Q&A with Viventis’ Yu Ming Chin on Transition From Family to Professional Management

Q1: There is always a crossroad with growing family enterprises – that of professionalizing by hiring an experienced outsider or continuing governance within the family. How can you help in this regard?

A: When a family enterprise is ready to professionalize, the first things that need to be done are the drawing up of the family governance constitution and the selection of an independent family board member. Sometimes, growing family enterprises experience failure when it’s being transferred from generation to generation and taking the aforementioned steps can help avoid that failure. We have relevant expertise in these areas.

Q2: Are there traits you look for within a family before you think that they are ready to hire a professional?

A: The three things I look at are Scale, Skills, and Succession. The scale of the family enterprise, whether the family members currently running the business have the skills required to take the business further, and whether they have a good succession plan in place. Another thing I take into consideration is the readiness and willingness of the family to devolve themselves from certain sensitive functions of the company such as the treasury and decision making.

Q3: There are cases where the hired outsiders are not compatible with family style and values. How do you avoid hiring the wrong person?

A: The first step is always to decode and understand what exactly the family’s management style and values are. Once those are clear, it all comes down to thorough selection. Ideally, a person with high ambiguity tolerance with multiple stakeholders is best. To measure how a particular candidate would work with the family, a one week collaborative work assignment can be undertaken. It may also take a year to fully integrate an outsider into the family business.

Q4: Within family members, conflict may already arise. How do companies successfully manage transition from family to professional management? What should they do to also avoid emotional and relationship problems along the way?

A: The single biggest issue I see is sibling rivalry. The best way to go about this is to build on equity of respect, and figure out a way to compartmentalize or distill – separate family issues and business issues.

Q5: Can you cite some cases of successful transition from family to professional management in the Philippines?

A: Ayala Corp. is the foremost example of a company that has successfully professionalized. JG Summit is also a good example. Some successful family enterprises are either blended or hybrids, with the family members staying in the board instead of running operations.

Q6: Aside from recruiting talent that can get along with family members, what should a new talent do to ensure that family members won’t feel isolated?

A: There should be a family committee for vital decision making to involve them in the major steps that the company is making. Making them gatekeepers when it comes to investments allows them to still have major control of their enterprise. The family should also be tasked with guarding the company values to guide the company’s direction.

Q7: What is the average stay of an outsider managing a family enterprise and what are the usual reasons for them to leave?

A: Usually 3 to 5 years, depending on transitional empowerment and trust. Reasons for leaving may be very dependent on their roles. Those entrusted with mainly stewardship may have a different reason for leaving than those with more governance in their responsibilities, and more so from those who have more of a counterpart role.

Q8: How should corporate talents be retained and rewarded?

A: Short and long term incentives should be in place. Equity (e.g. stock options) should also be considered to give the employees more incentive to grow the company.

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