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The business empires strike back | Philstar.com
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The business empires strike back

- Wilson Lee Flores -
In a recent no-holds barred conversation with RFM Group head Jose "Joey" Araneta Concepcion III in his North Forbes residence, he expressed cautious optimism on the future of Philippine business empires. He dispassionately evaluated various local business conglomerates, as well as his family’s businesses, sharing lessons learned and honestly assessing the efficiency of different big business groups in the country.

"We’re now in our third generation in the business here at RFM, and we’re still OK," Concepcion said. "We’ve gone through our share of crisis. The Asian crisis, the Erap crisis and other troubles caused a major shakedown in Philippine business. Just go around our Forbes Park neighborhood. There are many big mansions that have been foreclosed by the banks. Nakakatakot. We should all be vigilant and extra careful nowadays."

So, how would he compare the JG Summit Holdings of John Gokongwei Jr. with his family’s RFM Group, both of which are mainly in the foods business? Concepcion said Gokongwei’s group is very strong, still firmly led and guided by the first-generation founder. "In our family, it is a bit different, because we’re already third generation, so I have brothers and other kin (helping us run the company). It isn’t so easy to introduce radical changes. For example, my father Joe Concepcion Jr. and I are different. My vision of RFM is to be a highly profitable and efficient branded food group, because we have been traditionally in the flour industry and chicken business, which are very volatile businesses. I want RFM to become the leader in the branded food and beverage businesses."

He said his father does not believe in business for profit. His dad strongly views business as a social service, regardless of whether they earn or lose money. "That’s the reason my father insists on maintaining our chicken business, because if we in RFM give up, then San Miguel Corporation will have a monopoly of the Philippine chicken business."

On leading a family business, Concepcion said since he’s not the founder, it isn’t always easy to arrive at major business decisions immediately, such as his plan to sell Swift to San Miguel before Danding Cojuangco bought Purefoods from the Ayala Group. "When the rest of our family finally became open to this idea to sell Swift, it was already too late and San Miguel already purchased Purefoods. My father has a great passion for the chicken business, so he is now personally heading it. We do not always agree, but we try to work with consensus. Personally, I’ve acquired shares of RFM, so I now have more shares than my other siblings. The shares I bought on my own are important enough for me to effectively steer the ship of RFM. In our country’s business climate of many crises, you cannot run a business by being too democratic."

Concepcion added that he made certain decisions beneficial for the family business, such as investing P250 million to buy Cosmos and then selling it 15 years later for P15 billion. But if he personally had it his way, he would not sell Cosmos.

How does he assess the ethnic Spanish Aboitiz clan of Cebu and their conglomerate? Concepcion said the Aboitizes are a unique family. They’ve gone through many generations without family problems. In America, family-managed big businesses are disappearing. Even the biggest beer giant Anheuser-Busch firm is today no longer controlled by its founding family, with the Anheuser-Busch clan now only a minority.

What about failures or crises he and RFM had overcome? Joey Concepcion answered, "I’ve gone through a lot. To be honest with you, my biggest disappointment is RFM Group’s past over-diversification. I think it’s very difficult. It’s not only us. Look at the Lopez clan and their diversifications, the financial difficulties of their conglomerate. If I were the leader of the Lopez clan, I would now go all out to sell everything else and strengthen my market leader position in the broadcast media business with ABS-CBN. Before, we at RFM only advertised on ABS-CBN, but since the aggressive GMA Network has been catching up, we now divide our advertising budgets equally between the two rivals. We sold Cosmos to San Miguel for a good price. Even tycoon Dante Go sold Sugarland to San Miguel at a good price. But the problem with the Lopez conglomerate in doing this is the fact that different members of the family are running the different diverse businesses, so it’s hard to sell the other companies. We all have to borrow a lot to diversify. At least, we’ve never defaulted on our loans. We simply sold some of our businesses to raise cash. All the businesses that we’ve sold, all did very well."

He continued on the perils of over-diversification, saying he learned that in doing business in the Philippines it’s hard for families to be highly leveraged here in the fragile Philippine environment. The exceptions to this are the Gokongwei and Zobel-Ayala families, who still follow the business group model successfully.

"Also Lucio Tan," Concepcion said. "He has great cash cows like Fortune Tobacco to support his conglomerate, and his dedication is remarkable, such as turning around Philippine Airlines. Not all families or tycoons can run a conglomerate well. Before, I never rode PAL, now the efficient Lucio Tan management has improved services and I now take PAL. Tan has also turned around Philippine National Bank. But not all families should go into conglomerates. In the past, our family wanted to diversify into different industries, we were too optimistic. Now, I’ve learned to be cautious. Nowadays, what’s important is to stay focused."

This old conglomerate concept of family businesses is not ideal or the most profitable, unless you have tremendous resources and good partners, it is very difficult to sustain. He continued, "Look at the Ayala empire. This group is today dominant in telecommunications (Globe), banking (BPI) and basically real estate. These are the three pillars of strength for the Ayala conglomerate. However, the Zobel-Ayala family does not own or control the absolute majority in their companies… about only 30 percent of Globe Telecom… also no absolute control of BPI. They do well, because they have the advantage of being dominant and the biggest in their industries. Eventually, I foresee Ayala Group becoming an investment company like Berkshire Hathaway."

Concepcion added that if you are a conglomerate and you are not dominant in your industry, then your group suffers from a conglomerate discount in outsiders’ assessment of your group’s value. This situation is unfair to the holding company and to the shareholders. "Look at Ayala… even they suffer from a conglomerate discount that does not truly reflect their values. In the case of Henry Sy’s SM Group, it is different. They are so successful and dominant in the retail industry, so there’s no conglomerate discount. In JG Summit, their businesses are not dominant, except only for snack foods. Look at the fast-growing Granny Goose brand of the Uytengsu family… it is today also catching up with the Gokongweis’ Chippy and Jack n Jill brands. San Miguel is today very dominant in softdrinks, so it’s good we sold Cosmos. When we were doing well, Coca Cola was being run by Australian executives; but San Miguel’s softdrink business is today run by the highly competitive Chinese Ramon Ang, so it’s very tough now. Alfredo Yao of Zesto juice has now revived RC Cola, he’s competitive and aggressive, but I’d only give him less than 50 percent chance for success in this softdrink market today dominated by San Miguel’s Coke and Pop Cola."

On the fate of Manny Pangilinan, the wiz kid of international high finance who has recently sold his prized Fort Bonifacio project for a huge discount to the Ayala and Yao-Campos families, Joey Concepcion commented: "Manny Pangilinan is very hardworking, smart, and works up to midnight. Sayang siya. He poured a lot of the money of First Pacific Group, in overseas countries, into Philippine firms such as Metro Pacific, PLDT, Fort Bonifacio and others, and lost a lot. However, in the long-term, the investments in PLDT are still good and have promise. Only time will tell what will happen to the huge First Pacific investments in PLDT. For businessmen, if one fails at three investments and makes it at two deals, OK na ‘yan, you can still recover all your other losses. Manny Pangilinan was very good in investment banking before, but he is now in operations. How he can recover losses in Metro Pacific and Fort Bonifacio, only time will tell. His PLDT is now doing good, especially Smart."

How to prevent the frequent family squabbles in business? He said that in a family business, the only way to avoid a future family fight is to professionalize management, and then to avoid having too many brothers and sisters or even cousins involved in the business.

"If you have many family members in the company, your social life with your family members becomes business over time, and all kinds of business problems will affect social relationships within the family. Look at the case of General Milling and Alaska Milk, with the brothers-in-law Fred Uytengsu and George Young. Look at the case of the Siy family of Kenny Rogers, Jag Jeans, Lee Jeans, and the quarrel among siblings. Look at the two cases of the Arce family of Selecta Ice Cream and the Wong family of Cosmos. They had family squabbles due to third-generation issues, thus causing these two families to sell their good businesses to us in RFM. There are many family quarrels in Philippine business."

In parting, Joey Concepcion shared some pieces of advice: "My advice is to professionalize management, and to also bring in outsiders into the board of directors. If you’re the founder of the family business or the absolute boss now, I recommend that you give more shares to the child running or who will eventually run the business."
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Thank you very much for all your messages sent to wilson_lee_flores@newyork.com or wilson_lee_flores@hotmail.com or wilson_lee_flores@yahoo.com or P.O. Box 14277, Ortigas Center, Pasig City.

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BUSINESS

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CONCEPCION

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JOEY CONCEPCION

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RFM

SAN MIGUEL

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