Founder Inaction Can Cause The Business To Fail (Part 3)
My World Bank/IFC Governance work in Africa did not push through over the weekend due to the current post election tension unfolding in Kenya.
The deferment was a blessing as it allowed me to revisit peculiar and common issues affecting family owned businesses in Asia. The case of Mr. C is no exception.
After a thorough evaluation of his family business, the Family Advisory unit of my firm, W+B, identified several major causes of conflict that led to the dramatic decline of the business exacerbated by a virulent tug of war among siblings.
- Employment by virtue of their last names with zero accountability
- Family members were thrust into leadership positions, despite their lack of experience and competence
- Money issue as a result of ownership misalignment
- Compensation and incentive programs were wrong
- Unclear succession programs that bred conflict
After summarizing the report and analyzing why the conflict happened, I have listed a handful of related issues:
- The patriarch did not see the urgency of initiating governance in the early stages. As the problems became more evident, Mr. C chose to procrastinate
- He exhibited a typical patriarch mindset that siblings will be able to fix the issues amongst themselves
- He was also too busy growing the business and ignored the red flags
- Control and Power struggle among siblings was bound to happen
- The conflict escalated when Mr. C suddenly stepped down
When the patriarch’s health deteriorated and disagreements among the children were becoming frequent, he suddenly realized that the children lacked the maturity to lead their departments and were not prepared to assume full control of the business.
Out of desperation, the patriarch finally sought assistance from his friends and luckily his colleagues endorsed me and the firm to initiate intervention.
Our Intervention was Intense
We were racing against time using three critical areas: Resolve a “ticking time bomb”, initiate full governance across all areas and prepare a lengthy succession process.
Phase 1 Intervention Governance Protocol
Our precondition in helping Mr. C was to take out the litigation lawyers representing the children. With the mother’s appeal, the children finally relented to let the lawyers step back.
Our initiatives focused solely on addressing the causes of conflict by installing and aligning governance systems covering the naturally overlapping areas (family, business and ownership). What was peculiar about this intervention was the need to put another circle covering long-staying employees loyal to the father.
The issue may look miniscule from the outside, but it is not. These handful of employees who started as factory hands 40 years ago became equally entitled as the children.
The W+B findings revealed “their association with Mr. C for many decades was “power in itself” as they held the title of “gatekeeper”. In short, they were perceived to be so influential that they can make or break a candidate aspiring for a managerial position.”
On a positive note, their contribution to the company’s growth years under the leadership of Mr. C can never be discounted. However, with the imminent break up, we also discovered that this group was also “fighting for survival.” They strongly felt that with Mr. C slowly losing his grip on power, their influence was also dissipating and they were not prepared to leave the company.
To be continued…