The Impact of a Family in Business

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The advocacy of strengthening family businesses lies on the premise that family businesses being a key driver to economic development are also vulnerable to the unique and inherent challenges of being a family in business. In the Philippines, 80% of businesses are family owned and controlled. In Southeast Asia, 65% of total listed companies in the region are family businesses. Family businesses comprise the majority of business in most countries across the globe according to the global facts by Family Firm Institute (Boston USA). With the forthcoming economic cooperation zone of the ASEAN member states, the family businesses are in the forefront to reap the rewards of this development.
The Challenges of a Family in Business However, with the inherent tension between the family and the business, family businesses has to waver through their unique challenges identified as:

 

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1. The challenge of Succession and Longevity Passing on leadership to the next generation can be a difficult process, which pose as a threat to the continuity of the family in business. Research has shown that as the founder transitions leadership, the value of the business compared to non-family firm decreases (Villonga & Amit, 2004). Longevity of a family-run business can be a challenge. It has been pointed that families in business can be at their worst, operating their businesses unprofessionally by practicing nepotism, accommodation, having no long-term strategic planning, poor capital structure among others (Ward, 1987).

 

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2. The challenge of Managing Family Dynamics Poor family dynamics can result to long-ending conflicts that divide the family and even result to expensive court battles and business closure. Further, mechanisms to sustaining unity are still considered as the least priority. Family businesses need to realize the value of fostering unity as integral to their continuity and success.

 

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3. The challenge of Estate Preservation The distribution of estate is a very expensive and emotional endeavor for the family. Issues on fairness, equality, and control can open up unresolved issues and tear the family and their business apart. The financial burden can potentially eat up the business capital and lessen the family’s liquidity. In worst situations, this may force a family business to sell off their businesses.

 

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4. The challenge of balancing between Family Welfare vs. Business Growth Common issues of family businesses in terms of finances are 1) the prioritization of resources allocation for business or family and 2) the comingling of funds. If they will prioritize business expansion, family financial needs might be sacrificed. On the other hand financial needs of a growing family may lessen business liquidity. This is very common to families who family and business funds are comingled. These are issues that potentially drag the growth of a family in business. If these challenges are unresolved, the potential of family businesses will not be realized. When families in business fail to survive and pass on their entrepreneurial activities to the next generation, it has serious macro-economic implications: local employment conditions, the supply and demand chain, and the economy as a whole is affected.

 

The Needs of a Family Business

There is paramount importance in strengthening families in business. There is a need to help them be organized as a family and establish solutions to address their challenges; to encourage them to find more sustainable ways to maintain their position and lay the groundwork to take advantage of the opportunities of a more open market; to help them be prepared as the economy of Southeast Asia changes. To do this, we identify the emerging needs of the family businesses:

 

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a.) The Need to Propagate and Build-Up the Field of Study on Family Businesses locally and in Southeast Asia There is a need to increase awareness on the best practices and study on family enterprise management. The study of family business is surprisingly new.In fact, formal research devoted to family business only emerged in the past 60 years or so by the Family Firm Institute (FFI) in 1986. FFI endeavors are doing some good already in the Western world; yet, the expertise and resources that FFI can share to family businesses in Asia is still wanting. The study of family businesses specifically in Southeast Asia and in the Philippines is very underdeveloped. Thus, the development of the study and research locally and specific to Southeast Asia, will pave the way to equipping family businesses in the region to overcome challenges and maximize family business’ competitive advantages.

 

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b.) The Need to Unite and Encourage Family Business Practitioners With the emerging field of family businesses, only few family business practitioners are aware of the best practices and theories that are necessary for successfully helping families in business. It is a factor that only few academic institutions in Southeast Asia and the country have curriculum on the developing field of study on family business. Lawyers, Accountants, Organizational Development consultants, and other various professionals working with the family business would benefit from a comprehensive understanding of the dynamics, challenges and advantages of family businesses. With this understanding, consultants are able to craft pro- active solutions that are customized to the distinct family business situation. As an effect, professionals become family business practitioners who become more effective in ushering family businesses to progress.

 

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c.) The Need for a Resource Center for Uniting and Strengthening Families in Business through Integrated and Holistic Planning Families in business need to overcome the “shirtsleeves to shirtsleeves” or “wealth doesn’t last three generations” phenomenon brought about by unsuccessful attempts to overcome the challenges inherent to family businesses. With this, families in business need extra planning to integrate aspects of unity (managing family dynamics), wealth (preservation), and succession as crucial for sustainable growth. Integration of the different interests and goals of both the family and business system is the key to successful family enterprise management.

 

The Advocacy of Strengthening Families in Business

The identified needs of the family businesses in Southeast Asia and the Philippines are the foundation of the advocacy to strengthen families in business. This advocacy calls for a leader to spark collaboration among stakeholders in each community. It is in response to this call, challenge and need, that Premier Family Business Consulting comes to fore! Understanding the utmost importance of sustaining families in business especially with their dominance in the growing economy in time for the ASEAN integration, Premier Family Business Consulting commits to champion the advocacy of strengthening and bringing out the best in family businesses in the Philippines and in Southeast Asia.
The launching entitled “Strengthening Family Business: Family Business is everybody’s business” on September 2, 2014 in Radisson Blu Hotel, Cebu City, Philippines is going to be part of the efforts of organizing the collaboration among family business stakeholders for the purpose of inspiring a movement for family business development. The aims of the launching shall be to:

 

1.) Inspire families to formally group together to celebrate the significance of family business in society;

 

2.) Share experiences (the challenges, the rewards, the successes, the learning);

3.) To propagate best practices;

4.) To create linkages and networks that will result to greater opportunities for the family business; and

5.) To further promote the family business’ importance and impact, its study and research This is one contribution that Premier Family Business Consulting can give to society.