Lance Gokongwei - Commandments on Family Business

Running a family business isn't easy.  In fact, in business circles, many people talk about how the 1st generation start the business, while the 2nd generation makes it grow, only to be brought down by the 3rd generation.  Here are a few tips from Lance Gokongwei, president of the JG Summit Group, one of the successfully-ran family businesses in the Philippines.    Great lessons to follow for those who are looking on to build their business empire as well.



In summary, the unwritten commandments of the Gokongwei family are as follows:




Commandment no 1: No In-laws
- Over the years they learned that it is best not to let in-laws participate in the business because it brought unnecessary tension in the family.

Commandment no. 2: No moonlighting.
- If you work for the business, you must give it your full time and attention.  You're not allowed to have sidelines.

Commandment no. 3: No conflict of Interest.
- As a rule, the company will not transact with businesses of other family members.

Commandment no. 4: No work no pay from the Company
- A family member must work to receive a salary. 

Commandment no. 5: Personal assets should be kept separate from Company assets.
- Use your own money for personal expenses.  No freebies from the company for your personal use.

Commandment no. 6: Pay the right salary for the right job.
- Pay must be commensurate to the family member's contribution in the business.

Commandment no. 7: Being family is no guarantee of employment
- Sometimes professionals are more qualified than family members.

Commandment no. 8: Avoid working directly under one's parents at the start of your career
- Parents can sometimes be biased in giving feedback.  You'll learn more from someone else.

Commandment no. 9: Give the Next Generation Wings 
- Successfully passing on the business to the next generation.  Implement a fix retirement age.



Commandment no. 10: There can only be one boss.
- Establish a process to appoint the leaders.

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Read the full article from PhilStar.com below.

10 Commandments of the Gokongweis
by: Mary Ann Ll. Reyes

MANILA, Philippines - No in-laws.
This is the first of 10 unwritten commandments which John Gokongwei, founder of the Gokongwei group of companies, followed in running the family business “the Gokongwei way.”

Lance Gokongwei, president of JG Summit Group, shared his and his father’s secrets in running a successful conglomerate and in effectively transitioning from a company that is basically family-owned to one publicly-owned and listed.

At an Ateneo forum yesterday, the younger Gokongwei said that during his father’s generation, his aunts (married to his dad’s brothers) and his mother were involved in the business, but the elder Gokongwei soon discovered that this was not always ideal.

“There were situations where some of the marriages did not work. Loyalties change. Sometimes relationships between the different in-laws from the second generation become strained. Feelings get hurt. It is tricky deciding which in-law is more deserving, which is smarter, which would do a better job,” he said.

And so for the second generation, led by Lance, the rule of no in-laws was instituted – with some exceptions.
The second commandment is no moonlighting. Lance said the family rule is that if one is working for JG Summit, one can only own passive assets that do not require their attention such as property, shares, bonds and the like.
“If you work for the company, you must be either fully in the business or completely out. In running the business, you must be actively involved, with full-time commitment and focus,” he explained.

No conflict of interest is the third commandment. As a family member, one cannot set up a business involved in supplying or transacting with the JG Group of Companies.

“Around 20 years ago, my family learned this lesson. In one of the family manufacturing companies we acquired, one sibling was involved in an outside business supplying the company. Another was involved in a business that sold the final product for commission, and another was involved in a business that sold the scrap. As each party was concerned with his own interests, nobody was thinking of the interest of the family business,” Lance said.

The fourth commandment is “no work, no pay from the company.”

“The family member must work to receive a salary. There should be no fake pay. You must have a real, full-time position in the company. In my family, we do not receive allowances after graduating from college. If as a parent you want to give your child moneyfrom your own salary or dividends, that’s your prerogative. But the family is not going to pay for this,” he pointed out.
Fifth is that personal assets should be kept separate from company assets.

Lance said that personal expenses should be paid from one’s own pocket – including personal travels via the family-controlled Cebu Pacific and personal hotel stay at the family-owned RLC hotels, and even shopping at the Robinsons retail stores.

Sixth is pay must be based on contribution to the business. He said that in order for the family member to live and think independently, the family business must pay the right salary for the right job, but the pay must be adequate enough so that the family member will not be dependent on the parents for support.

“The amount you will receive is based on merit and not who you are in the family totem pole,” Lance added.
The seventh commandment of the Gokongwei group is that being family is no guarantee of employment.
“There comes a time when there is not enough jobs for everyone in the family. Oftentimes, professionals may even be better in running the day to day operations,” he said.

Eighth is avoiding working directly under one’s parents, specifically at the start of a career.
“When I first started, I did not report to my father. I worked for my uncle and another manager. If you are too close to the person, you usually won’t get good feedback. The parent might spoil the child or he may be too harsh. There is also danger of bringing issues and arguments home,” he noted.

Ninth is “give the next generation wings.” Also part of this rule is “have a fixed retirement age” for the business.
“I have seen many families where the patriarch passed on the responsibilities to the next generation successfully and some passed it on too late,” Lance cited.

The tenth and the most important rule is that “there can only be one boss.” He explained that this rule is related to succession. The role of the family and owners is to prepare a board to appoint a successor.
“You must establish a process to appoint the leaders. My dad and his brothers established a clear process on who can decide who the next leaders will be. They created an outside board whose role is to appoint and fire the CEO. This is critical so that a business can smoothly pass on from generation to generation, and achieve longevity,” Lance stressed.
  
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3 comments:

  1. Business Cash Advance Says:

    It's nice of you to share to us this fact. Well, it is quite important that we all have to have a basic knowledge about the things around us, and we should know how to take care of them.

  2. Personal Finance Apprentice Says:

    Thank for sharing!

    From the commandments its obviously very important to separate business from personal matters.

    The no in-law/family thing is tough but necessary. Plus, avoiding nepotism (and even just the appearance of it) is good for business.

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