Soriano: Crafting Solid Agreements: Your Most Important Step (part 2)

Soriano: Crafting Solid Agreements: Your Most Important Step (part 2)

By: PROF. ENRIQUE M. SORIANO ACCORDING to the family business firm Lansberg and Gersick, governance is concerned with all of the ways that the interests of owners are reflected and implemented in the organizational system. It is inherently about institutionalizing control. A business first model Working family members must realize that in business, there are targets to be made, budgets to stick to, profits to raise, deadlines to be met, a network of people to deal with, and a lot more responsibilities that need to be taken according to corporate standards. Unfortunately, these could not be delivered if the members of the family are not on the same page, not in agreement with what is expected of them, and unaware of how their expectations would have to be limited for the good of the family business. They could be just all over the place and doing whatever they want without considering the resources and proper procedure. This is why formalizing agreements becomes an indispensable tool to institutionalize governance. Shareholders’ agreement Apart from the family charter or constitution, I will start with one of the most important formal agreements family business owners must document and put in writing to avoid a future, irreparable and unnecessary conflict among family members. This agreement is sometimes referred to as an owners’ agreement but in the Philippines, we use the term shareholders’ agreement. As the word implies, this agreement highlights the need to align ownership and board level governance, as it makes known to all who are concerned about ownership. It also includes the governing aspects of their relationship not covered in the articles...
Soriano: Crafting Solid Family Agreements: Your Most Important Step

Soriano: Crafting Solid Family Agreements: Your Most Important Step

By: PROF. ENRIQUE M. SORIANO IN MY previous columns (Feb. 24, March 3 and March 10), I wrote lengthily about the need to pursue governance in the family business. And without any doubt, crafting a family constitution or a charter is one major step to every founder’s dream and aspiration of ensuring that his blood, sweat and tears (legacy) is cemented for generations to come. The objective, therefore, in any governance undertaking is to create harmony, unite family members and prepare very good family and ownership agreements. Today’s column will focus on family agreements and in what my industry colleagues Lansberg and Gersick refer to as “institutionalizing control.” Formalize agreements Formality is very important in family businesses. Assuming that one’s relatives would forever be supportive to the family business and consistently remain productive may not be a good way to set one’s frame of mind. We should always accept the reality that there are different types of family members working in the family business. Some of them may exhibit exceptionally good performance, are committed and trustworthy. There are some that are plain indifferent, selfish and would always look at his last name and employment as his or her birthright. For some entitlement is all there is to it in a family business. Behaviors change According to a Business Week article, family business leaders must always recognize the family members’ individual differences (types of personalities, attitudes, and behaviors), varying opinions, values, demands, expectations, and capabilities and changing or evolving priorities in life. What you know of your younger or older siblings’ behavior when you were in your teens may no...
Soriano: Why Family Biz Owners Are Reluctant To Hire Executives (Part 2)

Soriano: Why Family Biz Owners Are Reluctant To Hire Executives (Part 2)

By: PROF. ENRIQUE M. SORIANO IN MY article last week, I shared the opportunities and challenges of hiring non family members/executives in the family business. Today we will complete the elements in the hiring process. As a family business advisor, one of my key responsibilities is “transitioning the family business from a family first business mindset, to a business first business model.” The latter is naturally preferred as the family business transitions from a founder centric model to a more complicated, sibling and cousin consortium phase. A major “business first model” attribute is growth with strong emphasis on business governance, process and accountability and bereft of emotions and entitlement. My role during this challenging phase is to handhold family members as they adjust from the informal phase to a more formal process of coming together and agreeing to formulate family agreements (Constitution and alignment of ownership). While the formal family agreements take shape, the change process entails the simultaneous integration of non-family members in the business organization. And this is where some of my biggest fears manifest…hiring the right candidate and ensuring she/he stays in the job for long. I have outlined below the continuation of what I highlighted in my column last week: The candidate must adjust into the composition of the management team (where members are family members and long time employees). The candidate must demonstrate a mature personality by displaying self-confidence, authority, and modesty. The candidate must show loyalty, readiness to subordinate and compromise with the family. And finally, trustworthiness, credibility, reliability and humaneness The absence of any of these elements will certainly compromise the hiring...
Soriano: Why Family Business Owners Are Reluctant To Hire Executives

Soriano: Why Family Business Owners Are Reluctant To Hire Executives

By: PROF. ENRIQUE M. SORIANO “Prof, my children have been pressuring me to get senior executives but I have time and again refused to heed their advice. You know why I am scared of hiring professionals? Firstly, my children will not have anything to do anymore and they will become lazy. Secondly, senior executives are expensive plus they have no loyalty and they might even steal my money or they might just be spies sent by my competitors!” Is this an act of defiance by the founder/visionary in his mid-sixties? Is it unfounded? I don’t think so. Is it a confession of the uncertainties when you bring in senior non-family members in the business? Yes and possibly other real fears! This caselet is related to what I wrote in my previous column (When Generations Collide April 28, 2015). We cannot blame the baby boomer generation, a generation born from 1946 to 64. We must instead learn to respect understand and empathize with them. It will do well for the next generation leaders to reflect on the history of the business and how the founders struggled to keep the business afloat through sheer hard work. Two years later That exchange took place more than two years ago, after a colleague endorsed me to coach the family with their governance and succession plan. After several sessions with the family members where we balanced the concerns of the senior generation members and the need of the next generation leaders to pursue changes to keep the business relevant, the patriarch finally relented and heeded my advise to try out one HR senior executive....