Family Business Model: 7 Lessons for Sustainable Success

                 One successful family business It may not be able to be a model for another family business in every dimension. My task in this article is therefore to collect, summarize and analyze ideas. Including guidelines for management in various dimensions. that are important to sustainable success using case studies of 9 “model” family businesses, including Hermès from France Bata from the Czech Republic, Alstrom from Finland, Ford Motor and Mars Inc. from the United States, Dalmia from India, Ayala from the Philippines, Formosa from Taiwan.

Including Cheng Kong from Hong Kong by Li Ka-shing, the former number one billionaire in Asia. I believe that from the many examples analyzed this time, there must be something that families can apply to their own family businesses. Yes, and here are the 7 lessons that I concluded from this study.

1. Use the “committee system” to make joint decisions.

                 If there is one characteristic that can be seen in every family business studied in this study, it is the use of a "committee system" as a platform for deciding various matters. Both business and family A “committee system” is a system that empowers a “group of people” to make decisions together instead of “Anyone” who has only one decision-making power. The subtler characteristics of The “committee system” that model family businesses have is similar includes:

(1) Separate the “family committee” from the “business committee.”

That is, separate matters related to family. Let a committee consisting of only family members make decisions. (This committee is sometimes called “Family Council”) and business-related matters are the responsibility of The decision is made by a “business committee.” This type of division is seen in many family businesses, including the Alstrom family of Finland. Hermès from France Ayala from the Philippines and Dalmia from India, for example.

               Dalmia from India is an example of a family that is neither large nor complex. The Family Council and Business Committee are therefore the same committee and are 100% "insiders" in the family, able to talk about everything including business and family, while other families In this study, there were many families with many members. Splitting the committee into 2 sets is therefore a common characteristic.

(2) Use "outsiders" to help make business decisions. Model family businesses make use of "outsiders" in various aspects. From providing a different perspective to helping unlock long-standing conflicts, such as the Dalmia family setting up an “advisory council” with outsiders accepted within the family to help provide opinions. and different perspectives

While the Formosa family established The "Seven-Person Strategic Committee" has four family directors along with three "outsiders" who are senior executives of Formosa, with the highest decision-making power. In addition, the Bata family has established a "Seven-Person Board". There are 7 family members and 4 "outsiders" to help decide on various matters. Where there used to be long-standing disputes between family members, etc.

2. Set “meeting rules” for effective joint decision-making.

            But even the committee system has many advantages. But it has weaknesses that cause many families to return to a simpler solution, such as allowing a single leader to make decisions. which is the cause There is not enough time to meet. Meetings together are a waste of time. not effective Or there may even be a deadlock problem when the votes are equal, so as to prevent the family from giving up and going back to the old ways. The Dalmia family from India has suggested some techniques to help solve these problems, such as:

             (1) Set clear meeting rules, such as specifying that meeting matters must be informed at least 5 days in advance of the meeting. and clearly specify the date and time for regular meetings, etc.

             (2) Reduce time discussing technical-operational matters, increasing time discussing policy-strategy. Because it's what executives should do!

             (3) Decide by majority vote but specify the “decisive vote”. In the general case, use the majority vote (Majority) to make decisions and require “Deciding Vote” was established to solve problems in the case of equal votes. The person who has the “decisive vote” in each matter may be different people depending on the skills, knowledge and experience of the members.

             (4) Specify the matters that must be obtained. "Unanimous voice" as necessary The Dalmia Family Council stipulated a total of 40 important matters that the members had to decide on together, with only two matters not being included. A “decisive voice” means that everyone has an equal voice. and must use the decision of "Absolute Consensus" (unanimous vote) only, which is the matter of increasing capital. and selling shares of family members

            (5) Use “outsiders” as experts or intermediaries to help make decisions. To help the meeting reach conclusions and resolve faster.

3. The heir must be “clear” whether by ability or bloodline.

             Sometimes family cultures that have been passed down for a long time are difficult to change, such as the “eldest son culture” of Chinese and European families. This reflects that "pedigree" trumps "ability" when it comes to selecting the next generation of leaders. Even Li Ka-shing, Asia's former number one billionaire, has placed his eldest son, Victor Li, in the position. Be the next successor to the position of leader of the family business. But this may be due to the abilities of both children. It's not clearly different, plus it's simple. It is this predictability that makes the eldest son, Victor, more “appropriate” than the younger son, Richard, who leads a more adventurous life.

Li Kashing was clear from the beginning that Richard was not the heir to inherit the family business. But as a father, he publicly announced his financial support for Richard's business in order for his young son to go on to build his own business empire.

            As for the clarity of a family business that has been running for 7 generations, like Ayala from the Philippines, Adhering to the idea that "ability" must be superior to "bloodline", currently only 3 family members out of more than 70 people in the family work in the family business. “Although our family is quite large, But there are only 3 members, namely my father, me and my younger brother, who come to manage the family's business.

Additionally, the CEOs of all subsidiaries and related companies are professionals who are not members of the Ayala family. They get paid Be adjusted according to your true abilities and performance. Our family sees that treatment of employees or executives that do not comply with this is harmful. It will affect attracting good and talented people to the organization. as well as limiting our own business growth opportunities,” commented Jaime II, the seventh generation heir to the family.

              Like Wang Yungqing, Taiwan's god of management, he doesn't believe in individuals, but believes in "systems" that filter out the most appropriate business leaders. But that may just be a surface reason that hides the real reason. that he and his brother founded the Formosa business group They couldn't decide which of their children would become an executive or become "number one" in the organization because they had a total of 18 sons and daughters (not including 3 illegitimate children! )

              But whatever the real reason, the idea is that “if a business is managed reasonably, Employees will receive good training. and a successor will eventually appear.” It is an idea that meets the needs of Wang Yungqing's family business very well. And when the new leader doesn't have to be surnamed Wang. The more freedom they have to choose who they deem most “suitable” for the family business.

4. Know how to use "outsiders" rather than setting up a fortress to block them.

            For a family business that has traveled through a long period of time, They know the importance of using “outsiders” to help their business. or even becoming a "leader" of the family business Because hoping for "insiders" to inherit the business from generation to generation continuously for a long time It's more of a dream than a reality. There are always some "accidents" in the path of business succession.

            Therefore, whether it is an in-law, a daughter-in-law, a relative or a professional executive. These are important "helpers" especially during the generation transition where the real heir may not be ready yet. or there is a lack of leadership. Just like what happened to the Bata family, Thomas Bata, the leader of the first generation, had an accident and died prematurely. Thomas Jan Bata, the true heir of the second generation, who was only 1 years old at the time, was not yet ready. Stepping up to be a leader, causing Jan Antonin, his uncle, to take over the family business before returning it to Thomas Jan Bata later on, or in the case of Hermès from France, which is over 2 years old." Outsiders” who took over as top executives in two periods: “in-laws” took over as top leaders from the 17rd generation to the 200th generation, and “professional executives” came in from the 2th generation to the 3nd generation. 4 etc.

            In addition, in general When the family business grows to a certain level Family members often move up to the board as directors or chairman to represent shareholders and set policy. and strategy in the big picture, often leaving management work to professional executives to take on responsibilities instead The same happened with the Alstrom family businesses, Baja Ford and Formosa, to name a few.

            However, allowing "outsiders" to manage the family business has the issue that the executives who are "outsiders" do not consider that this business will belong to anyone else. Their problem is how to make the business grow and make good profits and satisfy shareholders. which does not have to be a family member Business growth that reduces “The power to control the business” of the members is therefore something that the family must be very careful about.

5. Keep “control of the business” within the family.

               Family businesses must do their utmost to maintain “Control of the business” is in the hands of the family. The control over the business may be measured by the family's "freedom" in determining the main direction, policy, or strategy of the business. Some families, such as Bata and Mars, love the freedom of corporate policy to such an extent that they won't allow a single share of their stock to fall into the hands of anyone outside the family. Why is "control over the business" so important?

             One of the strengths of a family business is its ability to “Be patient for long-term results.” “We will see that in public companies There will always be pressure on executives to do better, which is causing CEOs to take more and more risky decisions. And that could cause him to fail in the end... To alleviate that pressure, at Ayala, we try to put in place a shareholder structure that embraces a long-term vision. and create stability at the board level by being a major shareholder,” Jaime II, the 7th generation heir to the Ayala family business From the Philippines giving a view

Jaime II further added that Ayala's goal is to create long-term value creation rather than succumb to the pressure of short-term profits. And the important thing is Ownership of shares in such a proportion that the family can still maintain decision-making power, therefore, "control over the business" is the heart of the long-term survival of the family business.

            But in many cases The goal of growing the business came at the cost of losing it. “Control power” such as selling additional shares Mergers and acquisitions that reduce the shareholding percentage of family members. This is a matter of maintaining a balance between the goal of business growth (Growth) and the goal of maintaining control over the business (Control). The family businesses we are studying this time use similar and different tools in Maintaining this balance

            Maintaining “control” can be achieved whether a company is listed or unlisted, for example by using a single holding structure such as that of the Alstrom family from Finland. Hermès from France or Formosa from Taiwan serve as the main means of steering the vote in the family's favour. or using Ford's Dual-class Share technique from the United States and Ayala leave the Philippines That makes family members hold only a small portion of the shares. But it has voting power over all other shareholders, or even setting a "no stock sale" rule to outsiders, causing both the Bata family business and Mars to remain companies owned by 100 family members. % last until now

6. Use a “holding structure” to reduce conflicts of interest.

            In addition, the holding structure is used to maintain “The power to control the business” is now in the hands of family members. The next important benefit of using The “holding structure” in a family business is the unification of family interests, such as If the holding company makes a profit Everyone in the family will share in the profits. The amount varies depending on who holds more or less shares in proportion.

The Ayala family from the Philippines used the structure. “Holding Company” to prevent conflicts of interest between the family and other investors Including between shareholders who are also family members. By establishing Mermac Inc., a family holding company.

By having family matters discussed in Mermac Inc. to find a "single" family resolution before sending family representatives to a meeting on the board of Ayala's holding company (Business holding company) that has Outsiders join in making decisions as well. The issue of conflicts of interest between the family and investors will become more important as the family business invests more with outsiders.

            Another benefit of a holding structure is that it creates a clear division of the benefits of the family business. In many cases conflicts in family businesses arise from this ambiguity, such as in the case where family members cross-shareholding shares in many places. family company Until it makes members confused and unclear about who gets what and how much from which company. Uncertainty. This suspicion of having advantages and disadvantages is a factor that undermines family relationships.

7. Focus on “public benefit” rather than personal benefit.

            Li Ka-shing believed in the saying that if you want to be successful in business or work, You must be able to accept opinions and people who are different from your own. “Why does the Yangtze River To be great? That is because it receives water from small and large rivers into its body.” You should share the resulting benefits with others. That is also related, just like a family business that must focus on mutual benefits rather than individual benefits if it wants to grow.

           “The first thing that must be understood for the progress of the factory. That is, you must not think of this business as yours. Or exists only for you...and when you start thinking only of yourself At the time you stop contributing to the factory. That's when you become worthless. And you will inevitably fall,” are the words of Thomas Bata, founder of the Bata family business. Always reiterates the topic of working to create benefits for the public.

             The Mars family sees the word "collective" as broader than just the family. or family business But it covers partners, customers, and society to benefit simultaneously through a philosophy called “Mutuality” or mutual benefits of all parties. “Profits earned without caring about other people's profits are not sustainable,” said Victoria Mars, a fourth-generation Mars successor. Meanwhile, Wang Yungqing's last letter to his beloved children also reflected the perspective of focusing on the interests of the "public" rather than his own interests.

             “Dear children, everyone wants to be wealthy… But when the time comes for us to leave this world No one can take those treasures with them. And it is very appropriate that those assets be returned to society. Donate property belonging to father Let it benefit society so that the company that Father devoted his life to created It will be beneficial to both employees and society in the future. He also hopes that his children will open their minds and hearts by doing public works. Because that is true life.”

References

• Nawaphon Wiriyakulkit, “Ahlstrom: Lessons Learned from 160 Years of Finnish Family Business,” Journal of Finance and Banking
• Nawaphon Wiriyakulkit, “Hermès and the Fight to Save the Family Business,” Money and Banking Journal
• Nawaphon Wiriyakulkit, “Mars Inc. Four Generations and the “Freedom” of Family Business Management,” Money and Banking Journal
• Nawaphon Wiriyakulkit, “Ford Motor and the Concept of Controlling Family Businesses,” Finance and Banking Journal
• Nawaphon Wiriyakulkit, “Formosa Plastic Group and its 4-step family business delivery plan,” Finance and Banking Journal
• Nawaphon Wiriyakulkit, “Dalmia Cement and 5 Characteristics of the Small Prik Khino Family Council,” Finance and Banking Journal
• Nawaphon Wiriyakulkit, “Li Ka Ching: Lessons in Creating and deliver the family business “Superman” of Asia,” Journal of Finance and Banking
• Nawaphon Wiriyakulkit, “Baja and the Lessons of Family Business Succession,” Finance and Banking Journal
• Nawaphon Wiriyakulkit, “Ayala Corporation: 5 insights from the oldest family business in the Philippines,” Money and Banking Journal