The Zobel Family Council - ensuring the next generation of leaders

MANILA, Philippines - As part of family governance, the Zobel family has a Family Council as well as a Family Constitution to ensure that the next generation of leaders will run the business in a manner consistent with the family’s long-held values, and to guide the family’s actions as owners and stewards.

Jaime Augusto Zobel de Ayala, chairman of Ayala Corp. and the seventh generation steward of the 177-year family business which he leads together with his brother Fernando, told the recent Family Business Leadership Summit forum sponsored by the Ateneo de Manila University, that the Family Council’s mission is to promote unity among family members, support a long-term family commitment to the business, as well as define their aspirations as a family.

He also disclosed that they have a Family Constitution that defines their values and beliefs and sets the goals of the family and the business. “We have in place policies and guidelines on family involvement, ownership, as well as duties and responsibilities of family members,” JAZA said.

He explained that creating a family council and drawing up a family constitution can help define the conduct and responsibilities of family members. “Governance also includes the critical task of succession in the family. It sets guidelines on board composition, leadership qualifications, and ownership. It also clearly defines the roles of family members who are chosen to lead the business, aside from the economic benefits derived by each family member from the business. One of the reasons we have endured is that family members have effectively regulated their roles as shareholders, board members, and managers,” he pointed out.

JAZA admitted though that they face challenges as the family ownership moves from sibling partnership, which is the case of the family ownership structure they have today in their generation, to cousin partnership, which is the challenge of the next generation of family members.

“It will certainly be a greater challenge to choose leadership from 20 cousins than it was to choose leadership from among seven siblings. As early as now, we prepare the next generation, most of who are below the age of 20. This is a constant work in progress. As we do this, we follow the principles that have guided us. We strongly emphasize the need for strong family unity and harmony and the need to uphold a common vision among family members to ensure Ayala’s continuity and stability,” he said.

He emphasized that ensuring the continuity of a multi-generational business is not easy. “It is a challenge in itself to run a business successfully, while family dynamics and relations can often be very complex. Each generation introduces new challenges. No family leader can plan beyond one or two generations, but if each one values continuity and the legacy that has been passed on, they will always look for ways to strengthen the foundations for the next generation,” he noted.

Another principle that has guided the Zobel family over the years is that of stewardship.

JAZA said that it is important to teach each new generation, early on, the difference between ownership and stewardship.

“Ownership is a right of possession. Stewardship is a fiduciary role. It is holding the institution in ‘trust for’ the next generation. We feel, as a family, that this institution has been passed on to us for our care and not for us to dissipate or do what we will with it for our personal gain. One of the ways we instill stewardship is by educating family members about the family’s roots, its achievements, and its role in Philippine history. This fosters pride among generations and creates a sense of responsibility to preserve and pass on this family legacy,” he explained.

The second principle that guides what JAZA referred to as “business of family” is impressing on the family a strong, values-driven, work ethic.

He pointed out that family members need to understand they have to work for something to deserve something. “It is always easy to fall into the notion of being entitled to something without needing to work for it because of sheer birth right. Emphasizing the importance of hard work not only builds character but also precludes feelings of entitlement. We strive for educational achievement and push our children, as much as we can, to excel in anything that they do. They have to understand that their family name does not guarantee a job or position in the company. While they are encouraged to work for the business, they have to prove their worth like everybody else,” he said.

The third revolves around stability in the family and the business. “Family unity is critical for business continuity. At the heart of this is careful and constant nurturing by inculcating the right values in the upbringing of children and maintaining bonds among siblings. We strengthen relationships between siblings and cousins by getting together on many different occasions. These gatherings build friendship and trust and also provide opportunities for educating the younger members about the family’s values and philosophy. Among the older generation we use these gatherings for well-structured family meetings to discuss issues, flesh out ideas, and make collective decisions. It opens communication and gives family members not involved in the business a sense of participation. It is also a way of directing the family towards common goals,” JAZA explained.

The fourth principle, he said, is a strong sense of patriotism and taking time to tell young family members about the history of the family and its role in the country’s economic history. This, JAZA stressed, instills a sense of pride and patriotism.

“What I am offering here today are my own perspectives as a manager of a family-controlled but professionally-managed company, and as a family member/owner. These are two roles that we have kept separate in the past 20 to 30 years–making a distinction between the ‘Business of Business’ and the ‘Business of Family.” JAZA said.

One of the principles that has guided the company through the years is “keeping the pioneering spirit alive.”

“We believe that our original pioneering and entrepreneurial spirit have been key elements to our success at the holding company over time. We constantly searched for new sources of growth either by redefining the businesses we were in or by moving into new industries. Every generation in our family left a ‘pioneering mark’ as we moved across industry lines, from the distillery, to banking, insurance, and real estate,” he said.

He pointed out that in recent years, they have developed new telecom and banking platforms, invested in water distribution, and created more complex and progressive real estate developments. “This kept our edge and kept us relevant to our markets,” he added.

The second principle involves hiring the best professional talent both to advice us and provide independent leadership across business lines.

“I often remember my uncle Joseph McMicking’s comment that it was statistically impossible to produce enough highly qualified family members to run the businesses generation after generation. We only have two family members in the business at this time. My brother and I serve as chairman and president at the holding company and we provide leadership on the boards of the companies within the group. We are involved in the selection of CEOs and CFOs, succession, strategic partners and board members. We also participate in major strategic and resource allocation decisions and provide defined leadership through the governance structures of the boards,” JAZA said.

Other than that, he emphasized that the CEOs and professional executives run the day-to-day operations. “We take a meritocratic approach to management and let leadership flourish from within. This kind of environment has helped us attract the best professional managers and leaders and we have had a history of our teams staying with us over long periods of time,” he added.

The third principle, JAZA revealed, is ensuring that they remain a partner of choice for investors, while the fourth has to do with promoting “shared value.”

“Promoting shared value means aligning company success with social progress. We share the belief that businesses must create economic value in a way that also creates value for society by addressing its needs and challenges. Promoting shared value is not about philanthropy. It is also not about corporate social responsibility in its traditional sense nor is it something companies just do on the side. Rather, it is taking a progressive role in society in a way that uplifts human lives or solves social challenges alongside achieving individual economic success,” he stressed.

He cited as an example their investment in the privatization of the water system in Metro Manila, which was driven both by a desire to create value for the capital they put to work while also solving the acute water problems in parts of the city. Ayala’s entry into the telecom industry is also another example of contributing to national infrastructure development while creating a return on investment, JAZA added.