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Friday, September 22, 2023

Owners are the Major Source of Family Conflict

Jon Ramon Aboitiz offers this advice, “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, 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.” The Aboitiz group is a 130 plus year old family-led Philippine business organization with more than 40,000 employees. They have passed the baton several times and are now ready to handover the business to 5th Generation leaders.


Most business owners commit a major blunder when they make their children feel obligated to join the company. This wrong method of employing children can compromise the business as it breeds owner/managers who are entitled, not committed, unprepared and indifferent.


When an offspring exhibits any of these traits, you can expect conflict to manifest in many forms e.g. parent child and sibling relationships becoming strained, no clear vision of the future or non-family employees bypassed in favor of an entitled child. This toxic situation translates to a lot of time wasted for all parties and the business inevitably takes a direct beating.


Let me share the story of Dr. Wang, the founder of a once distinguished global giant and NYSE publicly traded Wang Computers. Long before Apple became a household name, Wang Computers, founded in 1951, lorded over the technology landscape.


In 1982, Wang generated more than a billion dollars, and by 1989 sales registered $3 billion. The growth also produced 24,800 dedicated employees. Sadly, three years later in August 1992, it filed for bankruptcy protection. One of the major causes that contributed to the company’s failure was Dr. Wang’s insistence that his ill equipped and unprepared son succeed him.


Children who are apathetic or lack the drive should not have worked in the enterprise in the first place. Nonetheless, if parents insist, the tradeoff can cause serious consequences:


·A miserable but entitled son or daughter can bully his or her way to gain respect

·An unproductive workplace where non-family executives are demotivated

·Parents end up regaining control and restrain young members’ activities

·Growth will be compromised

·Governance and succession initiatives sidelined


In my experience coaching dozens of family enterprises in Asia, I have seen ill-prepared next-generation members slugging it out and inevitably destroying the business. 


As governance colleague Henry Foley remarked in his Harvard Business School article he co-authored… “Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.”


To escape the trap, Foley suggest intervention on proper training and screening. He continues, “it’s natural for a family business to welcome members of the next generation, and it’s healthy to expose them to the company at an early age, so that they can make an informed decision about whether to pursue a career there. But a job with the company shouldn’t be an entitlement. Those who want to join deserve no special accommodation. We now see an emerging best practice in which families formally require any child who wants a job to (a) earn a university degree—and in some cases a graduate degree, (b) gain several years of relevant professional experience outside the family business, and (c) apply for open positions in competition with nonfamily applicants.”


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