DAVAO CITY (MindaNews/28 Sept) — We know the popular catch phrase: “From rags to riches.” But there’s a new one now we should watch out for: “From rags to riches to ruins”! This is otherwise known as the 3rd Generation Phenomenon.
This is what CanCham Governor Celso Vivas discussed with a few select Dabawenyos at a Davao Canadian Chamber luncheon business meeting at the Marco Polo a few days ago. A retired (but not tired and still on the go) Sycip Gorres Velayo executive; he is presently governor of the Canadian Chamber of Commerce of the Philippines. He talked about ” Good Corporate Governance for Family-owned Businesses.” I am sure his pointers will resonate with some prominent Dabawenyo families, especially because Davao started as a pioneering place for early migrants from over the country and many families and clans rose to fortunes by sheer hard work and enterprise of their parents or grandparents.
He gave some pointers for the first generation (fathers and mothers) to think about if they are still around and for those 2nd or 3rd generation children whose parents or grandparents literally started from scratch and were able to build an enterprise or a going-business, which they have to inherit or take over.
According to Mr. Vivas, the situation (or problem if you may) is that parents who started with nothing (rags) and ending up with riches usually do not want to “unload” until they die. Or they refuse to re-adjust to “good governance” to keep what they started from going to waste. Or to “ruins”!
GOOD GOVERNANCE.We always hear patriarchs and matriarchs saying that their simple and common sense ways were responsible for their successful family business so why change them. According to Mr. Vivas, installing “good governance” does not necessarily mean the “olds” give way or are sidelined and others taking over the business.
Another way of saying it is: let the house belong to the owners but leave the kitchen to the professionals. Meaning, installing systems for viability and sustainability where decisions and policies can still be determined by the olds or perhaps their family but let those those trained and capable, possibly from the outside run the business.
Or better still get the children to go get trained and capacitated to run the enterprise. His advice: a family corporation can be organized so the family business can transition to viability and can weather the usual problems, which are varied.
Family business transitioning to corporations is the way forward. Family members, with some possible mix from outsiders, compose the board of directors and they decide policy. But management and the running of the business must be professionally handled. Only children who are properly trained can be active in management. And the rest can be stakeholders and partake of the business fruits accordingly.
CROSSROAD ISSUES. Here are some situations why families are at a crossroad:
a. Many patriarchs and matriarchs are aging. Its either they are sick and physically unable to do what they used to do but still insistent on having full control.
b. Heirs are either restless or not interested in the business. Some children stick around and are dependent on the good graces of the family business or are gung- ho to take over because they have better plans of doing things than the old-fashioned ways of their olds. There are many instances of other children going abroad or to big cities and have their own careers and lives and they are not interested about continuing or having to do with the family business.
c. Succession plans are not existent or done late or not discussed. Family talk about what happens next when the olds die is seldom done. Estate planning, usually done only when death takes place and with the corresponding burdens on the estate of the deceased, usually drain considerably not only the family resources but also the family assets that the parents painstakingly amassed and preserved. There is such a thing as “living trust” where the parents unload to the next generation retaining a certain amount of control but unburdening their estate from expected expenses like estate taxes, etc. when they are gone.
d. There is no early transition of business to the next generation and the business enterprise and family estate become a battleground among contending and quarreling heirs that most of the time become acrimonious, divisive and expensive. (There is a joke among lawyers that they become compulsory heirs of quarreling family members when succession cases reach the courts!)
Mr. Vivas described the so-called Third Generation Phenomenon this way: the first generation (parents) creates; the second generation (children) inherits, the 3rd generation (grandchildren) squanders. It is summarized thus: From Rags, To Riches… To Ruins. This happens, according to him, if good governance is not timely installed in family-owned businesses.
- He gave the Aboitiz clan as an example. The children and the grandchildren are now actively involved in the expanding business empire but they do not automatically ascend to high corporate positions by reason of family lineage. They have to compete with outsiders to get into positions. And they have to earn their keeps just like any other executive of the company.SM’s SY.I remember a few things I learned from the Sy family of the giant conglomerate SM. One of Henry Sy’s sons, Hans Sy had first to settle for some measly “baon” during his school days and had to work like an ordinary salesman when he started. Then he sent one of his own boys to school and train abroad and live like an ordinary student there and then do ordinary employees’ work before being able to take on a responsible position in the company. The SM business empire under patriarch Henry Sy, Sr. although physically constrained, has diversified with the Sy siblings taking on specific individual roles in what is clearly an early transition to good governance for a family-based business.
GOKONGWEI. Of course, there are other examples like the Gokongwei’s business empire. Lance Gokongwei had to study abroad to earn his spurs before taking on a key role under patriarch John Gokongwei Sr. I recall meeting him for the first time just fresh from school abroad in 1998.
Davao CanCham president Manuel “Bobby” Orig committed that if there are many interested families to hear Mr. Vivas go into specifics and details, CanCham can arrange a longer workshop. It will be worth doing, I’m sure, especially with the Davao business landscape that is primarily family based. Just let us know.
(MindaViews is the opinion section of MindaNews. Lawyer Jesus G. Dureza was government peace panel chair in the negotiations with the MILF under the Arroyo administration from 2001 to 2003 and was later named Presidential Adviser on the Peace Process (2005 to 2008). He heads Advocacy MindaNOW Foundation, Inc. and was recently named publisher of the Davao City-based Mindanao Times. This piece is from his syndicated column, Advocacy MindaNOW. You may reach him at [email protected])