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PROF. ERIC SORIANO’S DESK

Soriano: India’s 117-Year-Old Conglomerate: A Model Family Business

Soriano: India’s 117-Year-Old Conglomerate: A Model Family Business

By: PROF. ENRIQUE M. SORIANO

THE Godrej Group is a public company and a conglomerate based in Mumbai, Maharashtra, India. It was founded by two brothers: Ardeshir Godrej and Pirojsha Godrej in 1897. The story behind the success began when Ardeshir came about his creation and selling of locks as a response to the alarming citywide crime rates. He also made vegetable oil-based soaps, which was a hit at that time. Pirojsha helped in developing the business into an enterprise that carried an extensive line of industries.

Today, the Godrej Group spans several industries that include chemical and commodities, agriculture, precision engineering, fast moving consumer goods (FMCG), services and real estate. It markets furniture, security, home appliances, and agricultural care products and its expansion extends to three consumer sectors: personal wash products, haircare and household products in Asia, Latin America and Africa.

The family-run conglomerate handles its operations through two holding companies, namely Godrej Industries Limited, and Godrej & Boyce Mfg. Co. Limited. Other subsidiary and affiliate companies are Godrej Consumer Products Limited (GCPL), Godrej Sara Lee, Godrej Hershey Foods & Beverages Limited, Godrej Infotech Limited, Godrej Properties, Godrej Agrovet, Godrej Hi Care (pest management services), and Godrej Global Solutions (ITES).

The third generation as change agent

The amazing transformation of Godrej Group from manufacturing locks and soaps to different industries during the time of liberalization to the current globalization is the result of the ingenuity and innovativeness of its present chairman, Adi Godrej, who hails from the third generation of the family business (following the second generation, which was led by Pirojsha’s grandsons Naval, Sohrab, and Burjor).

Adi is known as a business icon, an Indian industrialist who embraces change. He initiated appointing non-family members as CEOs because the management of the Godrej Group then was not flexible. He initiated and put in place a system in the management structure to make it flexible. He then moved to modernize the management of the group and incorporated new business processes. The inclusion of technology immensely benefited the family business because of his inclination to it. The Godrej Group reached the completion of its restructuring process in 2000-–10 years in the making. Now it prides itself to have formed a stand-alone company per business handled.

Adi and family are considered one of the richest in India. Their estimated net worth–a whopping $11.6 billion as of 2014! What is great about this family is their wisdom towards money. Having wealth that could afford any person almost whatever material possession they want, the patriarch at the helm of the family business has always taught the value of money to his children. As a result, the abounding wealth is from the combined effort of the family.

Adi leads Godrej Group with his brother Nadir Godrej and cousin Jamshyd Godrej. Nadir is the managing director of Godrej Industries and chairman of Godrej Agrovet. Jamshyd is the managing director and chairman of Godrej & Boyce. The 72-year-old chairman’s three children are also working and continuing the family business. Tanya, who is his eldest daughter, oversees the marketing of the Godrej Industries Limited as the executive director and president. Pirojsha, his son, serves the family business as the chief executive officer of Godrej Properties, which is considered one of the fastest growing property arms and one of the largest in terms of revenue (if not the largest). Nisaba, his second daughter, is the executive director of Godrej Consumer Products and is part of the boards of GCPL, Godrej Agrovet and Teach for India.

As we could imply, nepotism comes to mind when we see the members of the family heading the business. So, how does the group face the issue? There simply is the rule that allows the members of the family to join the group, provided they have professional training. The Godrej Group’s chairman values the importance of training his children.

Godrej Group employs 28,000 people. What does the chairman say about his people? “My grandfather, father and uncle placed a lot of emphasis on building housing and schools for employees, which have paid good dividends. Making sure your employees are properly taken care of is a strong lesson we’ve learnt from previous generations,” Adi says. The conglomerate’s chairman values the welfare of their employees, gives financial reward, and opens a world of opportunities to those who display promising performance.

117 years and going forward

That is really something for family businesses. The group is not shy of any track record, and is looking for further expansion at its fourth generation phase.

So, to those who doubt and believe that family succession is impossible for the long haul, take inspiration from the Godrej family.

Prof. Soriano is a National Agora Awardee, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory based in Manila with branch in Cebu.   Prof. Soriano is  set to deliver a talk entitled  “Creating A World-Class SME “Family Business Governance is key” on Feb. 18, 2017/Sat., from 1-5pm at Cebu Parklane International Hotel.

To reserve slots,  please call Cherryl/Pauline at : (02)556-9707/0915-9108686/0917-8947635.

You can also grab a copy of Prof. Soriano’s book entitled “Ensuring The Family Business Legacy”, please call Wong + Bernstein Advisory Group at (02) 730-3237/ 0925-5224713  and look for Ms. Jenny Arebado.  Prof. Soriano’s  business articles can also be accessed at www.faminbusiness.com

 

LINK: http://www.sunstar.com.ph/cebu/business/2015/08/17/soriano-indias-117-year-old-conglomerate-model-family-business-425156

image source:https://upload.wikimedia.org/wikipedia/commons/thumb/9/97/Godrej_Logo.svg/1280px-Godrej_Logo.svg.png

Soriano: Singapore’s Richest Siblings

Soriano: Singapore’s Richest Siblings

By: PROF. ENRIQUE M. SORIANO

Rated amongst the best cities to live

But first, let me briefly describe Singapore. Because of my coaching work (real estate and family business) in the Asean region, I have used Singapore as my hub for most family business sessions. Singapore is one of the world’s major commercial hubs, the fourth-largest financial center and one of the top two busiest container ports in the world, at least for the past ten years. Its globalized and diversified economy depends heavily on trade, especially manufacturing, which accounted for around 30 percent of Singapore’s GDP in 2013.

Singapore places high in international rankings with regard to standard of living, education, healthcare, and economic competitiveness and it has one of the highest per capita income and one of the longest overall life expectancy in the world. The country is also one of nine countries in the world with top AAA rating from all credit rating agencies. The Philippines is several notches below, with a fairly credible BBB rating.

 

Robert and Philip Ng: when siblings unite

Brothers Robert and Philip Ng are sons of real estate tycoon Ng Teng Fong and inherited their father’s real estate empire and continued to bring it to greater heights. Robert Ng is not only a property tycoon, but also a trained lawyer while Philip has a degree in city planning, as well as civil and geotechnical engineering.

The Ng family today builds one in six houses in Singapore. They are known as the HDB (Housing Development Board) of condominiums. There are different routes to success, and although their wealth might not be entirely self-made, their story is still nonetheless impressive.

Forbes listed the two as the 30th richest people in the world in 1997. As of January 2015, Robert, together with his brother, Philip Ng, has an estimated net worth of $11.5 billion. Seems like the Ng brothers are unbeatable when they join forces.

The Ng family owns property giants Far East Organization and Sino Group. Their late father, Ng Teng Fong, developed Far East Organization into a conglomerate with over 700 malls, hotels and condos in Singapore and Hong Kong worth over $6 billion. After their father’s demise in 2010 due to cerebral hemorrhage, the brothers worked together to grow the business.

When the real estate market in Singapore and Hong Kong slumped, the Ng brothers remained unfazed despite their revenues declining by nearly $1 billion to $4.6 billion. They diversified their investments and proceeded to purchase real estate in Australia.

Philip Ng is a Christian and believes in involving Christ in the workplace and practicing Christ-centered leadership. He said, “My people and I would go to our project sites on Sundays, to inspect and ensure the quality of our delivery. But I was making my employees work on a Sunday. It never occurred to me before that it isn’t right because I wasn’t a Christian then. I realized that when I became a Christian and I told everybody that they would no longer work on Sundays, which is a day of rest. What’s so amazing is that I did not know until a couple of months later that the wives of some of my Christian colleagues had been praying for their husbands to be released from this curse. God does amazing things. This is a small anecdote, but I think it had a large impact on the organization.”

Despite their massive wealth, the brothers have not forgotten their roots. In 2011, the Jurong General Hospital was renamed as Ng Teng Fong Hospital after the Ng brothers donated $125 million to the hospital. Philip Ng said, “the gift served to give back to the Singapore community as well as leave a lasting memory of our father”.

Not everyone is born with a silver spoon – some might be luckier than others.

Take Ng Teng Fong, the father of Robert and Philip, who made it from zero to hero, the epitome of a rags to riches tale. He had no rich father, no degree, but made it with determination, hard work and foresight. When he unfortunately passed on, he left behind a legacy succeeded by his sons, who helped expand the business.

 

(esoriano@wongadvisory.com)

Prof. Soriano is a National Agora Awardee, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory.  For those who are  interested to grab a copy of Prof. Soriano’s book entitled “Ensuring The Family Business Legacy”, please call Wong + Bernstein Advisory Group at (02) 730-3237/ 0925-5224713  and look for Ms. Jenny Arebado.  Prof. Soriano’s  business articles can also be accessed at www.faminbusiness.com

 

image source:http://business.asiaone.com/sites/default/files/styles/article-image/public/2015/07/23/50Ngs.jpg

Soriano: The Dangers Of Not Initiating Succession Planning Early

Soriano: The Dangers Of Not Initiating Succession Planning Early

By: PROF. ENRIQUE M. SORIANO

ACCOUNTING for more than 96 percent of enterprises in the Asean, SMEs that are made up mostly of small family business firms are a significant engine of growth in the region. Although perceived as small, their combined contribution to the economy has a great impact.

It is also a fact that most family businesses have a very short life span beyond their founder’s stage and that some 95 percent of family businesses do not survive the third generation of ownership.

In the Philippines, most businesses are small and family-owned. Challenges for SMEs in the Philippines include a lack of research and development, inadequate access to technology, and financing.

This article will focus on intellectual capital management as well as the lack of or inadequate knowledge perspective prevailing in small family businesses. In today’s Information Age economy, knowledge–-not natural resources, machinery, or financial capital–has become the most important factor in business activity.

Intellectual capital is a result of empirical research

Without being too academic, intellectual capital or IC is the combined value of its people (human capital), the value inherent in its relationships (relational capital), and everything that is left when the people go home (structural capital), of which intellectual property is but one sub-component. The term became widely used in academia in an attempt to account for the value of intangible assets on company’s balance sheets.

A second branch that has survived in academia and was largely adopted in large corporations was focused on the recycling of knowledge via knowledge management.

According to Karl-Erik Sveiby in his article “Intellectual Capital and Knowledge Management”, a term is best defined by its use, and therefore it is probably still correct to regard IC and Knowledge Management (KM) as twins–-two branches of the same tree. Both Skandia and Ernst & Young emphasize the static properties of knowledge, that is: inventions, ideas, computer programs, patents, etc., as IC.

Correlation to family-owned enterprises

Measuring the real value and the total performance of intellectual capital’s components is a critical part in running a company in the knowledge economy and Information Age. Understanding the intellectual capital in an enterprise allows leveraging of its intellectual assets. For a corporation, the result will optimize its stock price.

In my family business book, “Kite Runner Column” (Article No. 7), I enumerated several reasons why most family-owned businesses fail and what to do about it. One of the reasons is failure to develop a succession plan. Few people find it hard to come to terms with their own mortality and it may be difficult for an entrepreneur to recognize the time when he/she is no longer the best person to run the company. The third generation has not been adequately trained to take over, thus, resulting in failure to continue the business. And this is where the knowledge management perspective comes into play.

Challenges confronting family business owners

Early succession planning ensures the continuity of management, goodwill, operations efficiency and retention of clients in the event of the owner’s departure.

The owner-manager represents the central source of competencies and capabilities in the family firm and sometimes, he retains these assets to his dying day, not knowing why and how to pass them on to the next generation. Another major challenge is in choosing a successor who will chart the future overall direction of the business as well as the highly emotional process of succession. IC plays a role in explaining the competitive advantage of the family business and the successful or unsuccessful family business succession.

One of the surrounding issues involved in the business succession process is the transfer of tacit knowledge embedded in the owner-manager’s mind to the successor. Small firms tend to be loosely coupled, founder-centered and with a low development of operative systems. As a consequence, the organization is not capable to retain and to develop knowledge independently from the owner-manager presence, and might not be able to support the succession process.

Under this scenario, the business struggles to survive and loses its momentum to transition to the next stage of the family business cycle. Inevitably, when the owner dies or loses power by reason of health, the business succumbs to internal dynamics and the pressures of the external environment.

Therefore, it is imperative that succession planning, when initiated way in advance, can be considered a capstone and legacy project for the senior generation leader.

(sorianoasia@gmail.com)

Prof. Soriano is a National Agora Awardee, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory.  For those who are  interested to grab a copy of Prof. Soriano’s book entitled “Ensuring The Family Business Legacy”, please call Wong + Bernstein Advisory Group at (02) 730-3237/ 0925-5224713  and look for Ms.Jenny Arebado.  Prof. Soriano’s  business articles can also be accessed at www.faminbusiness.com

image source: https://media.licdn.com/mpr/mpr/jc/AAEAAQAAAAAAAAIDAAAAJGFmZTBlNjZhLWMzMTMtNDdlYi05YjUzLWYxMTZjZWU3NzgwMQ.jpg

Soriano: Compensating Family Members The Right Way (Part 2)

Soriano: Compensating Family Members The Right Way (Part 2)

By: PROF. ENRIQUE M. SORIANO

 

COMPENSATING family members is a perennial source of emotion and, if left unresolved, poses a future conflict amongst siblings and cousins.

Family businesses are constantly trying to balance the bottom line with paying its family members fairly. That balancing act can become more difficult if a compensation strategy is not clearly defined. Family harmony adds additional emotions to the already passionate topic of compensation.

According to an article published by Findley Davies, a human resource consulting firm, as family businesses grow, so too does the compensation and rewards structure to engage your most valued assets–your people.

In the start-up stage, there are few employees, very little structure, and most, if not all, team members are part of the family. As the company grows, the need for business structure and processes surfaces. In this stage, young family members start occupying positions. This is where the start of the conflict happens.

Some common examples that tend to compromise and disrupt the organization are the following:

  1. Equal compensation for all family members regardless of qualifications
  2. Overlapping and undefined roles and responsibilities
  3. Family members overstepping on their functions and encroaching on other roles assigned to non-family members
  4. Newly-hired family members don’t know how and when to start as reporting structure to a superior are unclear as well.

The key is to work on a compensation plan.

In my article last week, I highlighted the need to prepare an accurate job description for every family member entering the family business. Today I will continue with the following plan of action:

  1. Identify what your compensation philosophy is. Industry standards (market-based) or merit- based? Are you into fixed compensation or do you want to inject a variable compensation? Would you want a combination of a fixed or a variable so you can incentivize performing family members?
  2. Gather information on the salaries of similar positions in your industry. Size up companies that are similar to yours in number of employees, revenue, product, geographic location, etc. What salaries and other benefits do these similar organizations pay their employees, especially the management team?
  3. Fairly compensate and differentiate pay among family members. What is the appropriate compensation balance for hard-working and strong performing family members working side-by-side with less motivated and less competent family members?
  4. Defining a compensation plan based on the qualifications of family members joining the business. Not all family members have the same DNA in terms of work attitude and passion for the job, so a compensation plan that focuses on experience and educational background is important. Base salaries are based on job duties and set at market value.
  5. Develop a succession plan. How will a successor to the leadership be identified among family members/siblings? How will they be prepared for leadership? How will this choice affect the morale of the family/business? How will this successor be compensated?
  1. Design an affordable plan. Obviously, you want to do the best you can with the money you have. What can you afford to compensate each family sibling relative to their individual contribution?
  2. Family members participate in the same compensation plans as non-family employees (an exception is often made where family members who own stock may not participate in a long-term incentive program for non-owner key employees);
  3. The owners are committed to honest, open and constructive communication with employees on performance expectations and feedback as a basis for pay decisions.

Avoid secrecy

Give more focus to compensation during the family exchanges and formal meetings with your HR manager. In an article written by Levitt, he articulates, “Rather than hoping that secrecy can be maintained, a better approach is to talk openly with employees, family members, family member spouses, and shareholders about the company’s approach to compensation: the business purpose of compensation; how compensation is determined; and how different jobs have different levels of value to the company (and thus are compensated differently). This is also the time to clarify for family members and shareholders that they are all responsible for their own financial well-being – and should not expect the business to be their “parent” and “help them out” when needed. Parents can, of course, help their children out, and shareholders can be rewarded for their ownership – but these roles should be clearly differentiated from compensation.”

Family businesses that fail to thoughtfully plan will ultimately lose the battle. Studies show that fewer than five percent of family companies survive past the third generation. This offers an opportunity for family business to develop a compensation strategy that provides clear guidelines on paying its employees (family and non family), resulting in a much greater chance of survival.

(sorianoasia@gmail.com)

Prof. Soriano is a National Agora Awardee, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory.  For those who are  interested to grab a copy of Prof. Soriano’s book entitled “Ensuring The Family Business Legacy”, please call Wong + Bernstein Advisory Group at (02) 730-3237/ 0925-5224713  and look for Ms.Marianne Revilla.  Prof. Soriano’s  business articles can also be accessed at www.faminbusiness.com

image source: http://www.eaeprogramas.es/sites/default/files/blog_images/empresa-familiar/2014/08/EDP-Gu%C3%ADa-del-%C3%A9xito-de-las-empresas-familiares.jpg

Soriano: Compensating Family Members The Right Way

Soriano: Compensating Family Members The Right Way

By:  PROF. ENRIQUE M. SORIANO

 

THE past two months, I have been inundated with emails from readers requesting (some actually “pleading”) for an article on the subject related to compensation.

I deliberately ignored these requests, as I have my own topic calendar until I figured in three (out of seven) family interventions this month and took me aback, as all issues zeroed in on compensation!

So on my flight back to Manila, I decided to informally poll the email requests and expectedly, 70 percent of the emails came from the Gen 2 and Gen 3 family members. This made me decide to write this article pronto. Thank you my dear readers for the “push”.

Gen 2 and Gen 3 concerns

We typically refer to these two generations as the sibling and cousin generation phase. This a phase in the development cycle of a family business where family members have extended members in spouses, in-laws and cousins, nieces and nephews.

I consider this phase a very complex one and often referred to as the multi-generational stage. When not guided appropriately, it can result in unnecessary conflict.

Is money the root?

They say, “money is the root of all problems”, but this can be prevented if individuals are clear with what is fair and just. This is true in family businesses.

Families involved in business tend to avoid talking about money matters. It is a very sensitive topic and creates so much discomfort to all parties. However, “sweeping this issue under the rug” only adds up to the confusion and dissatisfaction.

I often receive requests for guidance involving sibling and cousin rivalry conflicts. An important thing to remember is that sibling rivalry is a normal aspect of childhood and is simply about competition for parental attention and approval. But when sibling rivalry persists into adulthood, the conflict and self-doubts can be devastating.

Preparing a fair compensation plan

Compensating family members, particularly your own children, is a sticky business. Not all people are really created equal, even though they come from the same bloodline. It is also quite difficult to assess and compare the talents of siblings who are also employees. As a result of the stress that this causes, many family business owners ignore the problem. Thus, the issue of compensation becomes a breeding ground for dissension in the family.

The topic of compensation plans in the family business has found its way into many books, articles and speeches on the subject. For the purpose of this principle I will just note that any compensation plan needs to be well communicated and, of course, as such, should be written and distributed to those covered by the plan. It should contain enterprise goals and goals for individuals, particularly for the possible successors.

There are a number of family businesses that have compensation systems which simply evolved over time or were developed or imposed by previous generations of family members in control. Such systems may be the current cause of irritation, anger or even open hostility. It is very difficult for the family members embroiled in a sticky situation to, by themselves, develop a solution. In most situations, it is better to select a competent professional for proper advice.

Although it is not easy to put aside the anxiety caused by developing a fair compensation plan for your family members, especially children, it is absolutely necessary if business is to thrive.

Fair is equal, equal is definitely not fair

Compensation for members of a family of the same generation is where most problems occur. The usual systems are equal pay for members of the same generation or compensation based upon the fair market value for the position. These are the extremes and there can be variations in the middle. The equal pay system usually arises as a second generation comes into the family business. Dad and/or mom are used to treating children equally, so it seems natural and “right” to pay all the children the same, regardless of their position or their educational and other business experience. “Equal and right” may seem appropriate to dad and/or mom but the children and, unfortunately, their spouses over time may not see it that way.

A kind of creeping irritation can occur and without being addressed, can destroy all the good things about working in a family business. This usually happens after dad and/or mom are no longer in control of the business.

So if you follow the advice of experts, you will design your compensation plan according to these steps:

  1. Prepare an accurate job description for each child or sibling. Include responsibilities, level of authority, technical skills, level of experience and education required for each job.

To be continued.

 (sorianoasia@gmail.com)

Prof. Soriano is a National Agora Awardee, an ASEAN Family Business Advisor, Book Author and Executive Director of ASEAN-based Consulting group, W+B Strategic Advisory.  For those who are  interested to grab a copy of Prof Soriano’s book entitled “Ensuring The Family Business Legacy”, please call Wong + Bernstein Advisory Group at (02) 730-3237/ 0925-5224713  and look for Ms. Marianne Revilla.  Prof. Soriano’s  business articles can also be accessed at www.faminbusiness.com

image source: https://fthmb.tqn.com/gjqxnLSD6zu0Ddr0r5xs7_YT-mA=/768×0/filters:no_upscale()/about/121326572-56a6ae0b5f9b58b7d0e442bc.jpg