Family drama in the boardroom? Here's how to prevent costly feuds
MANILA, Philippines– The patriarch of a rich family dies. His children fight over control of their company. The plot is all too familiar for telenovela-loving Filipinos.
While soap operas highlight the drama, an expert on managing family businesses said they omit the most vital issue: a feud's potential impact on the overall economy.
A study from the Asian Institute of Management (AIM) showed that almost 60% of publicly listed companies in the Philippines are owned by powerful families.
Another finding by the Department of Trade and Industry is that around 80% of all businesses in the country are run by families and passed on to generations.
The same story can be seen in the rest of the region, according to Forbes Asia. (READ: LIST: Philippine companies among Forbes Asia's best firms in 2019)
Ateneo de Manila University professor Enrique Soriano III said businesses should keep the "spirit and essence of family" in order to remain successful.
Soriano, who has advised many family-run businesses in Asia, said these businesses outperform those that do not have common ancestry.
"They persevere more, have a shared vision, and more are driven," he said.
Soriano noted that uncertainty arises when the founding family patriarch or matriarch passes away, and all the more so when the children fight over power and control of the company. The picture gets more complicated, too, when there are half-siblings aggressively demanding their share of the pie.
Soriano cited the case of the Yanson family, the owner of Bacolod City-based Vallacar Transit. It is the largest bus company in the Philippines.
When Ricardo Yanson Sr, the patriarch, died, his 6 children fought over the company's ownership.
The matriarch, Olivia Yanson, is backing Leo Rey Yanson, the youngest of the brood, to lead the company. Leo Rey was ousted as the firm's president by 4 of his siblings in a surprise boardroom coup.
Olivia was left without any shares, but was instead given properties.
Soriano said the Yanson case should serve as a cautionary tale to other family-run businesses, as instability brought about by a feud would affect thousands of employees and other related industries.
Soriano provided the following tips to prevent family drama from affecting a company:
- Equal is not always fair. He said equally distributing the shares to children is not the best idea. "The western value of equality is very bad in this case. One can always equalize it in other ways, like provide properties to other children [who] may not be as competent as the others."
- Train a successor. Among children, the patriarch or matriarch should let children climb the corporate ladder. Soriano cited the case of Kevin Tan, son of Alliance Global's Andrew Tan, who started from the very bottom of the company and had to work his way out of minimum wage. Doing so would ensure that a family member is competent to lead the company.
- Install professionals. If no family member has the capacity to lead the company, a professional chief executive officer should be highly considered. Soriano said family members may remain in the company as members of the board, but the daily operations can be left to professionals. (READ: Next AboitizPower CEO won't come from Aboitiz clan)
- Everything should be on paper. The patriarch or matriarch should not make promises to children or family members. Soriano said the family should adhere to a family constitution or any form of document, drafted just for the needs of the family.
- No ownership mindset. Family members should know it is not about them. The company is bigger than any family member, affecting lives of the communities they serve and providing jobs to many Filipinos.
- Remove incompetent family members. While harsh, Soriano said family members who do not have the skills should have no business in the company. "Strip them of voting rights. Just give them lots of properties and they will still be happy and rich and can start their own [business] if they like," he advised.
- Keep it family-inspired. Soriano said that while companies move toward professionalizing the corporate structure, families should not forget to inspire the organization by staying true to its roots. "As I said, family businesses generally perform better than those that started as professional companies," he said.