Constitution on top shelf

CONSTITUTION on top shelf or perhaps rephrasing it to Governance on top shelf is probably my biggest frustration in coaching family businesses!

That is the crux of this week’s article. Statistics of failed family businesses that went through a constitution building exercise and missed out on the implementation is alarmingly high.

Failure rate at 60 percent in ASEAN

Six out of ten family agreements (constitution) are most often than not relegated to the top shelf and continue to gather dust. In my last two seminars in the country on family business governance, I saw a significant number of attendees in a bind.

One family member even courageously went up to me and in a sad, booming but almost desperate tone lamented that the family members are still at odds despite formulating a family constitution (done by another consultant) five years ago.

He went on to relate that the family members were herded into a hotel, went through a two- day session with the third and final day devoted to the signing. Family members went home happy and optimistic that finally they can envision a harmonious relationship among family members with the enterprise finally moving forward sans family related hiccups.

My reply was direct. Without activation nor compliance, developing a family charter is just a paper exercise.

The emotional effort and energy that goes into the process of drafting the agreement is extraordinary… well at least if I benchmark our W+B working model. The latter goes through an eight to 12 rigorous session process before a final agreement is signed and document.

The process is equally important

After the signing of the agreement, an additional two to three sessions should be devoted to drawing a shareholders’s agreement. This is critical as this last piece of aligning ownership among family members is a legally enforceable document.

A family constitution without a shareholder’s agreement is empty!

For most families, the process represents their most significant investment of vulnerability and openness as well as discussions related to very sensitive and often times personal issues.

If nothing comes out of the family discussion, the family will be reluctant to try again.

Families can become very cynical toward future attempts to revisiting the failed family constitution.

A constitution is not a “cure all” document

A constitution is never a quick fix. It is a product of session after sessions of discovering new things and uncovering concerns that are affecting family and business relationships. It is also a living document that seeks to provide solutions to future problems. And it can only work unless the family members who signed the dotted lines proactively pursue the fourth and critical requirement--implementation!

Implementing the Family Constitution is non negotiable. Non compliance is a recipe for a bigger conflict especially if the head of the family is no longer around to provide the leadership and decision.

Alarming statistics

Statistics culled from the Economic Intelligent Unit showed that in the Philippines, the biggest stress (and this is very disturbing) comes from major disagreements among family members over corporate strategy. The EIU rated it at 48 percent for local family owned businesses and 52 percent for its Indonesian counterparts. This particular issue can only be resolved if the family constitution is done right and implemented correctly. Now you know why I frequent Indonesia. I have listed below several reasons why family agreements fail:

-Lack of senior management belief and commitment to implement and activate the governance councils

-Time/resource commitment isn’t there to plan, unrealistic expectations -Day to day growth and pressures too dominant -Lack of willingness of family members to be proactive and creative -Tough choices avoided, failure to set priorities -Reactive, low risk, rewards mentality, low reinforcement for governance thinking -Past history and mistakes in previous planning attempts -No desire in pursuing the implementation process itself

-Frequently changing priorities and focus; not persevering on one track; inconsistent decisions -Low commitment to the implementation -Governance on Top Shelf, no formal implementation -Failure to provide the needed resources--financial and personnel

-Conflict, politics, lack of interpersonal skills amongst siblings, cousins when working together

Prof. Soriano is an ASEAN family business advisor and former chair of the Marketing Cluster of the ATENEO Graduate School of Business. He is a National Agora awardee and book author of two bestselling books related to family business governance and succession. For information on how to get a copy of his book "Ensuring The Family Business Legacy," please call W+B Group at 09228603186 and look for Jen.