Family business dynamics

Ninety percent of businesses in the world are family businesses. I have advised family-owned businesses; I have run and am still running a couple of family-owned companies. And while I do consultancy work with the big companies who get all the press releases; and finding the CEO’s pictures on Fortune magazines, but the truth is that there are different dynamics involved with small and medium enterprises which comprise most of the business activities in our country, and many of which are family-owned.

But do you know that the dynamics of family businesses are different from big corporations, especially those that are publicly listed? Here are the dynamics of family businesses in a nutshell: Hostage to heritage. Resistance to change. Pride. Emotions. Strong egos. People fighting old battles. Many feel undervalued and unappreciated.

Retention of loyal but incompetent people.

Centralized decision making. An organizational structure that may not really reflect actual power and influence.

Assets over-valued due to personal effort for decades. Less shareholder-driven. Personal finances may crowd company finances.

Not so easy to fire people. Intangibles are very important. Less reliance on outside expertise. No professional training. Lack of professional and competent managers. Failure to embrace technology. The culture of the company is extremely important; too important. Competence is not necessarily key for the job. Generational differences. The challenge of business continuity. Personal issues, emotions, and feelings are huge in family businesses and there have been cases wherein family members become mortal enemies and conflicts are taken personally and may last for decades and generations. Many business decisions as a result of these are not based on logic. They do a lot of things that do not result in good deals. They have a harder time meeting their own goals. And what happens when this happens? Their goals are usually not just about money because the environment is usually a highly emotionally charged enterprise.

I have been invited to intervene with the intention of resolving family business conflicts. They all wear me out and I have also turned down such invitations. I listen to their stories, conduct training needs analyses with the key people and have determined that they do not need a speaker like me, what they need is an accountant and a trusted lawyer to craft their family constitution and define roles and responsibilities before anything else.

The issue of succession is one looming disaster that would hit family businesses. The younger generation does not want to be involved in family businesses. Others may even have been educated abroad and now do not want to come back and work in a “toxic” family culture environment. They would rather pursue another career abroad. The old folks who started the business are getting older, and not having the same energy level as they had in their younger days, could no longer enjoy the fruits of their labor and so they have decided to either sell their business or just close them down out of sheer frustration or helplessness.

Here is the deal. As I repeatedly emphasize in my Level Up Leadership where executives, professionals, and entrepreneurs attend: “Success without succession is failure.” What family business owners need to embrace is the humility to consider others better than themselves; to seek professional help and to really be honest with contributing to the whole rather than to personal agendas. To park their ego on the parking lot. To inspire (not enforce) the next generation. To involve themselves in the business but make sure that they have the capability and competence to run it by gaining employment experience through the bottom up and understand the rudiments of business.

Many family businesses have embraced this model. And I have seen them rise to greatness; I have also witnessed the old folks realizing that the times have changed and they need to trust their children to make decisions (even wrong ones) so they can own and learn from their experience and bring the business to the next level.

Ah! The dynamics of family businesses just continues to make me see the drama that takes place behind the public scene and has taught me lessons on how to run my own businesses.

At the end of the day, Scriptures is right. Pride and ego are not needed in running a successful business. The Bible says: “A haughty spirit and pride comes before destruction.” This is true for businesses, so is true for life. But here is my own strong personal recommendation. When it comes to family businesses; always remember that the family should always come first before business.

(Francis Kong’s Level Up Leadership last run for the year will take place on Sept. 10-11 at Makati Diamond Residences (near Greenbelt 1). Register early as seats tend to run out early. For advanced registration specifically for group rates or other inquiries contact April at +63928-559-1798 or register online at www.levelupleadership.ph)