The Aboitiz family business is on my list as one of Asia’s most inspiring and enduring governance stories. Forbes recently ranked it as the 320th best employer in the world, a feat shared by a handful of Southeast Asia-based family enterprises.
The business started in Ormoc, Leyte in the late 1800s as an abaca trading and general merchandise business, and has since diversified into power generation, distribution and retail electricity supply; financial services; food manufacturing; real estate; infrastructure; and portfolio investments. Its entire workforce, deservedly referred to as team members, numbers close to 30,000. The group’s nine-month revenue in 2018 increased by 21 percent to P135.25 billion ($2.7 billion).
To quote its late chairman, Jon Ramon Aboitiz, who passed away last month: “I think that succession is very important in a family business. First of all, the most important in a family corporation is that you have to build up rules and regulations for the family and the business. We have built a constitution. We have a family council. We have rules of engagement [on] who can join the family business, because not every family member is entitled to work for the company. He has to try; he has to go through different processes.”
Living, moral document
According to Family Business expert John Ward, the two most effective governance tools implemented to protect and preserve the family business are to create an independent board to strengthen the business and to draft a family agreement to strengthen the family.
In some countries, a family constitution is referred to as a family agreement. For some, it is referred to as a family creed or charter. Regardless of the name, there is absolutely no doubt that a family agreement can be your most important document that will perpetuate the family business for generations to come. Moreover, it helps the family deal with changes constructively and requires them to think about important decisions before making them and find agreement on important family business goals.
Possibly one of the most important components of the family constitution is the articulation of the importance of shared values and the vision of the family business. Ward likens successful family partnerships to the bunch of sticks in one of Aesop’s fables. “If you take a bunch of sticks together, you can’t break them. But, if you take the sticks one at a time, they snap,” he said.
Shared values and a compelling vision bind the business owners and effectively sharpens the business focus.
Formulating a family constitution will take time to develop and may require a series of family meetings. Even if there isn’t an agreement on all issues, it will form a good basis for the family to work from when events or risks, like the illness or death of key family executives, a major change in the competitive environment or a fight among siblings, arise.
Common, predictable, yet tragic
Imagine this: The patriarch (or matriarch) is diagnosed with a debilitating condition, and siblings representing several branches of the family are in a state of panic as they find themselves in charge of the business, unsure of where to go next. The situation is compounded if the abrupt change happens from the second to third generation, where the number of owners multiplies, the complexities of decision-making and the changing lifestyles of the cousins, including the diversity of their ambitions for the business, manifest and rear their ugly heads.
Tragically, generational change is unplanned, all because of the unexpected death or incapacity of the business owner. This possibility strongly suggests that the constitution should be drafted and agreed well ahead of the expected transition.
The Aboitiz way
What made the Aboitiz family business endure five generations spanning 130 years? What is their formula for longevity? The secret lies in having solid family agreements and very clear rules for family members. Let me highlight some wonderful values that we can all embrace in our respective organizations:
– The principle of meritocracy applies to all family members or professionals, regardless of who the person is or his or her parentage.
– All family members who want to work for the group must apply.
– Relatives applying must be qualified and have competitive credentials vis-à-vis the professional managers.
– Relatives should have good academic preparation and are first encouraged to work at least two years for other companies outside the group.
Prof Enrique Soriano is a World Bank/IFC governance consultant; senior advisor of Post and Powell Singapore; and executive director of Wong + Bernstein, a research and consulting firm in Asia that serves family businesses and family foundations. He was a chairman of the marketing cluster at the Ateneo Graduate School of Business in Manila, and is a visiting senior fellow of the IPMI International School in Jakarta.
He is also an associate member of the Singapore Institute of Directors and an advisor to business families worldwide, a sought-after governance speaker at conferences, and author of more than 200 articles and publications, including two best-selling Family Business books.