Soriano: Family code of conduct: The missing link

Enrique Soriano

THE business is an extension of the family and successful growth comes at a cost. As the enterprise grows in size and scale, it becomes increasingly hard for the leader to manage the business. Predictably, when the company reaches this phase, we can expect internal struggles among the children, conflicts and challenges resulting from the complexity, bureaucracy and the competitive nature of the industry.

Sibling partnership: A make or break phase

The Business Families Foundation states that, “A sibling partnership is a partnership of brothers and sisters who inherit–totally or in part–a family business developed by the previous generation. There may be other owners in the partnership from previous or succeeding family generations, but typically the ownership and leadership is concentrated among the siblings from the same generation. The most crucial challenges for a sibling partnership are to manage: entitlement and team leadership. Sibling partnerships often struggle with defining what they view as rights versus responsibilities and ownership versus stewardship of the business(es) and family assets”

Over time, this natural transition and conflict (the shift over generations from founder to family owner/managers to cousin consortium) can strain family relationships. The family leader may impede growth because he or she does not have time to make all the necessary decisions. A number of skilled executives may be hired in response, which promotes the development of new cultures within the organization or only the children will manage which creates more conflict.

For the business to grow and remain competitive, institutionalizing behavior and reinforcing the organization with new talent becomes imperative. This is where a Family Code of Conduct (FCOC) becomes a powerful enabler to safeguard the growth momentum. The latter is one critical and important document that most Asian family enterprises sorely lack. Setting this aside can render a family constitution inoperable and useless.

Why is a code of conduct important?

Fundamentally, it all boils down to the structure, policies and accountability. A FCOC is a set of rules that helps manage possible conflicts that might happen. A well-written code provides clarity and imposes rules on family members that are correlated with standards of professional conduct. It also articulates the values the organization wishes to foster among leaders and family members that are active in the business. In doing so, it defines and regulates behavior of every family member.

Briefly, the main objectives of a FCOC are the following:

• Formulates the rules, roles, rights and responsibilities and accountability of family members (4 R’s and A)

• Identifies problems and solve them before they occur

• Creates decision-making simulations by ensuring that policy formation is informed and objective rather than made based on emotion

• Reduces future family tension

• Increases the likelihood of long-term business and family success, survival and prosperity

• Strengthens the family with the experience in coming to an agreement

Additionally, the code provides a set of rules and expectations into which an individual adheres to in compliance with his/her being a member of a family. It is essential for any type of family to prevent issues from arising and hostile situations from occurring among its members. The group dynamics is volatile which makes it very difficult to handle. A FCOC is necessary to establish a common ground among members who have differing points of views and needs.

In the end, a group that values a code of conduct will remain solid and resilient because there are constant elements being followed such as shared goals, family and work standards, scope and accepted behavior and disciplinary measures.