Dennis Jaffe is a founding partner of Relative Solutions, professor at Saybrook Graduate School and author of Working With the Ones You Love.
Not many family businesses manage to survive the disruption of several generational transitions – with family and business still in tact. Dennis Jaffe presents a family who have managed just that and who offer some advice to expanding family businesses
When a family is able to reach the fifth generation with a portfolio of thriving enterprises, strong and inspired leadership, and many family members preparing to take places in the business, something very special is happening. The Aboitiz family, headquartered in the Philippines, has been able to transmit a strong set of business and family values to each of its 800 family shareholders, who live in many places around the world. The family's holding company and public companies in power, transport, food, banking and real estate, with 22,000 employees, are all highly profitable.
Each generation the family appoints a leader whose task is to bring each business to the next stage of development and support the family to develop strong family leaders to participate in the businesses in many roles. Their practices can help us understand what a family needs to do to keep its business strong over generations, and avoid the tendency to succumb to family pressures or conflicts that overcome the pursuit of business excellence. They are clear and specifically designed to support and encourage family members to be part of the business, while making it clear that decisions are made for the business, not the family. Explicit family values, practices and governance mechanisms enable the family to manage the tricky path of keeping the family deeply involved in the business, while sustaining a strong, vibrant and growing set of businesses.
A family faces some special challenges as it moves through generations. One of the most difficult is finding leaders who are able to maintain the unity of the family, and take the business into new directions to continue developing the family's wealth. The Aboitiz family came to the Philippines from northern Spain. Don Ramon, helped by his three brothers, helped develop his father's successful trading business. His leadership set the foundation for family values of trust and integrity that are still at its centre generations later. When the business came close to bankruptcy, he returned from retirement in Spain to rebuild the businesses and pay off all his debts, leaving a legacy of trust and integrity to inspire his heirs.
The next generation graduated from college in the 1950s, and continued to develop the business by adding professional management. His son Eduardo took over as CEO and was a consolidator and corporate builder – he built their enterprises into modern corporations, by creating training, accounting systems, organisation structure and a value on ethics, meritocracy, fair play and good business, which translated Don Ramon's legacy and example into modern business practices. The company tries to make decisions based on data as much as possible, and that includes both operational and personnel decisions. While family members are encouraged to enter and work in the business – and many do – everyone in the family understands that decisions are made for the business first, not the family.
Following his own policy, Eduardo retired at age 60 and passed leadership to his cousin Luis Jr, who was then in his 40s. At age 60, Luis passed the baton (though he remains on the Board) to his cousin Jon Ramon, Eduardo's son, who will reach 60 in three years when there is another transition. With each succession, the family entered into further businesses, and continued to grow each of them by virtue of quality, cost effectiveness and responsible business practices. Today, many of their businesses are global leaders in cost-efficiency, quality and profitability.
Governance, oversight and family participation take place through active, highly professional work boards of directors for each business. The private company, which owns 50% of the public company, has annual meetings for shareholders just as a public company does. The board for the private holding company consists of seven family members, and the public company board also includes two independent directors.
I met Roberto, Jon Ramon's brother, who is chair of the family's public company and senior vice-persident of some units of the private company, at a family business conference in Manila, where he explained how his family, over several generations, has nurtured and developed the talent, capability and motivation of many family members. The family remains unified because of their strong sense of stewardship, "the belief that together we can achieve far more than we can individually". The company has a deep respect for talent, and within the family there is a deep respect for making the best decision for the business, not for the individual or the family. Each value – transparency, openness, respect, customer – focus, and social responsibility is deeply held by each family member. Roberto remembers when some family members tested these values, and the family leadership had to challenge them. There has been some family strife as family members have been asked to leave the business, or take a leave of absence until they are serious.
The family understands that its members don't have every talent, but with several hundred possible recruits, they have a wide net to capture and develop talent. There is a clear path for a family member to enter the family business – a path that is attractive, but also demanding. Young family members from age 14 are invited to enter a summer programme, where they can volunteer to move around the company for a few weeks, to see how other parts of the business operate. They are willing to create special programmes so any family member, many of whom live abroad, can come and learn.
Roberto also speaks to each one, asking about their plans, and reminding them of the demands of working for the family. "After university, we don't hire them straight away, but we try to help them be placed with our contacts, to find jobs abroad," he notes. His two sons work abroad for large banks. "They learn that there is a real world out there, and we find there is real value in building up their self-esteem and self-worth, outside of the family umbrella."
Some family members return and announce they are ready to work for the family. "We submit them to personality and aptitude tests to see what is the best place for them, given what we need. After they are placed, we evaluate them regularly, while they begin working for a non-family manager. It is not easy, but it builds up determination to really want to perform. We have lost some along the way, and some have been asked to leave, causing family friction. But family members have to be the best, or others will not be motivated."
This is as it should be, and as it would be if they were not members of the family. But they are, and the family really values and encourages those who are able to shine under this microscope. "At the age of 35 or 40, if they want to enter the executive leadership ranks, a family member faces another challenge. In order to become senior executives within the company – now that they have proved themselves in operational management – they must develop their people skills, and take a visible, accountable leadership role in the community. They are at the stage of leadership where we want to breed in corporate social responsibility, which is a major part of our business model, and our values as a company," Roberto explains.
Each young family leader is involved in the community and society. The family funds several foundations and is part of a nationwide NGO Business for Social Progress, which is composed of businesses that contribute 1% of their earnings to a fund that initiates social ventures in the Philippines. The family feels that a mature family leader should take on a role and a project outside the company, doing something for societal good.
In addition to the unique career development process that is available to each family member, the family also has several activities that help the hundreds of family members, spread around the globe, to remain unified, connected and in touch with each other. Roberto chairs the family council, which is open to family shareholders who want to be involved. The council holds family reunions which are held every three years. At the last reunion, over 400 family members came from all over the world for two days of learning and fun.
The council has seven or eight members, who come and go, and is currently reaching out to the fifth generation. They try to pick future family leaders who are good communicators and who represent various family constituencies. "The council works as a communication tool, communicating what the business is doing to the non-business parts of the family. In the past it was only men, the women were silent, but that has changed radically. Now we inform stockholders about how we work, what we are doing and how are get paid. The idea is to avoid a festering problem, and to deal with problems as they arise," notes Roberto. The council has created a family constitution, and acts as the focal point for family activities and maintaining the legacy of four generations of family enterprise.
From this example we can distill several best practices that guide the rare family business as it moves from large to huge, over several generations. They develop an attitude that decisions are made for the business first, they have mechanisms to sustain family unity and focus, they stand for clear personal and business values that inspire family members to be proud of their heritage and be willing to put in the work to excel, and they have clear and explicit governance policies and practices to nurture, develop and integrate new family leaders in each generation.