Lack of planning endangers future of family businesses

CEBU, Philippines - While over 90 percent of businesses in the Philippines are family-owned, the competitive landscape will degrade if the second generation in the family will not act and be involved in the business.

This is the suggestion of marketing expert Enrique Soriano III, as he sees dangers in a lot of family-run businesses, if old strategies will still be adopted, and preparation for the next-generation member of the family to manage the business will not be taken into consideration this early.

Soriano, who is the head for marketing at the Ateneo Graduate School, said that today’s family businesses in the Philippine are facing conflicts, specifically if there’s family and money involved.

Lack of succession planning for next generation, and lack of disclosure and transparency from the “Father/Dad” who micro manages the business, would create havoc to the future of family-run business, he said.

Soriano was one of the speakers during the Mandaue Chamber of Commerce and Industry (MCCI) “One Cebu Business and Sustainability Summit” which was the flagship event of this year’s Mandaue Business Month.

Some family-run businesses fail because of conflict within the family members, especially if “Dad” is no longer around. If the next generation members in the family would want to continue the business, “now is the high time to get involved, and prepare for the succession. Preparing is the key,” Soriano told Cebuano businessmen.

In Cebu, most of the businesses here are family-owned, although there are some firms that already adopted professionalism, and employed non-family members in the board of directors, it is important for the “next-in-line” family members to see the in-and-out of their business.

According to Soriano, there are a lot of factors why family businesses fail—some blame the government, and the lousy economy, other companies are also affected by poor management, and the adaptation of old-same business model, but the most poisonous factors which led to the downfall of a family-run business is the “conflict within family members.”

The next generation set of family members, should act now, and bring their business into the next level standard, in view of the globalization, Soriano said.

Today, in the Philippines only 10 percent of the family-run business stands successful, the rest are struggling and facing dangerous conflicts that may lead to closure and worse bankruptcy.

Soriano described the culture in the family-owned businesses today, that largely does not change and innovate since it started. Most of the obvious problems also, is the first generation (father) is taking the full control of the business, and transparency is not there. Decision making is only made by “Dad”, as he “micro-manages” the company.

Soriano warned that the business landscape now has changed, and if the second generation family will not get involved and be attached to their businesses, “it’s going to explode if the children [second generation] don’t plan the process well.”

One of the common issues also in family business transition is the involvement of the secret “second family” of the father. He said this problem is not isolated only to a few owners of businesses, in fact, the existence of “other families” maintained by “Dad” could also create crisis in the business, especially if the Father is no longer around.

Family-run businesses should start to professionalize their system and process, and that involvement of the legitimate second generation members is vital, or else the business will eventually fold up.

Getting an expert of outside business consultant is important, in order to balance the process, and give objective perspective to the future of the business, Soriano said. This means, that creating a functional board, with independent advisors is important, and formalize the transfer of ownership before the Father retires. (FREEMAN)