Defective family constitutions are dangerous
First of two parts
There are some very toxic cases from other countries that are usually pre-screened before they are endorsed to us consultants. One of these stood out: an unfinished constitution that resulted in tragedy when two family members died of head injuries received from a car chase instigated by a third member. Another one, more recent and still unfolding, involved siblings locked in a legal battle, with both sides trading insults in and out of the courtroom. This conflict is likely to end in a sellout. Clearly, these conflicts exposed the deep-seated anger and erosion of trust among family members. All these cases are either on the verge of a major breakup or deal with a fierce battle for control of the businesses left behind by their parents and founding grandfathers. It is unfortunate, senseless and heartbreaking to see family businesses disappear into oblivion.
When litigation lawyers lead the way, I would usually decline any form of intervention and would advise families to kiss the legacy dreams of their deceased founders goodbye. My firm’s (Wong + Bernstein) Asean (Association of Southeast Asian Nations) governance policy on helping family enterprises are clear: our consultants are discouraged from participating in acrimonious cases where local courts have assumed a certain level of jurisdiction. We only step in as mediators when lawyers officially recuse themselves.
First, let’s understand what a family constitution really is. Acknowledge Family Business expert and Kellogg School of Management Prof. Ivan Lansberg defines it as “a formal document developed collaboratively by family members to encapsulate the values, beliefs and objectives of the family, as a family, with specific reference to the family’s relationship and dealing with its family business.”
In some countries, a family constitution is referred to as a “family agreement.” For some, it is a family creed or charter. Regardless of the name, there is absolutely no doubt that a family agreement, when done correctly, can be the most important document that will perpetuate the family business for generations to come. When I say “when done correctly,” this refers to the need to customize and tailor-fit rules and protocols based on the uniqueness of each family and business. Just as each family business is unique, so each family constitution would need to reflect the unique characteristics of both the business and the family to which it relates.
Second, why are there so many defective (completed and uncompleted) constitutions? Who among the stakeholders are at fault? Is it solely the fault of the family advisor or the reluctance of family members to go through the process? Is it the lack of experience of the advisor or the lack of emotional commitment of the family members? Can it be attributed to the non-confrontational nature of Asian families, thereby preventing them from addressing difficult issues?
Defective constitutions are a dime a dozen in Asia and the reasons are:
– Engaging an incompetent or inexperience family business facilitator
– Adult family members were “forced” to participate
– Family members are no longer open to reconciliation
– Forbidden issues were neither disclosed nor raised during the formulation
– There is so much resentment, hatred and hurt feelings
– Wrong assumption that with a constitution, conflict among family members can disappear like magic
– The initiation, formulation and approval phases were all done in a few days, meaning done in haste without getting everyone aligned and committed
– No articulation of a code of behavior
– Approval was forced on the family members by the founder, leader or facilitator.
– There was no proper orientation or buy in of family members coming from different generations.
To be concluded on September 29
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On behalf of the W+B Family Advisory Group, event organizer ICON Executive Search and education partner ExCED Institute, I want to personally thank all the participants who graced the second W+B family business conference, titled “Can Family-run Businesses Last Forever: A Talk about Building 100-year-old Enterprises,” at the Manila Marriott Hotel in Resorts World Manila on August 31. Thank you to The Manila Times for the media support.
I hope that everyone found the conference informative and worthwhile. The primary goal of the forum was to bring together governance leaders (Institute of Corporate Directors, wealth preservation and risk experts, Deloitte, and Bank of Singapore) under one roof to discuss multigenerational issues facing 92 percent of family-owned and -managed businesses in the Philippines.
Our objective was to share powerful strategies related to family and corporate governance practices and inspire everyone by inviting a pragmatic enterprise-founder/chief executive officer and thought leader — William Tiu Lim — who willingly and generously shared his vision and legacy initiatives geared toward transforming the business he founded — Mega Global — and reach “centennial” status.
Prof. Enrique Soriano is an author; World Bank/International Finance Corp. governance consultant; senior advisor of Post and Powell Singapore; and the executive director of the Wong + Bernstein Family Advisory Group, a research and consulting firm in Asia that serves family businesses and family 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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