6C's (Unsuccessful) Formula for Thai Family Businesses: Things Not to Do
In the previous article, I revised and expanded the 6C formula for Thai family businesses, adding three new Cs: the first C, Corporate Governance Structure; the second C, Compensation & Benefit; and the third C, Conflict Resolution and Conflict Management. I elaborated on these in the previous article.
Regarding the remaining three C's, regardless of the issue... Communication, care, and compassion.) and Change What remains the same is the added emphasis on communication: family members should listen more, especially through reflective listening, which is a crucial art in understanding the opinions of family members.
In this article, I'll attempt to apply the (un)successful 6C formula to understand why family businesses fail. I previously wrote that if you want a family business to fail in achieving sustainable succession, you should do the opposite of the original 6C successful formula. However, that might seem too simplistic and difficult to remember.
Therefore, when writing this new book, I wanted to introduce the (un)successful 6C formula, which aligns with but is the opposite of the successful 6C formula, and present it as an easily memorable (un)successful 6C formula that outlines things to avoid to prevent business failure. I will consider the 6C formula for (un)successful (un)s separately with case studies.
1.The first C stands for Corporate Governance Confusion, or CG Confusion. This refers to the confusion or ambiguity in establishing a good governance structure for family businesses. Most family business owners struggle to separate good management or governance from managing family relationships. This applies to aspects such as management, defining roles and responsibilities among family members, financial strategy planning, and systematic tax arrangements, all of which should be distinct from family interactions.
Examples of the inability to separate business and family finances include business funds and family funds often being treated as a single account. This leads to frequent transfers and loans between families without separation, or even incorrect tax payments and the use of two separate accounting books.
Furthermore, family members often misunderstand their respective roles in the family business, particularly the younger generation who remain fixated on their positions and are unable to clearly distinguish between their roles as managers, directors, and shareholders, and as family members who own the business and as parents.
This includes neglecting to comply with various laws and regulations regarding accounting, finance, and taxes, due to the belief that what was done in the past by previous generations was always correct. Furthermore, the misconception is that corporate governance (CG) is not something family businesses need to worry about because they are not publicly listed companies.
Therefore, if family members lack understanding of good corporate governance structures and instead experience confusion and doubt—known as CG Confusion (because they believe it's unnecessary), such as the absence of a clear structure like a holding company, and the lack of necessary legal documents like bylaws, shareholder agreements, family charters, wills, and prenuptial agreements—to govern good business practices, define family relationships, and determine business succession, then CG Confusion within a family business can easily lead to its downfall.
case study : In Thailand, for example, a prominent family's integrated chicken farm business grew rapidly and once became the country's number one chicken exporter. However, due to family management lacking proper oversight and financial structuring, the company faced liquidity problems and overwhelming debt, ultimately forcing it to file for bankruptcy protection in 2557.
The main cause stems from over-investing in business expansion without professional risk management and without clear asset and role divisions. Family businesses inevitably create loopholes for family members to misuse company resources.
A case study from abroad is Adelphia Communications, a US cable television company owned by the Rigas family. The family used the company's accounts as their own personal finances, borrowing large sums of money through related entities and having the company provide guarantees, without disclosing this to shareholders. Ultimately, in 2002, fraud and hidden debts exceeding $2,000 billion were exposed. The company went bankrupt, and family members were prosecuted for fraud. This case underscores how corporate governance confusion can easily lead to the collapse of family businesses.
2.The second C stands for Compensation and Benefit Unfairness. In allocating ownership, returns, and benefits among family members, there is a lack of rules for dividing shares, paying compensation, or defining benefits for family members with different roles, whether they are management personnel or family members.
The lack of clear and transparent legal rules or documents to explain this can lead to a feeling of compensation and benefit unfairness among family members. This feeling of unfair compensation and benefits can result in suspicion, distrust, and ultimately, disputes or conflicts among family members.
Therefore, a process of communication and consultation within the family is necessary, including the creation of documents, charters, and policies on this matter by family members. This allows family members to accept and understand each other's roles, responsibilities, and fosters empathy. Establishing such guidelines from the outset will naturally reduce disputes and conflicts.
case study : Internationally, Gucci, the global fashion brand owned by the Gucci family, experienced internal conflicts over the distribution of profits and assets during the 1980s and 1990s. Some heirs felt they received an unfair share compared to others. Combined with internal governance issues, this led to embezzlement and forgery within the company. These family feuds deepened to the point that Maurizio Gucci, the third-generation heir, decided to sell all his remaining shares to foreign investors in 1993, effectively taking Gucci out of the family's control.
In Thailand, an interesting case study involves the conflict among heirs of a publicly listed hotel business after the founder's death. The equal distribution of shares in the holding company among the three children (approximately one-third each), while seemingly fair, became the starting point of a family feud. The siblings had differing visions and each claimed equal rights to management power, with no one holding an absolute majority.
This conflict escalated to the point that in 2568, the younger siblings, who were major shareholders, voted to remove the eldest brother, a senior executive, from the board of directors and did not approve the company's financial statements at a shareholders' meeting. It is believed that an agreement has now been reached through negotiations.
3.The third C stands for Conflict of Interest and Power. When family members manage a family business without rules or regulations regarding conflicts of interest or management policies, it can lead to various conflicts.
In particular, conflicts of interest among family members, where individuals prioritize their own benefit or that of close associates, can lead to distrust within the family. This includes issues such as management methods and a lack of financial transparency, making it difficult to drive the family business forward collaboratively and plan for the future.
Therefore, establishing rules, work procedures, and measures to prevent conflicts of interest among family members, as well as eliminating power struggles in managing or implementing policies within the family business, is essential. Such rules will help prevent trust issues and conflicts.
In particular, family members who hold both management power and major shares (Group 7 in the three circles as previously written) will, if their roles, such as managing benefits and paying dividends, are not clearly defined, other family members who may not have management power but hold shares (Group 4) or manage but do not hold shares (Group 6) will develop distrust towards the managing family member (Group 7), ultimately leading to conflict.
case study : This case in Thailand concerns a conflict between three siblings from a prominent energy family, who have been locked in a protracted legal battle over shares and inheritance for over eight years, since 2018. The siblings are involved in at least ten lawsuits, including allegations of opaque share trading, forgery, and embezzlement of inherited land. The situation escalated to the point where one of the heirs was sentenced to prison for embezzlement (though later released on bail and appealed). This case has brought the family's business empire to a standstill and severely damaged its reputation.
A case study in India, the Ambani family dispute, clearly illustrates how a conflict of interest can undermine an established business. Oil magnate Dhirubhai Ambani died in 2002 without a clear will, leading to a power struggle between his two sons (Mukesh and Anil) over assets. This resulted in the division of Reliance Industries in 2005, with their mother acting as a mediator.
The splitting of the company weakened the once unified empire. The older brother (Mukesh) nurtured the original businesses, leading to their growth, while the younger brother (Anil), who inherited the telecommunications and energy businesses, mismanaged them, accumulating massive debt and going bankrupt in 2019. (Anil's Reliance Communications company had to enter bankruptcy court to restructure debts exceeding 35 billion rupees.) This case highlights how, when family members are in conflict and lack trust, businesses inevitably suffer, sometimes leading to the sale of assets or their fragmentation, as has happened to many large families worldwide. Ultimately, the older brother has now stepped in to help his younger brother with the businesses.
4.The fourth letter C stands for Communication Gap. This leads to a lack of open communication; people don't talk, they don't listen, and there's no documentation or record-keeping. This applies to everything from business direction and succession to vision, values, and legal documents. A lack of communication on these matters ultimately results in a lack of trust among family members.
Therefore, it is necessary to bridge the communication gap by listening openly and collaboratively, establishing rules and regulations for communication through processes such as family constitutions, company regulations, shareholder agreements, wills, prenuptial agreements—legal documents that are ready to be updated to remain current. This will significantly reduce conflicts of interest and power dynamics. If family members cannot communicate with each other, a neutral party or professional should be appointed to facilitate communication.
Case studies from other countries. : The renowned Hong Kong restaurant business, Yung Kee, had its founder structure the shareholding among his four children and wife, hoping that the two eldest brothers would jointly inherit the business (each receiving an equal 35% stake). However, no plan was put in place for how they would manage the business together. This led to problems as the heirs had differing attitudes and abilities. When the youngest son, who held 10% of the shares, passed away and transferred his shares to the second eldest brother, the power balance shifted, putting the eldest at a disadvantage. This resulted in serious conflict with his siblings, culminating in a lawsuit in 2012 to dissolve the family's holding company.
This case reflects that even families who think they have prepared a good share allocation may not survive if they don't clearly communicate and agree on the roles, responsibilities, and vision for joint management from the start due to internal conflicts.
Therefore, establishing rules to bridge communication gaps among family members (such as holding Family Council meetings, creating a Family Constitution or record of shared agreements) is essential to prevent misunderstandings from escalating and affecting family affairs.
5.The fifth C, Complacency, refers to the negligence, lack of caution, and indifference of family business suppliers. This may be due to underestimating the risks, as most founders tend to appreciate past successes and therefore become complacent and careless, neglecting to change their business methods, establishing systems for good governance, succession planning, strategic planning, and building experience among family members while learning new things. This includes personal and business model transformation to keep pace with evolving changes. Consequently, when the storm of rapid and severe change arrives, they are unable to cope, unfortunately leading to the failure of the family business.
International case studies : The Guinness family, owners of the Guinness stout beer in Ireland, a family business over 200 years old, has experienced a long-standing success that has created a mindset of clinging to traditional management methods, particularly the "tradition of passing the leadership position to the eldest male heir" rather than selecting successors based on actual ability. This has resulted in subsequent generations lacking the drive to develop the business, believing the company will grow on its own.
As family members became less involved in the business and allowed outside professionals to manage it, their attachment and control gradually waned. The family's stake in Guinness plummeted from a majority to just 20% in 1980, and after the merger to form Diageo in 1997, the family remained a minority shareholder, losing all managerial power in their beer company. In short, complacency and clinging to past success prevented the business from being prepared for change, ultimately leading to inevitable failure.
The case of the Bancroft family, owners of Dow Jones, is similar to that of the Guinness family (as previously discussed in a case study on family businesses), particularly the heirs' unwillingness to make changes and their willingness to allow professionals to manage the business without oversight.
6.The sixth C stands for Change Blindness: Family businesses where family members are unwilling to accept changes in business practices. Refusal to change stems from the belief that past practices are correct and that success has been achieved in the past. Even when aware of past successes, one pretends not to know, thinking that no changes are necessary. This involves closing one's eyes, ears, and mind to observing changes that impact the business or even family relationships. Therefore, reducing ego and letting go is crucial, allowing the new business owner to fully participate in management while offering guidance from a distance.
case study : For example, family businesses that once monopolized the market in the analog era but refused to adapt to the digital age eventually lost market share to new competitors, leading to business stagnation or closure.
Many Thai family-owned media businesses that invested in bidding for TV licenses from the National Broadcasting and Telecommunications Commission (NBTC) and subsequently suffered losses when streaming technology replaced them did so. The reason for these losses is the rapid pace of change in the current business world; failure to adapt will lead to rapid failure.
Extracting lessons from the 6C formula and the (un)successful formulas of the past means that business owners cannot treat it like a checklist, selectively choosing what to do or not to do (Do and Don't). Instead, it requires family members to work together in unity, integrating their ideas, defining a direction and direction for doing the business, and establishing multiple do's and don'ts (Do and Don't) in order to collaboratively create a structure for good corporate governance.
Designing compensation and benefits based on fairness, addressing the needs of family members and stakeholders to ensure business sustainability, establishing communication processes and methods, creating conflict management systems before conflicts of interest and management arise, using a framework of compassion and kindness to resolve issues through documented guidelines, and driving strategic business transformation are all crucial for the long-term sustainability of a family business.
I hope that this three-volume book series on family business, which I have compiled and written, will serve as a compass and guide for Thai family businesses, enabling them to study, adapt, and apply the principles appropriately to their own contexts. There is no single foolproof formula that works for any one family business, but importantly, they must avoid the pitfalls of the unsuccessful "6C" formula.
Transforming Thai family businesses to achieve sustainable growth requires them to constantly adapt to modernity, timeliness, and technology. "Long live Thai family businesses!"
