Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Family as Source of Business Stability

          There are tons of books and articles of social scientists all over the world that demonstrate that divorce results in tremendous social and economic costs to society.  Children of failed marriages are more prone to drug and alcohol abuse, psychological disorders, and dropping out of school.  Governments have to spend a lot more public funds to support abandoned mothers and their children.  Divorce is not only a moral plague.  It is a social and economic cancer to society.  That is why the Philippine Constitution refers to marriage as an inviolable institution.

          There is another sphere in society in which broken marriages can threaten the common good.  I am referring to the importance of family-controlled corporations in most European and Asian countries.  While I was a Visiting Professor at the IESE Business School, I was already told by the experts there on family businesses that one of their concerns is that family breakups are jeopardizing the very future of some of the large corporations in Europe.   Legal squabbles among the family owners and their in-laws can actually destroy industrial peace within a business corporation.

          A recent article that appeared in the Financial Times (August 5, 2010) by Geoffrey Owen may give another reason why divorce should not be introduced into our country.  It may destabilize the economy by destroying industrial peace in many of our companies that are still controlled by families.  As Mr. Owen wrote, family-controlled corporations are still predominant in emerging markets like the Philippines.  For example, "family-owned groups such as Tata and Birla in India, Koc and Sanbanci in Turkey, and Carso (controlled by Carlos Slim) in Mexico are powerful actors in their domestic economies and increasingly active overseas.  Their operating companies (such as Tata Motors or Tata Steel) are legally independent and often listed on the local stock exchange but are also linked to the controlling family through shareholdings and interlocking directorships.  In that sense, they are very different from a US conglomerate such as General Electric, which has total control of subsidiaries and a dispersed ownership.

          Part of the rationale behind family-controlled business organizations is that they make up for missing or underdeveloped economic institutions.  Where public capital markets are insignificant or even non-existent, business owners are forced to finance themselves internally and to invest surplus funds in other businesses they can control directly.  The ease of decision making in these key result areas of a family business can be easily derailed by messy legal suits usually associated with divorce litigation.  Where the legal system is unreliable and trust in commercial relationships is lacking, owners can cut risk by placing family members in key positions.  They can also develop an internal labor market.  Groups let talented people move between businesses without relying on an external job market rife with fraudulent certifications.  It is said that the best business school in such a country might well be the dinner table of a powerful business family.

          There are more important reasons to object to legalizing divorce in the Philippines.  The threat to business stability, however, can be added to the myriads of social, economic and cultural harm that can come to our country if we allow valid marriage contracts to be broken.  I hope that the President's objection to divorce will include the prohibition to remarry.  It is in fact the introduction of strangers to the original family that can cause chaos in a family enterprise.  Errata:  The Iloilo Business Club will celebrate its twentieth (not tenth) anniversary in 2011.  For comments, my email address is bvillegas@uap.edu.ph.