Ensuring business continuity for family businesses
“Pruning the family tree,” or reducing the number of family members involved in the business, may sometimes be the only final recourse to ensure business continuity and family harmony for family businesses that have lasted for more than one generation.
The primary reason is that the increasing “family complexity” often has negative repercussions for the family and the business. In their article “Pruning the Family Tree: An Unexplored Path to Family Business Continuity and Family Harmony,” two writers, Lambrecht and Lievens, wrote that family complexity is defined “by the number of family members and the kind of relationships established among them, the number of generations alive at a given point in time and so on.”
This is an increasing phenomenon in the Philippines as more family businesses are entering the second and third generation. It has become apparent that as the number of family members involved in the family business rises, it is assumed that the complexity increases. Extended family ownership, which means ownership held by numerous family shareholders, is the primary cause of an increase in ownership complexity.
The ideal solution that has been recommended is that family business relations should be formalized through the introduction of strategic management, corporate governance, and a family constitution. “Pruning the family tree” is not just a last resort but may even be a prerequisite to professionalizing management in a family business with the ultimate objective of ensuring the continuity of the family business.
See Ensuring business continuity, by Elfren Sicangco Cru for BusinessWorld Online, Manila Philippines.
Tags: Family Business, Family Business Continuity, Philippines, succession planning
