Leading a Latin American family business

Families in Business chaired a roundtable discussion at the Family Business Conference in Miami to find how businesses in Latin America are tackling globalisation, what the term "family business" means to them and what role the next generation is playing

Roundtable Panel

Carlos Eduardo Hellmund is the chairman and former president and CEO of C. Hellmund & Co. The Venezuelan company was established in 1862 and exclusively distributes Fuji Photo film and other top brands. Carlos' son Carlos  Jr was elected president/CEO last September.

Ricardo Hellmund is the managing director for TIS Ventures, the Hellmund family's investment and business development vehicle. In five years, the family would like to see 40-50% of company revenues generated outside of Venezuela. TIS Ventures is based in the US.

Dr Santiago Ibarreche is the director of the Center for Hispanic Entrepreneurship at the University of Texas, El Paso. He is also an independent consultant of strategic management, quality management, financial management, and international aspects of management worldwide.

Alejandra Torres Dromgold is chairman of family-owned real estate developer and interior architecture firm Contempo Group. Ninety percent of Contempo Group's business is presently in Colombia and 10% is abroad in financial portfolios.

Andres von Fedak has been the CEO of Danta Corp-SvF Group since 2003. The firm has diversified interests throughout Latin America in the agricultural, real estate, aviation and waste management fields. Around 40% of its businesses are international. He has been responsible for the development of its management structure.

The roundtable was chaired by Mindy Rosenthal, managing director of Campden Conferences, North America, at the premier Miami Families in Business Conference. This year Campden will also be unveiling new conferences in San Francisco and Boston in addition to its  second annual Chicago and third annual New York Families in Business events.

How do you view the role of the family business as it relates to the family?

Torres Dromgold: As a second-generation family business, there has been less of the weight of tradition and the sense of legacy. I think the business is still tied up in the identity of our founder, my father, so it does have some weight but not as much as when it's a fourth or fifth generation business. We want long-term growth and have a very long-term view – but not to generate financial dependency.
 
The company and the dividends are tied more to family initiatives that we have in our family office and our family council, such as education and social investment. We have an external board and external management. The family's role is to uphold the values and play a more passive, external role into the day-to-day management.

von Fedak: We are second generation as well. Our father was the founder, but our generation played a part in the growth of the company – we were all very involved in the operational side of the business. It is a very interesting experience to change the attitude of different family members towards one that is more corporate.
 
Everyone was used to running my father's business his way, but in 2002 we decided to put all the companies together and to be shareholders of that holding company. Now it cannot be run how it used to be. New jobs and salaries have to be structured in such a way so that anyone can be replaced with external management.
 
We like the business to be an opportunity for the family members, but they have to accomplish certain conditions to be able to work as directors. Anyone can clean the floor, but if you want to be a member of the directors' board you have to have a Masters degree and you have to speak at least two languages.

C Hellmund: Our family has a tradition dating back 145 years. Recently, we felt that we should start looking seriously at how we can be an international business, and that's why my son Ricardo is living here in the US and became a US citizen.
 
We have not been very successful in this so far, but that doesn't mean we are discouraged. We have learned a lot, and that continues to be one of our main objectives.

I think we all want big family businesses to continue. We have outside directors and outside shareholders – approximately 75% of the shares are owned by the family and maybe 25% are owned by some of the directors and some of the top executives as well. Right now we are in transition – I recently gave the responsibility of the management to my other son, Carlos Junior.

R Hellmund: As a fifth-generation company, I think we would have a very difficult time selling the business itself. It doesn't help that the company name is our last name. For my father, the family business is one more child, and for me the family business is one more sibling.
 
In addition to the succession issue, I think it's the first time in 80 years when there are three siblings involved in the business, and the first time when the shares are really being diluted among them.
 
The industry we are in is very difficult at the moment in terms of finding new growth and opportunities. So in our international expansion we are actually looking at companies unrelated to our industry, which adds an additional difficulty. We are not only changing geography, we are changing businesses so we are trying to see how we meet both goals.

Ibarreche: We were part of the Spanish community in Mexico, and in many ways one of the biggest problems we have is relating to people outside the Spanish community. My father and my uncle founded a company that was very successful for many years. We had another partner who had one son. But between the other two they had 15 siblings. The second generation was going to have to share with 15 other people, and that automatically took us away. I worked for them for several years and that was my reason for leaving the family business.

At the same time there was a big change in terms of the knowledge and training of the two generations. My uncle was a book keeper, while my father just finished grammar school. The next generation all went to college. There was no attachment to the business in that sense because you don't have a role model to follow.
 
One of the biggest problems they encountered when they tried to sell the firm was the name. What they did was compact it and make it a commercial name. Benito e Ibarreche, S. A. became BEISA, and BEISA was much easier to sell because it was identified with nobody. Probably you (the Hellmunds) could think of something similar to that: CH Enterprises, for example.

Santiago, what are the building blocks that families need to put in place in order to help with the transition to the next generation?

Ibarreche: I think one of the problems with generational change is the personal objectives of individual family members and how close they have grown with the family business, whether they have been involved or not.

A very good example is a large chain of optical retailers in Mexico, called Opticas Franklin, with which I am involved. The founder, who died two years ago, was grooming one of his sons to be his successor, but the son died in an accident. Of his remaining children, two wanted to have their own careers and one wanted to be involved in the family business.

However, the father didn't want the latter to have anything to do with the business because he was, for lack of a better term, the black sheep of the family. I was hired to deal with that.

One of the things that we did was to create what we called the consejo consultivo – a sort of advisory council – which was made up of people outside the family who were not shareholders of the company, but were friends of the family. We had a banker, a lawyer, an accountant, a very successful businessman who was in a different market, and myself.

We deal with both family business and non-family business issues, and if we believe that some of the non-family executives have to be present, we call them to be part of the meeting.

When you have no interest in the business, there are three things that happen: first, you ask the questions that everybody thinks everybody knows – ie, "why did you do that?" Second, they bring the experience from outside and break down barriers. Third, people come with ideas that you've never thought of inside the family business. A lot of the new initiatives have come through the members of the council. 

Torres Dromgold: Our family legacy comes from the early 1900s when three brothers formed a company called Torres y Torres. Over time it became one of the leading hardware stores. It was an extremely patriarchal line of the family, and this lasted for four generations. But in my grandfather's generation, the poor management practices became very obvious because all the children were just groomed to work without having to have any real experience and no real procedures.

My father received an inheritance from that failed company and, in 1969, started developing an architecture and construction company, but he never raised us, the four siblings, to be part of the company. When my father fell ill, he said "okay kids, it's your turn now." I had always had a career outside the business, but I think that situation called on the siblings to get together.

Ibarreche: Do you think that was good or bad for you? 

Torres Dromgold: At the time I felt it was bad as I was not an architect or an engineer, so it involved a lot of soul searching as to what my role should be. Now I work full-time heading up the family office.

Ibarreche: Outside experience is very good when you go into the family business because you have a different
perspective.

Andrés, you mentioned that for family members to be in the business you need at least two languages and a Master's Degree. Are you training your children to become experts in specific areas so they have the option to be in the business? 

von Fedak: No, they will have to make that decision. I will familiarise them with the business and what they are going to receive from us. I will teach them to be proud of what their grandfather started.

We have family meetings in which the grandfather tells them where they came from and what they went through to get that business. I would like them to work in the business but I don't want them to feel obliged to work in the business.

I want my children to have four languages by the time they are 18 years old. They already have two. Now they will start learning the third one, and so that's part of the
selection processes already accomplished.
 
They are at high school in Germany and I want them to finish so that they will learn German and then go on to university in the US.
 
From there they will have to work outside the family business, because it is a condition of the family protocol. The other problem is how do you make it easy for them to exit the business? How do you arrange it so they can leave with a fair price?
 
Also, we have five branches of the family, and our father wants each branch to have one representative on our family council. But let's say my daughter wants to sell her shares and my son is not interested in buying them or anyone else in the family. So who is this third person to represent my son at the board?

Ibarreche: One of the things that has worked in some environments, especially in the US, but I don't think it could work in Latin America, is basically you seperate the business from the family, as if it were an IPO. You don't make it a family business. If it's a family decision, then feelings are going to be hurt. Then you get somebody else to make the decision for you.

You can have three approaches. You can have asset value; you can have opportunity value or future value; and you can have cash-flow. In the example you have given, we have the additional hinderance of the negotiation process, which is what is going to happen with the environment and with the business.

How are you dealing with the rise in family shareholders and what role does globalisation play in your plans?

C Hellmund: The business we have today cannot support the three of us. Even I'm taking a cut in my income. Carlos Jr is the one who is actually holding the fort. That doesn't make me very happy but doesn't make him happy either because it's not enough. So this is definitely a concern. Ricardo likes entrepreneurship. In the US you can be very successful as an entrepreneur, but in Venezuela it's not so easy.

von Fedak: We have already done our third strategic plan and I feel very comfortable with it because I believe we are now on the right track.
 
We realised that there are lots of industries in which it's impossible to be number one because you're not going to beat a large multinational brand. So then we decided to expand globally, which was much more important than being number one in our country or industry.
 
And the more you get to know your strategic plan and the more you know your market, you will discover opportunities and you will be able to start new businesses which may not be related to the business you are in now, but the procedure is very similar.
 
So if you are in the selling business, what difference does it make if you sell an engine or if you sell a car?

Click here to read our web exclusive: Find out how a strategic plan can help in globalisation, and discover the panel's future hopes for their businesses.