10 tips for family businesses to thrive beyond three generations

A man should never neglect his family for business. —Walt Disney

Keeping a family business alive is perhaps the toughest management job on earth. —John L. Ward

The talk of the local business community in recent months is the new young girlfriend of a founder of a top food company, and speculation that his wife’s family was responsible for retiring him from the helm of the business.

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Another bit of news top Makati executives shared with me is that the scions of the country’s two pre-eminent ethnic Spanish business clans are now a romantic couple. The only child of one family — educated in Scotland and Beijing — is now the boyfriend of the Harvard-educated daughter of another family.

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What’s the connection between the respected Amanpulo/ Shangri-La Mactan Cebu/ Coconut Palace architect Francisco “Bobby” Mañosa and the popular 74-year-old Ongpin Mañosa restaurant (Chinese name “Chieng Kha”) in Manila’s Chinatown? The architect’s realty developer son Dino Mañosa said that his half-Spanish, half-Ilocano grandfather Manuel Mañosa was the country’s prewar sanitary engineer, who was ninong or godfather of the Chinese restaurateur.

Once, when Dino and his staff went there to eat, the happy owners of the resto insisted that all their maki noodle soup and other dishes were complimentary. The young Mañosa runs the family’s Mañosa Properties, a developer of high-end homes in New Manila, Quezon City, and the upscale Tago enclave in Tagaytay. 

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At the recent launch of actress Ruffa Gutierrez as the celebrity endorser of Cosmo Skin beauty products, she revealed that she is like many working women in our society who are single parents, because her ex-husband, Turkish businessman Yilmaz Bektas, doesn’t provide financial support for their two kids, whom she sends to international schools. Ruffa encourages women to save money in real estate, stocks and bank deposits for financial independence.

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Thank you to the AIM Policy Center, Management Association of the Philippines (MAP), Employers Confederation of the Philippines (ECOP), Former Senior Government Officials, Asia Society, Harvard Kennedy School Alumni Association of the Philippines, Tufts Fletcher School Alumni Association Philippines and Ramos Peace and Development Foundation, Inc., for inviting me as the reactor to their special forum open to the public entitled “Understanding 21st Century China: All Under Heaven?” on April 2, Wednesday, from 8:30 to 11:30 a.m. at the Fuller Hall, 3/F Asian Institute of Management.   

This multi-sectoral forum seeks ways to boost the 1,000-year people-to-people friendship between the Philippines and the world’s emerging economic superpower China, beyond the arguments of both countries’ politicos over territorial disputes and extraneous factors like the geopolitical rivalry between superpowers.

Invited speakers are Professor Emeritus Marwyn Samuels of Syracuse University, who will speak on the changing geopolitics of China; Dr. Liping Zheng of the Asian Development Bank (ADB), who will speak on the changing socioeconomic landscape of China; and former ABC News Beijing bureau chief Chito Sta. Romana, whose topic will be “Opportunities for enhancing people-to-people relations.”

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Ateneo Graduate School of Business Professor Enrique “Eric” Soriano III, advocate of improving family business governance and author of the book Kite Runner Columns, recently gave The Philippine STAR an interview. He reveals that 75 percent of Philippine businesses are family-owned, and 72 percent of businesses worldwide are also family-owned. 

The families Soriano admires most are the Gokongwei and Aboitiz families. In Asia, other “wonderful examples” of efficiently managed family businesses are those of the Lee family of Oversea-Chinese Banking Corp. (OCBC) in Singapore, the Chearavanont  (Chinese surname “Xie” in Mandarin and “Sia” in Hokkien) family of Thailand’s CP Group, and Hong Kong’s global giant Li & Fung Limited led by third-generation brothers Victor and William Fung. He added, “I think Li & Fung — that is an Asian model for us to replicate, they’re the gold standard of family business governance and succession.”

I asked Soriano for 10 tips on how family businesses can survive and thrive beyond three generations, overcoming the old saying, “A great fortune has no three generations.”

1. Never stop communicating. Talking is the most obvious prescription and the most relevant. When family members stop talking, they stop solving. In a family business, issues never stop. Family members must establish clear and regular methods of communication.

2. Formulate a plan. Change in a family business environment is very sensitive, especially when it involves two or three generations and several branches of the family. By default, families don’t like to recognize the need to change and so they delay the recognition and pressures build up. The key to effect change is by initiating a process that preserves the dignity of family members and allows them to feel well regarded throughout this change process.

3. Prepare family agreements. It is hard to create agreements within the family because things change. And the fact that siblings are good partners now means that they should respect each other enough to have good shareholder agreements or buy-sell agreements. Getting family members to sit down and craft agreements that can be guideposts when they need it and doing it in advance before they need it is your most valuable gift to the next generation.

4. Be aware that family and business goals are fundamentally different. It is a unique system fraught with emotions that naturally has different goals. A good example of conflicting goals and usually a cause of major conflict would be in the area of dividend sharing. The family may need high dividends but the business needs capital reinvested. In the area of employment, parents may want their children to lead the business, but the business needs to operate based on meritocracy.

5. Change matters. Family businesses must realize the importance of pushing for change. We are seeing the internationalization of businesses where sourcing, selling and buying are all borderless transactions. For family businesses to succeed, family members must encourage and continue to embrace change as a core value while protecting the family legacy.

6. Family business governance — It is essential that family members define and set boundaries. They must also draw clear management lines as mixing business, family and ownership issues every day can eventually produce a volatile brew. Divide roles and responsibilities to avoid hard feelings or miscommunication. Discretion follows conflict. Put in writing rules for participation in the business, qualifications, duties and accountabilities of the family member.

7. Require outside work experience. Children should get at least three to five years’ business experience elsewhere first, preferably in a related industry. This will give them valuable perspective on how the business world works outside of a family setting. Here the child appreciates the value of discipline, competition and control.

8. Seek outside advice. The decision-making process for growing a family business can sometimes be too closed. Fresh ideas and creative thinking can get lost in the tangled web of family relationships. By having a non-family member outside advisor, objective solutions minus the emotions are effectively laid out. The advisor’s entry can also be a good way to give the business a reality check.

9. Develop a succession plan. A family business without a formal succession plan is asking for trouble. The plan should spell out the details of how and when the torch will be passed to the younger generation. It needs to be a financially sound plan for the business, as well as a way for retiring family members to enjoy the quality years ahead. The phrase “There is only one boss” is so appropriate when a successor is in place.

10. Empower the next-generation family members. Allowing the next generation of leaders to make contributions and introduce change is a major step in the right direction. Establish guidelines for competency, leadership and accountability for the next-in-line family business leaders.

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