On becoming a 100-year-old family enterprise
The late chairman Jon Ramon Aboitiz, who passed away a few months ago, was once asked about his thoughts on family governance and he said, “First of all, the most important in a family corporation is that you have to build up rules and regulations for the family and the business. We have built a constitution. We have a family council. We have rules of engagement, who can join the family business because not every family member is entitled to work for the company. He has to try; he has to go through different processes.”
The Aboitiz family business is in my list as one of Asia’s most inspiring and enduring governance stories. They were also recently ranked by Forbes as the 320th world’s best employer, a feat shared by a handful of Southeast Asian-based family enterprises.
From an abaca and general merchandise business that started in Leyte in the late 1800s, it has since diversified its core businesses to power generation, distribution and retail electricity supply, financial services, food manufacturing, real estate, infrastructure and portfolio investments. The groups nine-month revenue in 2018 increased by 21 percent to P135.25 billion (US$2.7 billion).
130 years and counting
What made the Aboitiz family business endure five generations spanning 130 years? What is their formula for longevity? The secret lies in having solid family agreements and very clear rules for family members. Let me highlight some wonderful values that every family owned business can embrace as they pursue their 100-year legacy: • The principle of meritocracy applies to all, regardless of who the person is or his parentage. • All family members who want to work for the group must apply. • Relatives applying must be qualified and have competitive credentials vis-à-vis the professional managers. • Relatives should have good academic preparation and are first encouraged to work at least two years outside.
The 4 Rs and the A is the code of conduct
It all boils down to setting the rules, roles, rights and responsibilities covered by accountability. According to family business expert John Ward, the two most effective governance tools implemented to protect and preserve the family business are to create an independent board to strengthen the business and to draft a family agreement to strengthen the family.
In some countries, a family code of conduct is referred to as a family agreement reinforced by a constitution. Regardless of the name, there is absolutely no doubt that a family agreement can be your most important document that will perpetuate the family business for generations to come. Moreover, it helps the family deal with the changes constructively and requires the family to
think about important decisions before they have to be made and find agreement on important family business goals.
The crucial and possibly one of the most important components of the family constitution is the articulation of the importance of shared values and the vision of the family business. Ward likens successful family partnerships to the bunch of sticks in Aesop’s fable. “If you take a bunch of sticks together, you can’t break them. But, if you take the sticks one at a time, they snap.” Shared values and a compelling vision bind the business owners and effectively sharpens the business focus.
Formulating a family constitution will take time to develop and may require a series of family meetings.
Even if there isn’t an agreement on all issues, it will form a good basis for family to work from when events or risks like illness/death of a key family executive, major change in the competitive environment or a fight among siblings arises.
Regardless of the name, there is absolutely no doubt that a family agreement can be your most important document that will perpetuate the family business for generations to come.