ShortReadingNote:Howtoremoveroadblocks?
Allfirmsfaceexternalobstaclesindevelopingtheirbusiness:Howtoraisecapital,howtoorganizethe
firm,howtoimproveawarenessoftheirbrand,howtoincreasemarketshare.Familyfirmsfacea
numberofroadblocksthatgobeyondthosethatnon-familyfirmsface.Wecategorizetheseroadblocks
accordingtothosethatoriginatefromthefamily,fromthemarketorfromcountry-levelinstitutions.
Familyroadblocksareinternalobstaclesthatarecausedbyproblemslinkedtofamilydevelopment,
familyorganization,psychology,in-fightingandevendebates.Takeforexampleanownerwithtwosons
whoinsteadofcollaboratingwitheachotherkeeponfightingagainsteachother.Inthiscase,theowner
isfacingoneofthemostcommonroadblocksinorganizingasuccession,whichsontoselectashisorher
successor.Awrongchoicecouldleadtofailurewhiletherightchoicecouldsustainthebusinessintothe
nextgeneration.
Marketroadblocksarebusiness-relatedchallenges.Ifafamilyfirmwantstoraisecapital,forexample,
tomakealargeinvestmentinplantorequipment,itfirstneedstoconsidertheownershipstructurethis
wouldentail.Attractingnewinvestorsonthecapitalmarketscouldresultinthefamilylosingcontrol
overthefirmifthenewinvestorsmanagetoseizecontrolofthefirm.ThishappenedtotheBritish
chocolatierCadburywhenitwentpublicin1962.Aftergoingpublic,theCadburyfamilydilutedtheir
shareholdingtofinancegrowthoverthenext50years,eventuallymakingthemvulnerabletoahostile
takeoverbyKraftFoods.
Themarketfortoplevelmanagementisanotherexample.Attractingandretainingtop-leveloutsiders
canbetricky,astheywillhavedifferentincentivesthanfamilymembers.Non-familymanagersmight
assumethataglassceilingwillblocktheircareerdevelopmentand,intheabsenceoffairand
transparentrulesforclearcareerpaths,thiscancreatesignificantchallenges.
Institutionalroadblocksarechallengesintroducedbygovernments,regulativeinitiativesorevenculture.
Aparticularburdenonfoundersisinheritancetax,whichinfluencessuccessionplanningandthe
transferofwealthamongtheirdependents.Ifafounderisliabletopayaninheritancetaxof20percent
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onthevalueoftheestate,forexample,heorshemightdecidetoliquidatepartofthebusinesstocome
upwiththecashtopaythetax.Oncepaid,thefamilyfirmmightnothaveanycashlefttodistribute.No
wonderfamilybusinessesinvestsomanyresourcesintaxplanning!
Anotherexampleofhowtheinstitutionalenvironmentaffectsfamilyfirmsistheformerone-childpolicy
inChina.Asaresultofthispolicy,whichhasrecentlybeenrelaxedsomewhat,manyChinesebusiness
founderswhoarenearingretirementarefacingalackofheirsinsituationswheretheironlychildisnot
interestedinorcapableofrunningthefirms.
Roadblocksthatareleftunattendedcandestroycorporationsandfamilies.TheBangkok-based
Thammawattanafamilybusinessisacaseinpoint.ThisisastoryofBangkok’sthirdlargestfresh-food
market,severaltimesthesceneofabloodbathincludingtheattemptedmurderofthematriarchin1990.
Between1966and1999,fivefamilymemberswereshotdeadassiblingsviedwitheachotherover
controlofadangerousfortune.
Thechallengeforfamilyfirmsistodesigngovernancemechanismsthatcaneliminateorreducethecost
ofroadblocks.AglowingexampleisthegovernancestructureimplementedbytheMulliezfamily,which
morethan20retailbrandsincludinggiantssuchasAuchan,DecathlonandLeroyMerlin.Havinggrown
to800familymembersinalittleover100years,theMulliezfamilyearlyonidentifiedpotential
roadblocksofincentivizingandaligningtheinterestsoffamilymembers.
Inovercomingtheseroadblocks,Mulliezlearnedtoprovideincentivestructuresforthemosttalented
familyentrepreneurswithoutsacrificingtheinterestsofthefamilyasawhole.Thefamilyalso
developedaplantoigniteaninterestindevelopingentrepreneurialskillsamongtheyoungergeneration
throughaninternaleducationalsystempreparingyoungfamilymembersforacareerinthefamily
businesses.Thefamilyalsoformulatedguidingprinciplesbasedonreligiousprinciplesforfuture
involvementandimplementedafamilygovernancestructuretoensurethatthefamily’sinterestswould
prevailoverpersonalambitions.Theyalsodevelopedanadvancedin-houseprivateinvestment
companytofinancefuturebusinessadventures.Asaresult,thefamilyhasbuiltasuccessfultrackrecord
ofentrepreneurshipintheretailsector.
Pruningtheownershiptreeisanothersolutiontothechallengeofownershipdilution.Agrowing
numberoffamilybusinesseshavedecidedtovesttheactivefamilymemberswithagreaternumberof
sharesthanthepassivefamilymembers;familiescanalsoallowsharestobeboughtout.Pruninga
familytree,however,requiresattentionandcommunication,assomemembersmayperceivethe
cuttingprocessasunfair,directedagainsttheirownpersonalinterests.Iftheirquestionsareleft
unaddressed,theirresentmentcouldboiloverintoapotentialsourceofconflict.
Manyfamiliesavoidroadblocksonthepretextthatifyoulookforproblemsyouwillfindthem.While
thisaphorismiscertainlytrue,afarmoreendemicissuecouldbeatworkherepreventingfounders
fromconfrontingtheirroadblocks.Asmostownerspumpuptheirbusinesseswiththeirfamily’snatural
entrepreneurialenergy,theroadblocksthatshouldbevisibleareoftencoveredupbythemagnetic
forcethatcanfillupeverynookandcrannyoftheorganization.Thisiswhysomefounderscanseem
completelydumbfoundedwhenconfrontedwitharoadblockthatisabouttodestroytheirbusiness.To
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ensurethesustainabilityoftheirfamilyfirms,ownersshouldnothesitatetodesigngovernance
processesandfamilystructuresthatwillreduceroadblocksorremovethemaltogether.Itcouldmean
thedifferencebetweenpovertyandprosperity.
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