BY ATTY. MARK S. GORRICETA
THE JAPANESE have keiretsus, the Koreans have chaebols, we Filipinos, especially Ilonggos, have close family ties as a deeply ingrained value.
According to a 2018 data from the Harvard Business School, about 67 percent of the global business is generated by family businesses. According to a study of the Asian Institute of Management, about 120 of the Philippine Stock Exchange’s 275 listed firms are still considered family corporations based on several ownership and governance indicators.
In Iloilo, four out of five businesses are still considered family-owned. Worldwide, the average life span of a family enterprise is only 25 years. Only three of 10 family firms survive after the first generation while only one of 10 is still around by the time the third generation comes of age.
Family enterprises that are able to transition from one generation to the next encounter various issues which range from structural problems to succession and family conflicts. Now we come to this question: how do we balance the informality that family enterprises have grown accustomed to and withstand the test of time in their businesses?
The closest legal concept to what we call “family corporations” are close corporations. A close corporation is one whose articles of incorporation state that:
(a) it shall not be listed in any stock exchange or make any public offering of its stocks;
(b) its stocks are not held by more than 20 people; and
(c) the stocks are subject to certain transfer restrictions.
Close corporations embrace the informalities of family corporations. Section 100 of the Revised Corporation Code states that actions taken by the directors of a close corporation without a meeting properly called shall nevertheless be valid subject to certain conditions.
Aside from incorporating a close corporation, leaders nowadays are aware that to be able to keep the enterprise across several generations, there is need to formalize. Family enterprises cannot rely on the fact that they belong to the same family as an excuse to use compassion to resolve its conflicts.
Family values will always be material; however, to adapt through changes, there is a need for the family members to maintain a degree of professionalism when dealing with the business enterprise. There are those that have created their family constitutions to ensure that there are procedures to be observed by the family when dealing with the business. The family constitution may include discussion on the qualifications on family members who can participate in the business and in what capacity they will be serving, including prohibitions or disqualifications, as the case may be.
Running a family enterprise or a family corporation will require a degree of professionalism if the directors desire to sustain their business. Family enterprises must envision where they want to be and the hurdles that they may encounter – while maintaining the respect, trust, and confidence in each other because before anything else, they are family.
Atty. Mark S. Gorriceta is Managing Partner and head of the Corporate Group of Gorriceta Africa Cauton & Saavedra (www.gorricetalaw.com). He is a well-recognized expert in the fields of Capital Markets, Securities Law, Mergers & Acquisitions, Taxation, Technology Law and Real Estate./PN