MOST, if not all, cases that have been filed with the Securities and Exchange Commission (SEC) involved family-owned businesses. These cases have divided families, pitting brothers against sisters and vice-versa. In not a few instances, some children have even formed alliances to take over the family business by getting rid of their parents. Ironically, the parents of those children ventured into such business precisely to provide a better future for their children.
It is unfortunate and painful enough to witness the loyalty of children shifting away from their parents due to the lure of money and power. It is even more unfortunate when the parents, who started and nurtured the business to grow, lose control of the company’s board of directors.
With their loss of the board chairmanship, parents could end up as total strangers in their own companies. How could this happen? It is understandable that parents would ask themselves how their children, who were once the “apple-of-their-eyes,” do such a horrible thing to them?
Making the family-owned corporation financially successful is a good legacy by parents to their children. But do parents often get duly rewarded for their efforts to make the family-owned business profitable?
Is it not laudable to read in disclosures that businessman John Gokongwei is now chairman emeritus of JG Summit Holdings Inc., the family’s listed holding company and, possibly of various units? The same is true for businessman Henry Sy Sr., who is honorary chairman of the SM group, particularly SM Investments Corp.
Even the Zobels exemplify unity inside the group of companies that they either fully own or control. Jaime Augustus Zobel and his younger brother, Fernando, both representing the younger generation of the family, now run the Ayala Corp.(AC)-based conglomerate. |They alternate in serving as chairman of the board or president of subsidiaries.
However, unlike the Gokongwei-owned JG Summit, Mermac Inc., which is not a PSE-listed company, is at the top of the organizational chart of what is now known as the Ayala group owned by the Zobels.
Mermac appears as AC’s majority stockholder. In a definitive information statement (DIS), it is listed as holder of 303.689 million AC common shares, or 48.925 percent of 620.726 million outstanding common shares. It also shows Mermac as holder of 159.684 million voting preferred shares, or 79.842 percent of 200 million voting preferred shares.
The internal wars that take place inside the boardroom of listed companies usually target control of family-owned corporations. These are internal struggles that pit brothers against sisters, who, in some instances, unite against the family patriarch. What an irony!
As a business reporter, I have covered an internal quarrel among the members of a family over the distribution of money. It was an inheritance suit that emanated from a corporate war that reached the SEC’s courtroom when family squabbles over a company were still under the SEC’s jurisdiction.
(Note. In June 2001, the SEC lost its power to litigate stockholders’ fights when the newly amended SEC code transferred such authority to the regular courts as designated by the Supreme Court. The SEC retained jurisdiction over cases pending before the commission.)
An SEC insider has estimated that almost all cases filed with the commission’s panel of hearing officers were corporate squabbles as children fought for their right to actively participate in their company’s management. From this assessment, one could easily conclude that some of the heirs sued for control of the businesses left by their parents.
Due Diligencer’s take
Parental legacy is often lost when family members assert their right as heirs to the throne. Should it be the other way around, meaning heirs asserting their right to the throne as family members?
A corporate charter that provides for a peaceful management succession in a listed company could be the solution. This would lessen if not totally eliminate the impact of internal wars, especially when the protagonists “wash their dirty linen” in public.
As a matter of precaution, company owners may want to include a provision on succession in the by-laws of their corporations. By doing so, they would avoid the same pitfalls that eventually drag down their businesses. Listed companies suffer more if they do not adopt such a provision on management transition.
Who among the children should inherit the chairmanship or the presidency of a listed corporation? Public investors may want to know, but may be afraid to ask, from not only one particular company but all listed companies. If they ever do, will the answer or answers be forthcoming? Just asking.