The Challenges of Maintaining a Family-Owned Business

Many business experts claim that 70 percent of family-owned businesses fail by the second generation. The North American phrase “shirtsleeves to shirtsleeves in three generations” is an apt way of describing the phenomenon. With this in mind, some international corporations, like the RGE Group headed by Sukanto Tanoto, have put sustained effort into educating and preparing their founders’ young adult children to assume leadership roles.

Sukanto Tanoto, a self-starter whose entrepreneurial skills helped him parlay his small Indonesian plywood company into a multi-billion-dollar family of corporations, has mentored his sons and daughters to become executives in various aspects of his company’s operations and has given them the authority to engage in active decision-making.

Eldest son Andre, a graduate of Carnegie Mellon University in the United States, began his own comestibles business after starting out with RGE Group company Asian Agri, a producer of palm oil. Daughter Imelda Tanoto, formerly with Citigroup in New York, now plays a major role in RGE’s business operations and in the philanthropic Tanoto Foundation.  Younger daughter Belinda Tanoto focuses on educational philanthropy through her leadership at the Tanoto Foundation and Asian Agri. Youngest son Anderson Tanoto, who studied at The Wharton School of the University of Pennsylvania, assists in the direction of the RGE company Asia Pacific Resources International Limited (APRIL) and with the Riau Ecosystem Restoration Project and other philanthropic efforts.

In granting significant levels of responsibility to the second generation of his family, Sukanto Tanoto has avoided one of the major pitfalls that first-generation business founders can fall into: that of retiring and leaving an ill-prepared, inexperienced second generation at the helm.

Other problems that can confront family-owned companies include planning for general succession, assigning responsibilities for day-to-day decisions and long-range strategy, and settling internal disputes. Some family companies hire non-family members into key executive roles and place them in charge of regular operational matters. Experts advise that clear and consistent communication, as well as thoroughly articulated mission statements and solid succession planning, can mitigate these problems.