Education, values and planning for long-term family wealth

Govern a family as you would cook a small fish — very gently. — Chinese proverb

Like all the best families, we have our share of eccentricities, of impetuous and wayward youngsters and of family disagreements.  —Elizabeth II 

This is a condensed version of the speech I gave at the “Baby and Family Expo Philippines 2013,” which opened on Dec. 6 at the SMX Convention Center, Mall of Asia (MOA) Complex, Pasay City. It was the organizer and Philippine STAR reader David Abrenilla, the chief executive officer of Mediacom Solutions Inc., who suggested that my speech discuss “Mastering the Harmony of Family Wealth.”

A few years ago at the Makati residence of billionaire Endika Aboitiz, SGV Group founder Washington SyCip told me that we ethnic Chinese are talented and natural entrepreneurs, but in the past our forebears failed to build enduring family businesses that lasted more than three generations.

SyCip told me that in the Philippines, only the ethnic Spanish Zobel family of Ayala Group and the Aboitiz family of the Aboitiz Group have succeeded. Now, many families are planning or preparing transitions in their business groups, such as the Henry Sy, Gokongwei, Andrew and Mercedes Gotianun, Manny Villar, David Consunji, Joey Antonio and other families. 

According to the Family Firm Institute, a research group based in Boston, only 30 percent of family-owned businesses are still operating by the second generation, only 10 percent lasts to the third generation, and three percent survives to the fourth generation.

In the US, more than 80 percent of all businesses are family-owned, but only 30 percent get successfully passed on to the second generation and statistics show that only 13 percent are successfully transferred to the third generation.

In recent years, I have had the opportunity to assist in resolving two bitter family feuds, each involving business clans with billion-peso assets. I assisted the first family by inviting Davao businessman James Gaisano to be the mediator, and he succeeded after one year.

The second family feud I helped untangle was that of my paternal great-grandfather’s first cousin, which had already lasted for half a century. I stumbled into this family feud because I had been doing research on our family’s two-century entrepreneurial history here in the Philippines.

Here are some of my suggestions to build multi-generational family wealth, based on my research and studies of business families past and present:

•Do not spoil children or heirs. The Waterloo or ultimate failure of not a few “rags-to-riches” entrepreneurs and professionals, even celebrities, was their having insulated their children or heirs from the harsh realities and complexities of life by spoiling them.  Spoiling kids will weaken them.

Do you notice that in families and throughout world history, so many of the successful entrepreneurs, professionals and good leaders are those who have undergone crises or struggled with disadvantages?

• Teach kids the value of money. Parents and family elders should early on communicate with children your values about money, why and how to save it, how to make it grow, and how to spend it wisely. Make kids understand that it is not easy to earn money, so money shouldn’t be wasted. 

• Educate and train children and heirs well. Invest in the best education and also hands-on training for children and other heirs. Make kids work first in other corporations as part of their training. Giving your kids a good education is more important to future family wealth than just giving kids money.

• Be fair to everyone. Life is not fair; not all children or grandchildren have equal talents, natural intelligence, drive or interest in the family business, but under the law all should have equal shares of the family wealth.

Whether as kids or adults, children, nephews, and grandchildren should be treated fairly to prevent emotional baggage and animosities that might erupt into future family squabbles. Those who work should be given more, out of fairness, but the reasons should be explained clearly to other relatives. 

• Promote tradition or a culture of meritocracy. Choose the leader and other managers of the family business based on qualifications, abilities and also commitment to the family business, not based on seniority or even gender. When not enough family members are available, hire non-family professionals. Have performance reviews for all, relatives or not.

• Write down or institutionalize rules for the family business. It is ideal to write down and institutionalize the basic rules and core values that will guide your family in terms of the business or wealth management. For example, set a rule on the role of in-laws, which some families favor and others do not.

• Prepare for clear succession early. A lot of family businesses have patriarchs who do not plan for the future and die unexpectedly, thus creating chaos, bitter internal quarrels or results in weak leadership in the next generation. Have estate and succession planning done early on and clearly, even family trusts.

• There should be only one boss and he or she should have authority. This rule of having only one boss is true whether for family businesses or non-family businesses. Based on my research, many patriarchs just appoint a son to be the boss of the family business but didn’t give the chosen heir the adequate additional stocks or shares to back up his authority, so in the long-term future the other kids or kin can gang up on the boss and take him out.

This was the case with my late father, who inherited the mantle of leadership over the family sawmill business from my grandfather, who died young. However, dad only had an equal percentage of shares as his one eldest brother, seven younger half-brothers and half-sisters, plus cousins who three decades later ganged up to oust him after an acrimonious legal battle, which went all the way to the Supreme Court.

• Separate the personal from the business. Whether in finances, vehicles, and resources, make it clear that personal needs or expenses should come from family members’ salaries or incomes and should not be sourced in an unlimited manner from the family business. This is one way to avoid abuses, misunderstandings, waste and dissipation of the family business resources.

• Plan the long-term future of family investments. There should be long-term and strategic planning on how to preserve family wealth, which is different from the continuity of the family business. Top investment bankers and lawyers should be consulted; all options here and abroad should be studied thoroughly.

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