What drives a family in business to reach out to a consultant?

Neil Arnold Montesclaros, CFBA

April 16, 2021

Families in the Philippines value privacy very much. Filipinos tend to keep problems to themselves. While Western people in the US and Europe find no big deal to have an appointment with a “shrink”, people in the Philippines will be cautious to share their challenges to family, friends, much more to a stranger.  There is a cultural stigma among Filipino families to seek external help.  With a country that has a high premium for image, status, reputation and shame, getting external professional help can be challenging and uncomfortable.  This is even much truer and stronger among families who own and operate businesses.

As a family business consultant with Premier Family Business Consulting, I have seen this cultural barrier slowly evolving over time.  Premier has served around 80 families in business in the Philippines so far.  From Luzon, Visayas, and Mindanao, there is a growing number of family businesses who see the value of external professional assistance and guidance. 

But what is the tipping point?  When is it too much to take, that family businesses raise the white flag and feel the urgency of being attended to.  There are several and diverse situations and motivations for a family in business asking for help.  What are they?  Is there a common trend?

Let me share our discoveries in serving numerous family businesses in the country. What triggers and challenges have made our clients to invest in a 3^rd party professional? It’s generally a combination of forces and reasons, and not just one factor alone.  Allow me to enumerate the most common ones we have encountered:

• Death/Health concerns of a key family member

The leading generation or the founding generation will not be there forever.  Actual death or imminent death due to deteriorating health is a daunting situation for a family business especially if the leading generation have been secretive and/or not very transparent of business matters to next generation; there can be no good transition of knowledge, information and wisdom to run the business well.   Furthermore, the senior generation are generally the keepers of peace, harmony and unity in the family.  The demise of the leading generation can challenge the succeeding generation’s confidence to work harmoniously together.  Hence, death or imminent death can potentially cause confusion and chaos, if there is no smooth transition and succession planning, whether formal or informally.

• Lack of clarity of goals, values and direction

This can happen while the leading generation is still around and also when there is death of the senior leading generation.  As the family and business grow over time, breakthrough change and adaptation must happen. In most cases, it does not.  This becomes more pronounced when the next or succeeding generation becomes involve in the family business.  There can be confusion of roles that leads to frustration and conflicts.  Furthermore, as the family and non-family work force grows in number within the business organization, there is a greater challenge for unity of direction.  A process of clarifying and uniting values is critical for a family aspiring for business longevity.

• Family conflict

Conflicts are stressful and uncomfortable for any family, much more with families in business.  With a culture of avoidance and accommodation dominant in the Philippines, conflicts are not easily resolved among us.  Whether the conflict is externally manifesting already or a strong undercurrent in family relations, there comes a point that conflict can threaten the family  and/or the business.  A conflict resolution strategy is necessary in a family business.

• Succession problems

These can come in different forms: none of the next generation is interested in family business involvement; the leading generation and the succeeding next generation can’t work well together; the next succeeding generation are not properly prepared to be competent business leaders.  Either of them can be a source of conflict in the family and can potentially threaten the life of the family business.  Successful succession is not a singular event in time but a planned preparation over time.

• Changing stages of key family members

Retiring family leaders and marriages of key family members are a few life stages that triggers families in business to start thinking, to start planning.  A transition of leadership is always going to be a daunting and precarious challenge for the family in business.  The prospect of in-laws coming in is another potential threat to both family and business.  Hence, anticipating and preparing for the repercussions of these inevitable life stages is going to be a wise move.

• Ownership concerns/structures

Transfer and expansion of ownership can be challenge in decision-making.  Should we do it now or later?  Do we divide wealth equally?  Should we give more to some people because they deserve more?  When is equal not anymore fair?  Many legal cases among families abound due to ownership claims.  This is an area in family business that needs proper guidance and process.

• Estate planning/tax

Minimizing tax obligation is a practical consideration for any person in business.  Furthermore, since estate taxes are unavoidable in any country, might as well plan and prepare for it.  Strategizing for this event is a wise investment. 

• Being proactive/planning for prevention

Some family leaders have a habit of preparing ahead.  They just want to anticipate situations and strategize long term.  They wouldn’t want to be caught flat-footed.  They live by the ethos: Prevention is always better than cure.  This mind-set has saved a lot of family business from unnecessary conflicts, pains, damages and loses.

• Business performance concerns

Others family businesses are disturbed or inspired due to the business situation.  They see a competitive socio-economic environment and they need to shift gears and level up.   Or the family business is no longer performing well as before; hence, something is not right and it’s uncomfortable to the family.  Or there is a strong drive for aggressive business growth.  In any of these cases, they see the need for expertise.  Preparing the business for sustainable and long-term growth is both a noble and wise direction.

The exposition above is not arranged in any particular order.  These are the challenges we see in the family businesses we served that led them to seek professional service.  However, we have discovered a common pattern among families in business in the Philippines.  What are the top triggers among family businesses to get family business consultants?

Many of our clients asking for our help have Succession Problems and Lack of Clarity as factors that drive them in  seeking help from third party professionals.   As I said earlier, most family businesses are beset by a mixture of challenges combined together, but 65% of our clients have Succession Problems and 64% percent also suffer from a Lack of Clarity.  In fact, both factors are interrelated.  A Lack of Clarity in family business organization can breed Succession Problems.

What’s the percentage of the other factors troubling families in business?

53% – Family Conflict

33% – Being Proactive

18% – Ownership Concerns

11% – Business Performance Concerns

10% – Death/Health of Family Member

8%  – Changing Stages of Family Member

5%  – Estate Planning/Taxes

It’s interesting to note that being proactive is a good habit to nurture, but it’s not the topmost reason why our clients have approached us.  However, this is relatively normal and predictable because people, in general, tend to react and act when there is already a problem rather than strategizing in order to minimize possible problems.

Death or imminent death is not a top situation mainly because most of the family businesses we have helped still have active founders.  Majority are still in the 1^st and 2^nd generation co-existing in transition.  There are few families in a thriving 3^rd generation stage.  This somehow reminds us of the reality that it’s not easy to perpetuate the family business across many generations.

However, I believe this situation will change in the next 10 to 15 years dramatically, as the founding or leading generation approaches physical decline and the need for good transition becomes urgent, important and unavoidable already.

While it’s perfectly understandable and reasonable that families will approach professional consultants when there is already pain, the best time to get guidance is before trouble arises.  There is still time and hope event if things are already difficult; there are processes and mechanisms for these troubling situations.  However, in our experience, family businesses that invested primarily based on being proactive and being preventive reap higher rewards. The processes are a lot smoother and more effective too.

Families in business can cry for external help for a lot of reasons.  The good news is that there is already lots of research and science to help them out.  Why experiment when there is already established best practices?  Why be alone when there can be proper guidance and assistance readily available?  Why risk higher damage cost when one can invest on prevention?  

Mankind has left the solitary caves a long time ago.  We live and thrive in a socio-economic ecosystem that favors partnership, collaboration, and mutual help.