The Third Stage of Family Business

Posted on November 27, 2013

by Prof. Enrique Soriano

THE cousin consortium is the third stage of a family business. After having the ownership placed under sibling partnership from the founding stage, the next generation, comprised of the cousins, would then acquire the family business’ stakes as owners and managers. At this point, there would be several families involved (unlike the previous stages when there was only one family) which could be a challenge in arriving at a common vision and in immediately deciding about business and even familial matters. Fortunately, family businesses that are able to stand for many long years — from one generation to another — experience difficulties in many areas. However these family businesses have found that institutionalized governance is the key to success despite conflicting interests.

One positive factor that puts the cousin consortium at an advantage is that the cousins would have better outlook on familial and business disputes. In the past, they have witnessed how their parents and/or grandparents fought over differing ideas and have felt the unsettling negative impact of unwise decisions. There could be a growing hope among the cousins to learn from the mistakes made during the founding and sibling partnership stages of the family business and make better choices.

On the other hand, even if cousins already possess a better understanding of situations, it would still be hard to always share the same vision. Since, there would be a number of families concerned, attaining unity could not be secured at all times. There is a tendency for the cousins to treat situations from the point of view of their own immediate families. One would argue, “Our family started the importation of our products, so we sure have to be the ones to decide on whether or not our company should expand on it”. Regardless of the business context, when the concept of the family would be inserted into the argument, divisiveness would start to emerge. This is why the support from non-family business experts and even family business psychologists would be highly recommended in this stage of the family business. The neutral advice of these people that come from a scientific approach could provide the cousins with the needed guidance to set aside their biases and become proactive.
In a cousin consortium, the depth of involvement of each of the cousins vary. There are those who would be active in the business and there are those who would be passive. The scope of ownership could also be different. Some of the cousins could be majority stockholders and some could be minority stockholders. In this case, the control over the business would not actually be equally balanced. There would be procedures that need to be considered. The non-family members who would serve as board of directors would have to ensure that the objectives of the enterprise would be prioritized.

It is of course very healthy to develop an open communication among the cousins; after all they are one huge family. Any type of organization would benefit from it. However, since they would not be coming from one and the same nuclear family, it would not necessarily follow that they would have the same ideas, background, culture, practices, beliefs, education, skills, levels of understanding and experience. Moreover, they could be living from any part in the world that could add on the difficulty of gathering all at once for a meeting (something which could easily be managed in a smaller group of family like that of the founding stage to sibling partnership). Nevertheless, all these hindrances in achieving an open communication among the cousins could be managed if they would specifically begin the consortium out of willingness to participate, commitment and respect to each other.

What could save the family business that is under a cousin consortium would be to strongly implement an institutionalized governance. The cousins would need to agree to stick with what really matters for the upkeep of the family business and for the maintenance of peace across the several nuclear families concerned. They would need to take the initiative to participate and be informed. The cousins would need to establish a strong leadership powered by their teamwork and their shared vision and mission for the family business to flourish in their time and in the coming generations.

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