From legacy to longevity: Solutions to common family business struggles
Recently, I had the honor of being invited by the owner of the largest bank in the Philippines to lead a half-day conference for top family business clients. The event was a tremendous success, providing me with an opportunity to share my insights and experience in helping countless family businesses in the region and around the world thrive across generations. The event lasted for several hours—with me as the lead expert—and the audience of over 300 family business owners engaged actively, asking many questions.
Naturally, it would be impossible for a short article like this to cover everything I shared with the audience, but I will do my best to provide some key highlights that could help you, especially if you are a family business owner looking to master the unique challenges and opportunities that come with owning and managing such an enterprise.
Skin in the game
The advantages and disadvantages of family businesses are complex and multifaceted. One significant advantage is that family businesses tend to have more “skin in the game.” Owners of family enterprises have a vested interest in ensuring that the business not only survives but thrives for future generations. Since the family owns the business, there is a much deeper commitment to its longevity, growth, success and expansion compared to what a hired executive might have.
This strong sense of ownership leads family businesses to often plan more long term than other types of businesses. For example, many of our clients in the region ask us to conduct five- to 10-year growth planning, and some even go beyond that. One client we worked with in the region has a 50-year vision for his business, which helps explain why it has become one of the largest in the country.
Sugarcoating
However, family businesses also face unique challenges. In the Philippines, there is a natural respect for individuals with higher status, more power and greater wealth. In practice, this means that if you are leading and owning a company, people might be hesitant to bring you bad news. We call this the “Persian messenger syndrome” —people are often afraid or unwilling to be the bearer of bad news. This can lead to a lot of sugarcoating in boardrooms and management committees.
My team and I have witnessed countless management meetings where the owner was surrounded by “yes men” and “yes women” who weren’t always truthful and would often hide serious issues. We also noticed that they tend to cover for each other when it comes to incompetencies, failures or mistakes.
One of the many examples that come to mind was the case of a famous Filipino conglomerate where one management committee (mancom) member was utterly incapable, but the rest of the mancom did their best in hiding that fact, and no one told the owner the truth.
Seeing reality clearly
So, what is the solution to this issue? Often, the best approach is to bring in external advisors who can provide an objective, unbiased view of the business. These experts can present the owner with a clear picture of reality—the true facts of the situation. Strategic decisions can only be effective if they are based on an accurate understanding of the business.
Many family business owners lead their companies as though they were navigating a ship blindfolded because they do not have access to the unvarnished truth. External advisors can also help identify “low-hanging fruit”—easy opportunities that can be acted upon quickly— as well as the “elephants in the room” that, once addressed, can lead to significant new growth and profitability.
As a result, the whole business had suffered and had lost many profitable opportunities. After my team and I had come in and uncovered all the skeletons in the closets, profits surged. If you suspect you might be in a similar situation, make sure you get to the bottom of things and do not leave people off the hook. Remember the old German adage: “Vertrauen ist gut, Kontrolle ist besser,” which means: “It’s good to trust, but it’s far better to control.”
Stick and carrot
It is vital to apply stick and carrot. Most family business owners value loyalty above all. Loyalty is important. But if someone is loyal but not performing, you need to get rid of him or her, or at least apply enough “stick and carrot”—rewards and punishment.
When we supported a well-known family business conglomerate in the region, the owner asked us to take a close look at every mancom member’s performance and clearly tell the family who was the right fit, and who was not. And who did a good job, and who did not. And who we would recommend for which position. The result? We recommended to replace four mancom members. The owner followed our expert advice, and the business had its best year ever after that. We see these results quite often.
What can you learn from it? Performance is all that counts. Loyalty does not make up for poor performance.
Can you turn any new family member into a great executive?
The good news is that great executives are made, not born. This means that you can teach almost anyone the skills, mindset, tools and secrets that will empower them to become great executives and lead the family business successfully into the next generation. What most business owners do not realize is that the most important skills are not taught at business school. As a result, they send their sons, daughters or family members to some of the best business schools in the world, but once they graduate, they are still not ready to lead.
The harsh truth is that business schools are usually best suited for executives who are not owners because they need their business school diplomas as a stamp of approval to secure good positions and move up in the corporate ranks.
However, if you are the owner of a family business or a family member wanting to lead the business someday, you need practical knowledge—the tools, insights and secrets that make great executives, which are common among top Fortune 500 CEOs. In short, the “soft skills” are really the most important skills when it comes to leading a business. I know that firsthand because I attended some of the best business schools in the world, and I have lectured at several of the top business schools on the planet.
I was also an executive MBA professor for more than 15 years. In short, I know what I am talking about. I must tell you honestly that most professors at business schools, including those at institutions that call themselves the best in the world and regularly top the rankings, know very little about what it takes to successfully lead a business. This is why most business owners are caught in an illusion that sending someone to business school will naturally prepare them for what comes afterward.
Three to thrive
- Get external, unbiased perspectives
- Prioritize performance over loyalty
- Forget MBAs: Make sure the next in line learns practical skills, not theory.
