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MANILA BULLETIN
Business & Society
September 7, 2009
Values in Family-Owned Business
Among the Philippine corporations that have been rated high in corporate governance, there is a large number of family-owned businesses like Ayala Corporation, Banco de Oro, Megaworld,ICTSI, Security Bank Corporation, Alaska Milk Corporation, and Splash. This should not come as a surprise, considering the findings of specialists on family-owned businessesall over the world. Values and virtues are often best cultivated within family businesses. This is the thesis of a valuable book edited by Joseph Tapies and John L. Ward, two of the world'sleading scholars of family businesses. The title of the book is Family Values and Value Creation: The Fostering of Enduring Values Within Family-OwnedBusinesses published by PalgraveMacmillan. Professor Tapies holds the Chair of Family-Owned Business at the IESEBusinessSchool in Barcelona, Spain while Professor John L. Ward is Clinical Professor of Family Enterprises at Kellog School of Management in NorthwesternUniversity in the U.S.
In the Prologue to the book, IESE Dean Jordi Canals remarks that the long-term vision of the family-owned company is in stark contrast with the short-term pressures that rule otherkinds of businesses. The short-term vision of many publicly owned enterprises could not be better demonstrated than by the current global economic crisis that has been precipitatedmainly by companies looking for a quick buck, whose executives completely ignored the long-term impact of their actions on the sustainability of their respective businesses. As John Ward explains in the book's introduction, family-owned businesses are generally characterized by a sound value system, whether implicit or explicit, which impacts all of its activities, its strategy and way of doing things. During these days when there is a great deal of lamentation about the lack of values in the corporate world, family-owned businessesare shaping up to be the role models to watch.
Business professors in the Philippines should write more cases on family enterprises to highlight the positive values that are passed from one generation to another in family businesses. This may be easier said than done because the owners of family businesses tend to guard their privacy and are reluctant to share information. Despite this limitation, clear evidencehas emerged from the studies included in the book that family-owned businesses do play an important role in developed economies. For this reason, the authors call on family-ownedenterprises to open up more and face up to the challenges of today's globalized business environment. The book makes clear, however, that each family-owned business is one of a kind. Researchers on the topic are trying to discover a typology that can be used to classify and describe the many different kinds of family businesses.
There are those who propose a classification according to the level of involvement of family members. This can get pretty complex, with more than 70 categories. John A. Daviesof the Harvard Business School suggests eight categories encompassing every possible family system. Another key aspect to take into account is the role of the family members involvedin the business, whom IESE Professor Joseph Tapies describes as the "heart of the business." In one of the articles in the book, IESE Professor Miguel Angel Gallo describes the carefulbalance of power that the owners must strike.
More than in publicly held company, emotions play a significant role in the running of family businesses. Several authors address the emotional and relational factors that influenceperformance and organizational structure. Emotional intelligence has an impact on various aspects of the family business, from equity considerations to management succession. Theseemotional attachments are very real and important, even for members of the family who have no financial interest in the enterprise.
The transition from one generation to another is a major area of concern, especially during these times of rapid shifts in technology and the increasing importance of knowledge-basedindustries. Succession must be viewed as a future opportunity and part of the growth of the business, rather than a one-off event. To avoid some of the common pitfalls of succession,family business owners are advised to clearly distinguish among property, business and family, promoting a merit-based culture, which helps avoid nepotism and attracts topnotch professionalmanagers to the organization.
The handling and investment of family funds is always a touchy subject. To reduce tension, it may be useful to resort to a Single Family Office, which is designed to manage family assets. Heinrich Leichtenstein and M. Julia Prats, both of the IESE Business School, together with Raffi Amit and Todd Milay from Wharton, conducted a groundbreaking study of Single FamilyOffices, finding how such offices deal with matters such as the education of family members, the philantrophic activities of the family, and the management of major assets.
In the final analysis, however, the strength of a family business enterprise is primarily rooted in its values, which "shape the culture of the family-owned business," as Professor Wardstates. In a family business, these values tend to be more human, more emotional. Family businesses place special emphasis on collegial government, maximizing the lessons frompast experiences and always looking beyond the present to the long-term future. For this reason, family-owned businesses must be seen not only in terms of assets but as a combinationof property and values. Family businesses have a mission that transcends the financial goals of the enterprise. They are a means of sharing certain values and providing a service to thecommunity in which they are integrated.
Since family businesses are still predominant in the U.S. and Europe, another serious threat to capitalism is the rapid disintegration of families through rampant divorce and maritalinfidelities. The breaking up of families of those who own the key businesses of these developed countries can be a source of great instability of the market economy. This considerationis another reason to defend the unity and indissolubility of marriage in every society. For comments, my email address is .