Policy Papers
Definition 1
Family Firms are those in which multiple members of the same family are involved as major owners or managers, either contemporaneously or over time (Miller, Le-Breton Miller, Lester, Canella, “Are Family Firms Really Superior Performers,” Journal of Corporate Finance, Vol. 13, Issue 5, 2007).
Definition 2
Family firms are those in which the family controls the business through involvement in ownership and management positions. Family involvement in ownership (FIO) and family involvement in management (FIM) is measured as the percentage of equity held by family members and the percentage of a firm’s managers who are also family members (Sciascia and Mazzola, Family Business Review, Vol. 21, Issue 4, 2008).
Definition 3
A family enterprise is an economic venture (enterprise group) in which two or more members of a family (family group) have an interest in ownership (owners) and a commitment to the continuation of the enterprise.
Definition 4
The family business is a business governed and/or managed with the intention to shape and/or pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.
Definition 5
A firm of any size is a family business if:
1. The majority of decision-making rights are in the possession of the natural person(s) who established the firm, or in the possession of the natural person(s) who has/have acquired the share capital of the firm, or in the possession of their spouses, parents, child, or children’s direct heirs.
2. The majority of decision-making rights are indirect or direct.
3. At least one representative of the family or kin is formally involved in the governance of the firm.
4. Listed companies meet the definition of family enterprise if the person who established or acquired the firm (share capital) or their families or descendants possess 25 percent of the decision-making rights mandated by their share of capital (European Union definition 2009).
Family Enterprises or Family Businesses in the Philippine
It is estimated that about 80% of registered businesses in the Philippines are family owned. And most big corporations are still family-owned or family controlled with the founding families still at the helm, namely: Metrobank (George Sy Family), Ayala Corporation (Ayala family), J.G. Summit Holdings (Gokongwei family), ABS-CBN and Meralco (Lopez family), and SM Prime Holdings (Henry Sy family).
It is ironic that a sector which in most developed and developing countries absorbs about 50% to 80% of the workforce among the MSMEs is not considered a relevant statistic in most statistical data gathering in the Philippines.
There is a single proprietorship, there is a partnership, there is a stock corporation, a non-stock corporation, there’s even what we call a close corporation.
We don't see a tick box for a family business or a family corporation in any business registration process.
This simple classification needs to change. A category called the family business, the family enterprise and/or a family corporation must be recognized as a business category or business classification.
Why would I want to advocate for the recognition of Filipino family enterprises?
The question really is: Why would I not?
Current Situation
When you look at any development programs for business, what immediately comes to mind is the acronym MSME.
MSME stands for micro, small, and medium enterprises.
According to the Senate Economic Planning Office or SEPO, MSMEs in the Philippines is defined as any business activity or enterprise engaged in industry, agri-business and/or services that has:
(1) an asset size (less land) of up to PhP100 million; and
(2) an employment size with less than 200 employees.
MSMEs: What do we know?
With the exception of a very few, all business enterprises start as a micro enterprise.
In more detail, a micro enterprise has an asset size of up to PhP 3,000,000.00 and will have 1 to 9 employees.
If it succeeds the first 3 to 5 years it will be a small enterprise.
A small enterprise has an asset size of PhP 3,000,001.00 to PhP 15,000,000.00 and employs from 10 to 99 employees.
If that same enterprise approaches its growth stage it will be lucky enough to be a medium enterprise.
A medium enterprise has an asset size of PhP 15,000,001.00 to PhP 100,000.00 and employs from 100 to 199 employees.
Based on these categories, it is classified as micro, small or medium regardless of the type of business ownership (i.e., single proprietorship, cooperative, partnership or corporation) as summarized in the table below.
In 2010 according to the Department of Trade & Industry (DTI), there were a total of 777,687 business enterprises in the Philippines.
Using the List of Establishments of the Philippine Statistics Authority (PSA), DTI published a total of 957,620 business enterprises operating in the Philippines in 2020. Out of the total business enterprises, 952,969 (99.51%) are MSMEs. The other portion of 4,651 (0.49%) are large enterprises.
Of that 99.51% MSMEs, micro enterprises constitute 88.77% (850,127) of total MSME establishments, followed by small enterprises at 10.25% (98,126) and medium enterprises at 0.49% (4,716).
You can see the proportion visually through the pie chart below.
MSMEs are important
If for employment reasons alone, MSMEs should already be a significant contributor to the economy already.
In 2010, MSMEs generated 3,532,935 jobs or roughly 62.32% of total employment provided by business enterprises in the Philippines. In 2020, the MSMEs created 5,380,815 jobs or equivalent to 62.66% of total employment with large enterprises contributing 37.34%. (Senate Economic Planning Office (SEPO), 2012, #)
In terms of value added, the MSME sector contributed 35.7% of the total with manufacturing contributing the largest share of 6.87%. Wholesale and retail trade and repair contributed 6.58% followed by financial intermediation with a share of 6%. (Department of Trade & Industry (DTI), n.d., #)
Within the sector, small enterprises accounted for the largest share of 20.5%. Medium enterprises followed with a share of 10.3% while micro enterprises registered a share of 4.9%. Among small enterprises, wholesale and retail trade and repair contributed the most with a share of 4.07% followed by manufacturing with a share of 3.82% while financial intermediation was next with a share of 3.35%. (Department of Trade & Industry (DTI), n.d., #)
For medium enterprises, manufacturing accounted for the biggest share of 2.77% followed by electricity, gas and water with a share of 1.92% and financial intermediation with 1.87%. For micro enterprises, wholesale and retail trade and repair represented the largest contribution of 1.73%. (Department of Trade & Industry (DTI), 2021, #)
The problem I want to solve
By advocating the recognition of the family business or a family enterprise as a business classification or category, we will see the overhaul of our MSME development strategies. We will look at development programs for business in a different perspective.
We will see enterprises not just as a business system but a concept with a multi-dimensional element like family dynamics and ownership structure.
Instead of seeing family firms as part of MSMEs, we will see family firms in different sizes: micro, small, medium, and large.
The constraints to solving the problem of MSME development
The constraints to solving this problem is our definition of business enterprise based only on their asset and workforce size. Because of the limited scope of our definition, we have a limited understanding of issues challenging business enterprises.
This is how we understand business enterprises: Micro, Small, Medium, and Large. Basically we are limiting ourselves to MSMEs + Large Enterprises.
By this definition, this is how government and the business community sees the larger portion of the business sector as shown in the diagram below:
It’s a very simplified way of describing the overall profile of the business ecosystem in the Philippines. Unfortunately, all development programs are designed and implemented based on this definition. Just as the definition is limited in scope, so is the logic behind the program design for developing MSMEs.
The adverse effects if the problem is not solved
We will continue to assume that MSMEs have a single dimension: The Business System. The term micro, small, and medium are technically a definition of enterprise based on asset size and workforce size which are purely business terms hence belong to the business system.
In reality, enterprises owned by families have the following systems:
Business System
Ownership System
Family System
The current assumption about business enterprises will lead to programs designed only to address the issues or gaps under the business system. We will fail to see the other dimensions of an enterprise which is the family and the ownership.
When I was involved in designing an enterprise development program for economically disadvantaged families, there were dynamics getting in the way of successful outcomes. Most MSME development programs did not take into consideration the challenges women entrepreneurs particularly face in starting an enterprise.
These dynamics include challenges of living with an abusive spouse or an apathetic one. Children pursuing education or careers not aligned with the enterprise model. The special kind of leadership role required of a parent involving the children in the business. These are dynamics constantly happening in the family system of family enterprises.
An issue of who takes over the enterprise if the primary beneficiary such as the wife or the husband drops out in the middle of a program. Or, assets being used by the enterprise but are not owned by the proprietor or not owned by the spouse. These create ownership succession issues.
These challenges do not fall under any category like finance, marketing or operations management. Program developers simply ignore the existence of these issues and let the beneficiary figure it out. In reality, beneficiaries are incapable of figuring it out so they simply drop out.
The prospect of low sustainability will constantly plague MSME development programs for as long as we address only one dimension of the MSME beneficiaries.
We don’t have statistics on successful outcomes in MSME development programs. What we have are anecdotes.
There are no statistics on the number of family businesses, women entrepreneurs, number of generations in a family business, etc. We don’t even have data as to how many family firms are single proprietorship, partnership or corporations.
Selected Reform
The one policy that can change behavior and which could be the new status quo
The one policy that will most likely change behavior is to put in the forefront and acknowledge officially that there is such a thing as a family business or a family enterprise by celebrating its role in the economy and MSME development.
The best policy instrument for my reform
An executive order to be issued by the Office of the President or a local provincial executive celebrating and acknowledging the role of family enterprises or family businesses in the business ecosystem.
A republic act to be enacted by either the Senate or the House of Representatives creating a business classification or category called family business, family enterprise or family firm and requiring a definition for purposes of business formation.
My Policy Reform is a legitimate reform agenda
The stakeholders of this reform agenda aside from those in government are MSMEs, workforce, supply chain, women entrepreneurs, and students who dream of assuming leadership in their respective family enterprises.
Impact
I believe that this reform agenda will affect at least 90% of the stakeholders in the MSME ecosystem. On this assumption alone, it is significantly going to affect the stability and growth of the economy and employment generation.
We will cease to consider women related issues as a unique issue. Gender issues become part of family issues and ownership issues. It is a concept that will be addressed as part of family culture rather than a political or business agenda. It will have a more enduring impact on women. It will pave a way for a stronger culture of women in business.
Sustainability
There is an expected self-sustaining mechanism in the envisioned reform instruments to allow the reforms to endure beyond the support of advocates and Asia Foundation.
The reform will create a framework of citizen engagement at the barangay level by creating a family enterprise council to represent entrepreneurs.
Political Feasibility
Politically it should have champions from among elected political leaders since it will benefit a very large constituency: family business owners, Filipino workforce, women, and most of the voting population.
I don’t have a list of possible champions at the moment who will invest their political capital. A more probable scenario is to get a line up after the elections.
Potential Opposition to the Reform Agenda
There will be certain stakeholders who may oppose the initiatives for this reform. Examples of these are:
Line agencies who will see the mechanics of the execution as added work or added metrics of performance.
Foreign investment advocates who will see increased competitiveness of local family enterprises as a challenge to incoming investors competing against local industries.
Just as there will be opposing stakeholders to this reform, there will also be natural allies of the agenda.
Some of the possible organizations or parties that can be invited in the coalition are also in the DE Mentorship program.
Organizations who are already advocating the following reforms may want to be part of the coalition, such as:
Those advocating gender equality and opportunities for the differently abled and marginalized.
Those already supporting enterprise development programs for MSMEs.
Those advocating for creative grassroots financing for women, the differently abled, and marginalized.
Local government units already managing enterprise development programs for their own local MSMEs.
Those advocating for increased employment opportunities and stability of employment for the local workforce.
Technical and Political Actions
The following action currently being considered:
- Those advocating gender equality and opportunities for the differently abled and marginalized.
- Those already supporting enterprise development programs for MSMEs.
- Those advocating for creative grassroots financing for women, the differently abled, and marginalized.
- Local government units already managing enterprise development programs for their own local MSMEs.
- Those advocating for increased employment opportunities and stability of employment for the local workforce.
Technical Actions
The following are some technical action considered:
Educate this constituency about the three-systems (family, ownership, and business) that constitute the family enterprise system.
Gather the “common pains” MSMEs usually attributed to the business system of the family business and insert pains also found in the ownership and family systems)
Research, collate, and compile all relevant development programs for MSMEs, statutes, and regulations affecting MSMEs.
Create a channel or a clearing house of information for the advocacy to engage constituencies and allies. (Currently building a website for this purpose)
Political Actions
The following are some political action considered:
Educating the MSMEs about who they are mostly: a family enterprise.
Build a constituency that will acknowledge a family enterprise as distinct business classification targeting organized business support organizations.
Find advocates in these organizations.
Acquire alliances for the technical actions such as the review of relevant and existing statutes.
Improved Situation
The Picture of an Improve Situation
This is how the future will look like with the successful completion of the reform agenda:
The Office of the President or the Office of the Provincial Governor of a province issues an executive order declaring the last week of September as a Family Enterprise or Family Business week and another executive order providing logistical and technical support for the celebration. This is either one (1) presidential EO or eighty-one (81) provincial EOs.
A national law defining incorporating the following:
The words “Family Enterprise”, “Family Business” or “Family Corporation” with a tick box in the application for trade name or corporate name in any business application process most specially in but not limited to the Department of Trade & Industry, Securities & Exchange Commission, the Board of Investments, the Philippine Export Zone Authority, and the business permit section of the local government units.
The incorporation of new data sets in the survey questionnaires of the Philippine Statistics Authority (PSA) dedicated to understanding more the family business enterprises in the Philippines.
Classifying automatically the family business as a priority beneficiary in economic recovery programs after a disaster.
The incorporation of new data sets in the General Information Sheets specific to family corporations in the Securities & Exchange Commission (SEC)
The restatement of objectives or outcomes that distinguish the family enterprises among MSMEs in national development programs for MSMEs (examples: GoNegosyo, KMME, etc.).
The creation of a Window specific to the family business in the Development Bank of the Philippines or any bank whose primary purpose is to support priorities for development.
The redirection of enterprise development programs such as GoNegosyo and KMME to businesses classified as family enterprises.
Special scholarships for family business founders and their children for taking a business curriculum developed specifically for family business.
A special authority for higher educational institutions (HEIs) to create a curriculum for family business.
A special requirement to allocate a substantial portion of research of HEIs to family business.
A special internship for children of family enterprises in Senior High School to be interns in their own family business.
A special voucher for Technical Vocational Institutions offering NC-I and NC-II courses to cover the scholarship of children of family enterprise owners. These courses must support the business model of the enterprise.
