Keeping It in the Family: What SMBs Should Know about Running a Family Business

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Getting from point A to point B

When it comes to starting a company, roping in family members may seem like an ideal option for aspiring entrepreneurs – and with good reason. Make no mistake, family-run businesses in Asia are a force to be reckoned with.

Culturally predisposed for success

For example, the lack of red tape allows a family business to make quicker decisions, take larger risks, and follow more consistent and stable investment strategies than a company with external shareholders would be able to.

A conventional enterprise may struggle to establish a corporate identity and inspire employees with its vision and purpose, whereas a family-run business would have less of a problem in these areas. Chances are, everyone in the company would be united by strong emotional bonds, shared values, and have a greater sense of responsibility and accountability.

Additionally, while regular firms have to consistently offer incentives to attract talent to stay, members of a family business are more inclined to commit for the long term and be steadfastly loyal.

In Asia, which still strongly values the success of the community that one belongs to over one’s own individual happiness, these cultural norms apply when working with one’s family and can further buttress the traditional strengths of a family business.

Unexpected challenges in running a family business

However, that’s not to say that running a business with family doesn’t carry its own unique challenges. The very factors that account for the success of a family business – such as Asian values and a lack of red tape – can also lead to its own undoing.

A business hierarchy, for instance, can be tricky to manage within an Asian family business. As respecting one’s elders is paramount, one issue that Asian entrepreneurs may face when hiring older relatives is ensuring that their authority is respected, without causing them to lose face.

Improper delegation of work and lack of supervision over employee performance – out of trust or fear of friction – can also jeopardise a family business.

Singapore-based property developer Hiap Hoe is a grave testimony to the fact. A few years ago, founder Teo Guan Seng was forced to consider dissolving the family business after accusations that he had been misappropriating company funds as well as allegations that one of his sons was not doing his job well.

Compensation of family members can also open up a can of worms. Salary and benefits (when compared to another family member’s) can very easily lead to feelings of resentment and angry misunderstandings among employees as all parties seek to avoid being disadvantaged.

Ensuring that your family business thrives

With proper management, however, the potential pitfalls that threaten every family business can be avoided.

To maintain harmony between business and family relations, Richard Eu, CEO of Eu Yan Sang International, emphasises the need to prioritise the company’s interests over personal ones. He also believes in reaching a consensus on major decisions and trying to ensure that everyone feels that their opinion is heard. To that end, his family members attend an annual retreat before arriving at an agreement that is then presented to the board.

Employing an impartial third party to help develop policies – including the issue of compensation – for the family business can also be one way to avoid conflict and resentment.

Christopher Po, CEO and president of Century Pacific Group in the Philippines, who engaged a trusted non-family advisor to help develop the governance blueprint for his family business, called it “the most worthwhile investment that the family made”.

Perhaps the most important lesson of all comes from Eric Landolt, head of family advisory in Asia-Pacific for UBS. “Constant communication is key,” he told The Straits Times in a 2012 interview. “Discussion is still necessary to make roles clear and create clear ownership structures, to prevent competing interests among family members from forming.”

Keeping your business in the family can be a wise move, as a family structure brings many natural strengths to a company’s growth.

However, before recruiting your family members to join your enterprise, be sure to deeply consider the thorny issues that you may encounter along the way and, more importantly, how to avoid them. With foresight and good communication, you can smoothly navigate the path to building a successful and enduring family business.