Is it a family business or a business family?

IN EARLY December, 74-yearold William (not his real name), the founder of a Singapore-based trading company (with annual revenues of US$800 million) retired as its president to focus solely on the group’s investments in other industries.

This was William’s second retirement, as the first retirement in 2012 happened suddenly after a medical finding prompted him to step back from operations. The transfer of leadership was so abrupt that the then 32-year-old son Victor (not his real name) was unprepared to assume full control.

Faced with a performance that was declining year-on-year and to cover for Victor’s limited experience, the enterprise became overstaffed and ineffective.

After three years of lackluster growth and appeals from senior managers for a change in leadership, the group saw the urgent need to seek the founder’s intervention. While recuperating, William resumed work as president.

In one of my governance sessions with the family sometime March 2016, William confided to me that he was set to appoint a non-family successor. Jimmy (not his real name) is a 55-year-old professional manager and a 25-year veteran that worked under the founder during their struggling and growth years. Jimmy started from the ranks initially as a salesman and gradually made it as chief operating officer (COO) of the conglomerate.

When asked why he chose his group COO over his son Victor, William replied that Jimmy had the experience and can do a better job minus the emotions that a family member brings to the table. He explained that when you bring in qualified professionals to run the business and are ably supported by an independent board, the business can be more agile and results-oriented.

He also believed that “at this stage of the enterprise, the risks far outweigh the rewards, so sourcing of a deep talent pool was a major and critical step in pursuing growth.” And the only way to achieve it is through the hiring of professional talents that share the same strategic intent as the founder.

And true to form, William initiated organizational reform and power decentralization.

He persuaded some founding members, including his wife, to retire early, and purposely reduced family influence in the company. Young professional managers replaced old ones in key positions.

By the end of 2017, the group’s executive team had only professional managers and one family member left, Victor. The founder believed that talent was naturally attracted to the organization because of “appropriate incentives, structures, policies and accountability systems all put in place.”

He also started empowering the board, half of them non-family members, and made them part of the decision-making process.

There were times he resented sharing power and authority, and for more than a year, struggled with Chinese succession traditions related to his eldest son, who was expected to replace him. He also had to fend off appeals from relatives and old friends who felt that Victor should have been a better choice as the heir apparent.

But William was quick to defend using an old adage, “what’s best for the family may not necessarily be best for the business.”

He felt that the company needed professional managers to sustain future growth. So when Jimmy was officially appointed and made a bold statement that strategic change is essential to manage complexity, William’s thoughts were crystallized and in one of their executive meetings, he confidently declared that, “business unit heads will all be professional managers, and my family will always stay in the role of shareholder.”

To be continued...