How to prevent family businesses from Self Destructing


The Wu Family is a close knit and loving family.  Daddy Wu is a successful businessman amassing a fortune worth billions.  Mommy Wu is a bubbly and lively housewife.  They are a loving family with 3 grown children – 2 sons and 1 daughter.  Eldest Son is single but is acting as COO of Daddy Wu’s burgeoning empire.  Younger Son is CFO and recently married.  Only Daughter is separated with 1 child.

Daddy Wu had prepared a will but no one knows what is in it.  One day, Daddy Wu called Eldest Son Wu that he needs to discuss the will with him and that it was important but on the way to the meeting place, Daddy Wu had a heart attack and passed away.

With Daddy Wu out of the picture… what now? Who will take over the business?  Will Younger Son be willing to take a back seat to Elder Son?  What does Only Daughter get from it?*

This is a dilemma that catches families unaware at the most vulnerable and painful moment in their lives.  With emotions running high, people do not make rational decisions and something as mundane as dividing the inheritance can be a source of conflict.

This was the topic (and the above a case study) of one of the speakers during the Mandaue Chamber Business Summit last week.  I find the subject extremely relevant to the Cebu community.

Why?

90% of the businesses in Cebu are built, run and owned by families.

These businesses provide countless jobs and it is in the country’s best interest that they survive for as long as they can.

However, statistics show that out of 100 first generation family businesses, only 33% survive the transition from the first generation to the second.  And the news get bleaker…  only 12% of family businesses survive the transition from second generation to the third.  The speaker called this the cousin corporation.

Why do family businesses apparently have an expiration date?

In a first generation family, dad was #1…  the big kahoona… the dictator.. the undisputed boss.  Everything he earned goes into his own pocket to feed his own family.

Dad has kids …. sons and daughters who will eventually inherit the lucrative family business.

Who will take the lead among the children?  Will it go to the eldest son as is the tradition for Old China? Or will it go to the son who had a master’s degree?  Will the daughters be involved in the business?  Who takes what position?

Unlike the first generation family, the second generation family business must feed not one.. but multiple families.  All the children of the founder who have inherited a piece of the pie must feed their families from the profits of that ONE business.  All of them are scrambling for a piece of the action.

Unfortunately, not all of them will agree to ONE common definition of what’s fair.  The pie, when family emotions come into play, is no longer easily divided.  Simple fractions does not become so simple anymore.  So many factors can come into play such as who’s doing more work or what is due to him or her in their mind.

You can only imagine how much more complicated a cousin corporation is.  A web would be easier to untangle.

I have personally heard so many horror stories of families tearing each other apart because they can’t reach an agreement.  The people involved start getting personal.  Logic goes out the window and siblings who grew up in the same household start trying to destroy each other.  It’s the most horrible thing I can think of that can happen to a family.  Unfortunately, it’s a very common occurrence.

The speaker speaks of a solution which requires a third party mediator for the family, a family willing to discuss options and weigh them in continuous closed door session and creating a family constitution… BEFORE any disagreements have occurred.

He candidly says that once fights have erupted, the family needs a priest, not a mediator.

After the completion of a family constitution, ALL members of the family must sign the family constitution to signify their complete agreement with the document.  This document then becomes enforceable by law.

This gives the family a “bible” of sorts to refer to if disagreements erupt in the future. Since all children have signed, they are bound by the promises they have made and disputes are easily settled.

Unfortunately, some families are either unaware of this service or do not have the foresight to see the need for it.

For the sake of family businesses everywhere, this service is available … USE IT.

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