gathering of family business experts in the Philippines. The event, called “Can Family Run Businesses Last Forever?,” tackled the secrets to building 100-year-old enterprises.
The Aboitiz way
John Ramon Aboitiz, the Aboitiz Group chairman who passed away last year, was once asked what his thoughts were about family governance. He said: “First of all, the most important in a family corporation is that you have to build up rules and regulations for the family and the business. We have built a constitution. We have a family council. We have rules of engagement [on] who can join the family business, because not every family member is entitled to work for the company. He has to try; he has to go through different processes.”
The Aboitiz family business is one of Asia’s most inspiring and enduring governance stories. They were recently ranked by Forbes magazine as the 320th world’s best employer, a feat shared by a handful of Southeast Asian-based family enterprises.
From being an abaca and general merchandise business that started in Leyte in the late 1800s, it has since diversified its core businesses to power generation, distribution and retail electricity supply, financial services, food manufacturing, real estate, infrastructure, and portfolio investments. The group’s nine-month revenue in 2018 increased by 21 percent to P135.25 billion ($2.7 billion).
130 years and counting
What made the Aboitiz business endure five generations spanning 130 years? What is its formula for longevity? The secret lies in having solid family agreements and very clear entry and exit rules for family members. Let me highlight some wonderful values that family-owned businesses can embrace as they pursue their 100-year legacy:
– The principle of meritocracy applies to all, regardless of who the person is or his or her parentage.
– All family members who want to work for the group must apply.
– Relatives who apply must be qualified and have competitive credentials vis-à-vis professional managers.
– Relatives should have good academic preparation and are first encouraged to work at least two years outside of the family business.
The 4 R’s and the A
It all boils down to setting the rules, roles, rights and responsibilities, covered by accountability. According to family business expert John Ward, the two most effective governance tools implemented to protect and preserve the family business are creating an independent board to strengthen the business and drafting a family agreement to strengthen the family.
In some countries, a family code of conduct is referred to as a family agreement reinforced by a constitution. Regardless of the name, there is absolutely no doubt that a family agreement can be your most important document that will perpetuate the family business for generations to come. Moreover, it would help the family deal with changes constructively, and require the family to think about important decisions before they have to be made and find agreement on important family business goals.
The crucial and, possibly, one of the most important components of the family constitution is the articulation of the importance of shared values and the vision of the family business. Ward likens successful family partnerships to the bunch of sticks in Aesop’s fable: If you take a bunch of sticks together, you can’t break them, but if you take the sticks one at a time, they snap. Shared values and a compelling vision bind the business owners and effectively sharpens the business focus.
Formulating a family constitution will take time to develop and may require a series of family meetings. Even if there isn’t an agreement on all issues, it will form a good basis for the family to work from when events or risks, such as the illness or death of key a family executive, a major change in the competitive environment or a fight among siblings, arise.
Prof. Enrique Soriano 3rd is an author; World Bank/IFC governance consultant; senior advisor of Post and Powell Singapore; and executive director of the Wong + Bernstein Family Advisory Group, a research and consulting firm in Asia that serves family businesses and foundations. He was the chairman of the marketing cluster at the Ateneo Graduate School of Business in Manila, and is a visiting senior fellow of the IPMI International School in Jakarta.
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