In the Appendix of Ruby Payne’s book, A Framework for Understanding Poverty, Philip E. DeVol writes “poverty robs people of their future stories and the commitment to education.”,
This quote made me realize why the debate about education, especially public education reform in the Philippines is so important. About a third of our population lives below the official poverty line. For children who line in or near poverty, the public school system is the only realistic option for education. If, as has been intimated by those speaking for government, the public school system cannot produce graduates with either enough skills to be employed or to go on higher education, then we have a serious problem on our hands.
We must begin with a working definition of the purpose of education.  As a tax-paying citizen, I think that the minimum purpose of education would be to equip a child with the knowledge and skills necessary to make him a functioning, responsible and productive member of society.  As a parent, I want the educational system to also give children the necessary skills and flexibility to allow them to pursue options that are practical as well as personally meaningful and satisfying.
Making Knowledge Relatable
One of the most basic of objectives of education is to impart knowledge. Those who define knowledge differentiate between knowledge that is “out there” and knowledge that is interacted with, reflected on, connected and absorbed. As we all know from our experience in classrooms, knowledge is best absorbed when it can become practical, when we can see the real need for it.
This explains why addition and subtraction are difficult in the abstract but become simple when taught within the practical application of buying goods, totaling up what we owe, paying and receiving change. Knowledge becomes more relatable and easier to learn when it is taught in a way that relates to real experience.  
I was thinking of that concept this week when I realized that we could be teaching the most important concepts of running a business as early as grade school.  The concepts of pricing and break-even analysis require no arithmetic more difficult than the four basic functions.  It seemed to me we could be creating an entire new generation of possible entrepreneurs simply by changing the way we taught our children.
However, I quickly realized that these concepts would have no meaning for children unless they had some way of making the learning concrete.  This led me to thinking about student-led micro-enterprises.  That, however, is a story for another day.  For our purposes today, the real point is that knowledge is best acquired when it is taught within a student’s world frame.
However, from the point of view of purpose, it is also important that the student is able to learn the applications of that knowledge within a world frame that will allow him to function in society.
World Views
In her book, Understanding Poverty, Ruby Payne explains that a large part of the challenge involved in educating what she calls the “generational poor” is that the educational system is not designed to make allowances for what she calls the “hidden rules” of the socio-economic classes, which she divides into: “Poor”, “Middle Class” and “Wealthy”.
Payne first begins by explaining that there is a particular concern with the generational poor, those who have been poor for over two generations (as opposed to those who are poor only by current circumstance but have had the chance to be exposed to the “hidden rules” of another class).
As example, let us see how Payne explains by focusing on the registers of language (Joos, 1967).  She explains that, while the poor have a reference for the frozen register of language (language that is always the same such as the Lord’s Prayer), the poor often have no reference for the formal register of language.   The formal register of language refers to the standard syntax and word choice of work and school.  For the generational poor, the primary register of language is casual, the language used between friends.
The use of the formal register is an essential requirement for a well-paying job.  Inability to use the formal register can be picked up within the first few minutes of a job interview. Payne explains that the ability to use the formal register is one of the hidden rules of the middle class.
Since the generational poor often have no access to formal register at home, their main exposure to it will be at school. This creates a burden on public schools that private schools would not have. Students from the middle class have access to the formal register at home and, often, by middle school, even among friends.  
What this means is that teaching in our public schools needs to be different from teaching in our private schools because the needs are different.
However, whether students come from rich or poor families, whether they graduate from public or private schools, all students need to be able to function in the same society.  This is the challenge to the school system.
Continued next week.
You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

On October 5, World Teacher’s Day, the Philippine Department of Education is expected to formally announce its proposed one-year kindergarten (the K in K plus 12) and 12-year basic education plan.  It is a plan that has drawn considerable and well-deserved attention.  At stake is an estimated 5-year implementation budget of P100 billion and the futures of millions of Filipinos, especially the 20 million students currently in the public basic education system.
The proposal, based on Aquino’s campaign promise (Promise 21) is to “go from our current 10 years (6 elementary, 4 high school) to a K-12 system in five years starting SY 2011-12.”  Aquino’s word-for-word promise: “I will expand the basic education cycle in this country from a short 10-year cycle to a globally-comparable 12 years before the end of the next administration (2016).” 
In order for us to understand whether this makes sense, we must answer at least four questions.  What is the purpose of basic education? What are the most important areas of improvement in the current system? How does the proposed solution address these? Does the proposed solution prioritize properly given the time and resources available?
But before we go through the scientific process, let’s examine the rhetoric.
Rhetoric
Implicit in the wording of Promise 21, and much of the rhetoric around the national debate, is that achieving 12 years of education will make the local educational system “world-class”.  In fact, Education Secretary Luistro has been reported as saying that this would make the “country’s education cycle ... at par with the world’s standard.”
This leads one to believe two things: first, that there is an internationally defined standard and that is 12 years and second, that the length of the education cycle is the primary determinant of quality.
Mike Luz, former Undersecretary of Education and education adviser to Aquino is privately and publicly passionate about the topic.  In a June interview with ANC’s Headstart, Luz waxes eloquent "If the rest of the world, which has done much better than the Philippines, has gone to 12-years or more, I don’t understand how we can think we’re smarter."  “We’re not proposing something different, we’re proposing to catch up with the rest of the world. It’s a quality thing.”
He says that the problem is really about quality and that the Philippines is only one of two nations in the world with a 6-year primary and 4-year secondary cycle.
For his part, Luistro has explained that the purpose of the reforms is to ensure that high school graduates are ready to be productively employed even without completing college.  To his credit, Luistro has been extremely careful about explaining that any changes must be based on a review and simplification of the current curriculum. 
Winnowing
Before we attempt to evaluate, we must first separate the relevant from the irrelevant, the logical from the merely rhetorical. 
Is the Philippines one of only two countries in the world with a ten-year education cycle?  Perhaps.  Are we one of only two with a six-year grade school and a four-year high school?  Possibly. 
The UNESCO data does show that over half of the over 200 countries with data have a primary plus secondary cycle of 12 years.  Less than ten countries had systems that allow students to enter tertiary education with only ten years of schooling. Other countries had cycles from 11 to 14 years. 
Does that mean 12 years means quality? If longer truly meant better, then the almost 200 countries that have more than 10 years of pre-tertiary education must be doing better than we are. Unfortunately, that’s not true.  What that means is that merely increasing the number of years in the education cycle won’t lead to better quality education. 
Gleaning
Now let’s examine the proposed solution.  My personal alarm bells began to ring when I realized that the structure of seven years of grade school and five years of high school (seven plus five) had been articulated before the curriculum review and the expected curriculum change.  That this single 7 plus 5 system is expected to deliver both college-readiness as well as immediate employability (with vague references to vocations) only increased my discomfort.
Does information from international experience help us understand? While proponents are quick to point to statistics to support the prevalence of the 12-year duration, no one seems prepared to claim that 7 plus 5 is a standard structure in any of the major countries we would tend to use as a benchmark for education. 
The US system has 5 years of elementary school, 3 years of middle school, and 4 years of high school. The UK system has 6 years of primary school and 4 years of secondary school, with some secondary schools having 2 years of sixth form. The Singapore system has 6 years of primary school and 4 years of secondary school.  The Hong Kong system used to have 6 years of primary school and 7 years of secondary school.  HK has recently decreased secondary school duration to 6 years, clearly indicating that longer is not always better.
Reality Check
Expert evaluation of our ability to achieve MDG 3, universal primary education, by 2015 is low across all of the indicators. From 1990 to 2005, we had regressed on two of the four metrics (net enrolment and literacy), were flat on one (proportion of grade one starters reaching grade 6) and improved only on one (63% to 68% on primary completion rate).  The Philippines ranked in the lowest 10% of participating countries for both grades 4 and 8 in the 2003 TIMMS, a gauge of learning achievement in math and science.  The mean percentage score on the National Achievement Test was 65% (75% passing) in 2008. 
Clearly, there is a quality problem and clearly it begins very early. Experts have called the public education system weakly governed, under-resourced and over-extended. 
Of course, the full plan is yet to be unveiled. However there are already some rather easy questions we can ask.  If time is the true challenge, why can’t we begin by increasing the number of class hours per day?  Public school students spend only between 4 to 5 hours a day in school, versus the 7 to 9 of private school students. How is Singapore able to deliver quality within the same six plus four system? If there are two goals, why can’t we articulate two systems?  If we need to live with the current resource constraints, why can’t we offer flexibility within the four-year system? Even if we eventually move to a twelve-year system, why do we have to keep the two-cycle structure? If we expect to simplify the curriculum, why do we expect to increase years? Shouldn’t purpose (curriculum) come before structure?
Secretary Luistro, please help me understand.

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

For Filipinos, the week began with the new president’s very first state of the nation address (SONA).  The president began with a promise to tread the straight path and ended with a call for sacrifice and change.  What we all want to talk about, of course, is the middle.
You could say that there was little fit between my expectations and what was delivered.
A SONA is the nation’s chief executive talking to the people.  It is an opportunity for the president to explain what is going on in the country and what he plans to do about it.  It is an opportunity for the president to send a clear message, an opportunity to engage the people. Since this was a first SONA, I expected the president to present his plan for the nation. 
To be entirely fair, there was, in fact, a list of tasks at the end of the address – some very specific ones.  There was, however, no clarity concerning how all of these hung together into a big plan.
And that is what we look to our leaders for: a plan, a direction.
Whose dream is it anyway?
It felt a little bit like falling into a dream without an architect.  For those of you have not watched the film Inception, a little bit of background.  The Film’s premise is the existence of technology that allows a trained team to take a subject into a dream world and engage his subconscious.  In the movie, Ariadne (Ellen Page), who is being recruited for the job of architect, is told: “You create the world of the dream.  You bring the subject into that dream, and they fill it with their secrets.”
In the movie, the technology has been used successfully to steal secrets.  The movie’s storyline, however, revolves around a new application for the technology, the laying down of a fresh idea: inception. 
This, I figure, is what great leaders do.  Management literature says that great leaders create great changes. But change must begin somewhere.  And here, I think, is how change begins. Change begins with planting the seed of an idea.
In management classes, we say great leaders begin with a vision, a dream of what can be.  We often wonder where that seed begins.  Is it one man’s dream that he can articulate so well that other people cleave to it?  Or is it the dream of many that one man has been able to discern and articulate so well that they recognize it as theirs?
In the movie, the architect creates the background of the dream but the details and the people belong to the dreamer, the subject.  As the dream moves on, the people of the dream begin to recognize an outsider in the dream.  They converge on this outsider and seek to take him out of the dream.  This, they say, is why the planting of a new idea is deemed to be impossible.  The dreamer will recognize it as “other” and will reject it.
The same is true of vision statements and plans.  Followers only embrace a vision if they can find something of themselves in it, something they can see as not “other”.  When we talk about entrepreneurs, we say that in the beginning, the entrepreneur is the dreamer and the enterprise is about his dream.  As the enterprise grows, the dream must grow big enough to be embraced by others, because the success of the enterprise begins to depend on many others.
Foundation
In the movie, successful inception relies on the fit between the dreamer’s true feelings and the idea that is to be planted.  In real life, successful change begins with a fit between the vision and the reality of the needs and abilities of those who need to be part of the striving towards the vision.
The first step of promising true service has been taken and that is certainly well done.  A commitment to the pursuit of justice has been made and that was also needed. A starting list of projects and concerns has been made but there are critical omissions.
The president talks about streamlining but does not identify the plans for growth.  Which industries will be growth engines?  He talks about excesses at the NFA, grain terminals and roads but is silent about land reform. He speaks about health but is silent about reproductive health.
So we wander in half-seen vision, waiting for the architect to show us the fullness of his dream.  We are, fortunately, a people long in patience and high in hope, famously easy to please.
He says to us, to help and sacrifice, to wait.  He also tells us to dream again.
For the country
I am one of those who did not vote for this president.  Now that he is president, I am also one of those who hope he succeeds.  That is what the country needs.
This is a government that ran on a platform of eliminating corruption in the public sector.  That needs to begin with eliminating corruption in the private sector. So, as I wait for the plan, I will do my bit. I will always ask for an official receipt because I refuse to make it easy for others to cheat on their taxes.  I will ask my driver to follow traffic rules and regulations – even when I am late to a meeting.  
If the architect finds a vision to fit our dream, we can embrace him as our own. But I will start planting seeds now because I need to remember that in this dream of the country, we Filipinos, we are the dreamers.
You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.

 

This week, the World Bank released its latest Philippine Quarterly Update, in which it recommends the creation of a “credible plan towards fiscal consolidation over the medium-term.”  The report release coincided with a large-scale power disruption caused by typhoon Basyang (international name: Conson).  The Quarterly Update also arrives on the heels of the release of the “Doing Business 2010 Report”, in which the Philippines ranks 144 out of 183 economies (down from 141 the year before).
It could be taken as a confluence of signals for the current administration, currently half a month into its term. 
Fragile
What this recent typhoon has underlined for me is how fragile our basic infrastructure is.  I understood the extent of the power loss as a result of Milenyo or Ondoy. Those storms were unusual.  This recent one, to my untrained eye, just did not seem unusual enough to cause the extent of disruption it did.  Certainly, it makes sense to discuss the accuracy of weather forecasts, but it seems to me that this last disruption points to something far more basic about the country’s infrastructure.
Unfortunately, this fragility extends to more than just power. Just in the last few weeks, the Manila international airport has had to divert flights because its aging equipment could not provide the support for instrument landings required during low visibility conditions.  Residents of Metro Manila have also been warned about the possibility of water rationing.
Like everyone else, I do know that there are assurances of new equipment coming in – both for weather forecasting as well as for the airport.  I am certainly thankful that some things are being done, much in the same way I was thankful for Meralco’s response to putting power back on. 
However, I do worry about how low our standards and expectations have fallen. Couldn’t the new equipment have been installed before the old ones started failing?  How long will it continue to be acceptable for electricity and communication lines to fail at the current frequency and scale?
Engine
The robustness (or lack of it) of our basic infrastructure is important not only because it affects the day-to-day life of Filipinos but also because it is a critical factor in making the Philippines an attractive location for business.
Unfortunately, as the Doing Business Report shows, our problems go far beyond the fragility of basic services. A closer look at the rankings reveals some truly depressing statistics.  Of 24 economies studied in East Asia and the Pacific, the Philippines ranks 21 out of 24 in “ease of doing business”, 23 out of 24 in ‘ease of starting a business” and “paying taxes”, and 20 out of 24 for both “dealing with construction permits” and “employing workers”; ranking after Vietnam, Mongolia, Malaysia, Thailand, Indonesia and non-Hong Kong China.
What I found truly amazing was the general lack of policy response to the Doing Business Report.  There seem to be a great many conversations going on about fiscal reform and managing deficits.  However, this seems to be a matter of putting the cart before the horse.  Fiscal management for a country is a bit like cost management for a business.  It’s important, but without a top line, no amount of cost reduction is going to create a margin.  The real question is this:  What is the growth engine going to be for this country? 
Enterprise
Time magazine, in its 12 July edition, ran a story concerning recent arrests made of Russian spies in the USA.  In the article by Bobby Ghosh, Leon Aaron, director of Russian Studies at the American Enterprise Institute is quoted as saying “They were trying to find out how policy is made and how entrepreneurs operate.”
Obviously, even Russia realizes that entrepreneurs and the businesses they create and run are key to the success of a nation. A quick survey of failing and thriving economies in Europe would lead quite quickly to the conclusion that a climate that is friendly to business is critical to economic growth.
There are many opinions concerning development, ranging from the market-centric US approach to the state-led China Approach.  On one thing there seems to be a certain level of agreement, business is critical to economic growth and free enterprise can be a powerful engine for growth.  In our region, the fastest growing economies are powered by enterprise. 
Many people are quick to point out that there is a strong tradition of entrepreneurship among both the ethnic Chinese as well as the ethnic Indians.  This, of course, is often mentioned in the same breath as the observation of the relative lack of such a tradition in our own countrymen.  Many of the largest businesses in the country are owned or controlled by foreign nationals. Are we really doomed to be a nation of employees?
The good news is that the spirit of entrepreneurship seems to be strong in the younger generation of Filipinos.  The bad news is that they have received neither clear direction nor clear support from the government.  While other countries are busy identifying key engines of growth and developing enabling laws and infrastructure, we seem to be mired in talking about failing equipment and fiscal deficits.
We need to begin thinking about moving forward.  That means growth and engines, not just fiscal reform and fine-tuning. We need to put the horse before the cart.

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

It’s the first week after inauguration.  Unsolicited suggestions are still the order of the day.  And media seems to be having a field day baiting the new cabinet members.
The level of attention being focused on the individuals being appointed to key positions is, of course, neither unexpected nor unwarranted. The appointment of a leader, after all, is a virtual announcement of policy direction.   
It is one of the most important decisions a new leader makes.  Who will he appoint to key positions?  How does he decide?
New Team
Even the definition of key position can become controversial.
In the corporate world, it is not unusual for a new executive to bring in a new executive secretary.  For many executives, the executive secretary is personal assistant, alter ego and chief of staff.  It is a position of trust and, in many ways, one of power.  It is certainly a key position. 
In fact, any position that provides access to the corridors of power, especially access to the president’s unguarded moments can be important.  This explains why the new president is also allowed to change the individuals in the presidential residence.
I don’t think anyone would argue that the ability of those in key positions to work well with the president is critical to the nation moving forward.  This is true of any organization.
How much latitude a new chief executive should have in appointing people to critical positions is, of course, an entirely different question.  There are questions of competence, track record, and integrity.  There are also questions of fairness and respect for individual rights.    For the most part, there are clear rules concerning which positions are appointive and which not.  There are also rules about what happens to career executives when they must relinquish appointive positions.
The more interesting question, at least for me, is how these new individuals are chosen.
What was he thinking?
It was the question on everyone’s mind after reading (or even hearing) about McChrystal’s controversial interview with the Rolling Stones, an interview with the by now famous blurb “Stanley McChrystal, Obama’s top commander in Afghanistan, has seized control of the war by never taking his eye off the real enemy: The wimps in the White House.”
Obama did not inherit McChrystal.  The same Rolling Stones article reports that Obama appointed McChrystal after sacking Gen. David Mckiernan, who was then commander in Afghanistan, the first time in 50 years a general had been relieved of duty in wartime.  Obama had no real history with McChrystal.
Interestingly, McChrystal’s replacement, General David Petraeus does have some history with the US president; one that Time correspondent Joe Klein describes as “prickly”.   The conflict between Obama and Petraeus is long-standing and public, much in the way that the conflict between the Democratic party and the military over how to handle the conflict in Afghanistan is long-standing and public.
It is not an unusual situation; having equally competent individuals locking horns over opposing approaches to a common objective.  The real question, of course, is whether, they will be able to work with each other for the common good.
Courage
My first reaction to the appointment of Petraeus was admiration. I thought it was brave, the decision to appoint someone who has the track record, competence and backbone to provide negative feedback.  Of course, it is also a high-risk decision.  If the relationship between Obama and Petraeus deteriorates into unproductive wrangling, then many lives can be needlessly lost.  On the other hand, if they are able to respect each other’s opinion and work through their differences, then they can accomplish much together. For Obama and Petraeus, this task is complicated by the fact that they are part of organizations that have very strong and public stands concerning the war they are waging.
The ability to turn conflict into something positive is a critical skill for any manager.  The sad truth, though, is that many managers address conflict with avoidance.  The problem with avoiding conflict is that it often also means preventing real issues from surfacing. 
It is, of course, a matter of basic human nature.  We don’t like conflict.  The negative effects of following this basic human preference is so prevalent that, in 1972, a word was actually coined by American psychologist Janis to describe it: groupthink.  Thomas Strentz, in his book “Psychlogical aspects of Crisis Negotiations”, explains that decision-making can become dysfunctional when the pressure to conform is high.  He further explains that this is particularly true when the leader is arrogant, dynamic, controlling or charismatic. In such organizations, Strentz explains, members are encouraged to moralize and conformity is rewarded.
It takes competence as well as confidence to work with subordinates who are unafraid tell you when you are wrong.  It also takes enormous personal courage to perform a job that may require you to publicly pursue a policy that is different from the stand of organizations you happen to be a member of.  
These, of course, are precisely the matters media will watch. How will Aquino handle Luisita?  How will Luistro address the question of sex education?  There are many other questions we could pose but that is the crux of the matter. How important is “getting along” going to be? And how will we define public good?
 

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

I am writing this from a hotel room in Bali, where, for a week, my task is to help conduct a course on public-private partnerships in the health sector. It is the end of day one and we began the day with defining the private sector.  The discussion provoked a vivid memory from a different workshop on the same topic, one of a lady who objected to the term as not being inclusive.  She believed that the term private sector meant only for profit enterprises. 
It reminded me of a similar dynamic at a workshop on corporate social responsibility (“CSR”).  In fact, I found this dynamic so striking, I wrote about it for the Asian Institute of Management’s alumni newsletter.  What follows is adapted from excerpts of that article. 
A Modern Approach to CSR
A private sector practitioner summed it up in one sentence: “Our first order of business so often seems to be convincing people that we are not up to anything evil.”
The CSR practitioners in the room were, in general, supporters of the modern approach to CSR (and, in fact, business) - that CSR is neither simply philanthropy nor expense.  It is a legitimate area both of concern and accountability within a corporation because it is a means of enhancing shareholder value.  The notion is that corporate profit need not come at a social expense; that there is, in fact, a win-win scenario.
The non-profit representatives in the audience seemed to range from wary to suspicious, and the enterprise representatives responded with caution.
What I found striking was the reaction of the younger generation in both sectors. The younger participants seemed be both more critical as well as more open. 
I thought this was particularly interesting since the Millennials are becoming an important segment in at least two of any corporation’s stakeholders: its consumers and its employees.
A History of Mistrust
“Isn’t CSR just a new term for public relations?” is, of course, something we have often heard.  Evidence from certain industries, notably the tobacco industry, can be particularly damning.
Critics point to evidence that the tobacco industry seems to have used CSR as a means to continue to put its brand in front of the public, thereby subverting policies and prohibitions against tobacco advertising.  But even outside of the tobacco industry, there is a history of mistrust.  It is easy to look through the history of capitalism and point to the misery that is the foundation of such industries as coal mining or cotton processing. 
In fact, many non-profit organizations were established precisely to guard marginalized sectors of society from those who are “in power”.  For the many non-profit organizations established to protect the poor and the downtrodden, government is a less- than- ideal partner, but a partner that must be dealt with.  Corporations, on the other hand, are the enemy. 
While the more positive “win-win” perspective is slowly gaining advocates, the history of mistrust continues to cast a shadow. Even among the youngest members of the workforce, the Millennials, those born in the last two decades of the 20th century, there is a generally cautious attitude concerning the real purpose of CSR.
The Wireless Generation
For marketers, the connected generation is rapidly becoming one of the most lucrative and elusive of the market segments.  Generation Y, the Millennials, gives us a foretaste of Generation Z. 
Many marketers think of Generation Y as the wired generation.  Generation Z is the wireless generation, the generation whose web lives are just as, if not more, active than their real lives. 
These are the market segments that expect to be able to pattern their schedules and their lives in accordance with their personal preferences.  Their purchase decisions tend to be more practical, less brand-driven.
While this is challenging for marketers, it can be even more challenging for human resource managers.  The challenge of engaging Generation Y comes at a time when there is a growing belief that talent has become critical for corporate performance
The traditional incentives of more money and increased responsibility are losing luster.  The Millennials want more and that more is not money. They are looking for a life, not just a career; they are looking for meaning, not a trajectory.  .
Generation Y is a generation of community; they expect to be able to pick and choose the quality of the people they spend time with. They care about the ethics about the Company they work for; and, compared to previous generations, are more likely to leave if they are unhappy.
Neither is Generation Y a generation that will be satisfied by slogans and “feel good” messages.  They are used to researching, comparing and analyzing. In many ways, they are a “show me” generation.
They don’t have the historical baggage of some non-profit organizations but they bring a clear-eyed lucidity to the employer’s value proposition and its conduct.  Corporations would do well to take them very, very seriously.
You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

“I really do cook well, Mommy.” Almost in a whisper, a mixture of mischief, surprise and pride in her widely rounded eyes, my daughter shared what she had learned after seven days sampling Paris food, including two Michelin-starred meals.
Now, understand. We both appreciated the level of skill and care it took to create the flavor, presentation and ambience that is part and parcel of a Michelin-starred meal.
We were thinking, really, about flavor. Of course, those of us whom she has cooked for had always assured her that she was a brilliant cook. However, until we set out on our eating trip through Paris, we had never had any real basis for determining how well she cooks.
Let me not belabor the particular meals that we had.  That is a matter for another time.  The point here, of course, is that it is virtually impossible to pass judgment upon relative quality without some sort of a benchmark.  In the case of food, we figured that a Michelin-starred meal (3 stars, if I remember correctly, from the empire of a chef who has 9 stars over 3 restaurants) in Paris, the home of fine food, would be a great benchmark.
Apples or Oranges
In management, we call them indicators; the measures that indicate how well we are doing.  When we ask questions concerning who well the business is doing, whether our growth is fast or slow, whether our business is large or small, the answer is always “it depends”.  If you have grown 30% but the industry has grown 60%, then the growth is relatively slow.  Everything is relative.
When we ask how well we are doing, it is always relative to some sort of comparator.  This means that, in addition to being clear concerning what are you assessing, you would need to identify what metric/s you would use to assess performance. For example, do you measure sales in units or in currency?  Do you count orders or collections? Finally, you would decide what you would compare your actual performance to. Sometimes, this is simply the target set up in the budget.  This, though, can sometimes lead to attempts to game the budget. This is why, the comparison base is most often some “best of breed” metric called the benchmark. 
Once a benchmark is set, it usually becomes the long-term target.  This explains why the choice of a benchmark can be so important.  It is a key influencer of behavior, which explains why benchmarks tend to be set pretty high. In fact, in much of management literature, it is an implicit assumption that the targeted benchmark is whatever is indicative of best practice across multiple industries and markets. 
In addition to benchmarking using “best of breed” comparators, for certain metrics, there are “rule-of-thumb” targets.  For example, many finance people will tell you that they look for a current ratio (current assets to current liabilities) of at least 1.  
Finally, another basis for evaluating performance is to measure changes over time.  In the ideal situation, we look for improvement as time passes.  This is especially important when we implement programs meant to improve key measures of performance.  How do you know that a new software suite has improved performance?  You need to measure before, the baseline, and after, the result.
Logic of Performance
This business of identifying metrics and comparators is never easy.  It becomes even more difficult at the corporate level when all of the different metrics must be managed in order to make sense.  For example, sales performance targets can often be easily achieved by sacrificing margins, but that is not a desirable approach. This particular dilemma would be easily solved at the general management level as it is clear that sales without profits are not desirable. 
However, decisions at the field level are less straightforward.  In the field, decisions are based on individual level perceptions, which are often determined by the design of incentives.  This explains why performance management, especially performance measures and compensation design are such a critical part of ensuring that appropriate decisions are made at all levels of the enterprise.
In addition, even at the top levels of decision-making, balancing metrics can be difficult.  Growth is desirable but growth requires cash; and a serious cash deficit can destroy an otherwise healthy business.  Even more importantly, many managers, even senior managers, assume that any growth that involves a positive margin would result in increasing the value of the Company.  Those who understand the concept of “threshold margin”, however, know that the margin needs to be above the threshold, not just above zero, for growth to actually increase corporate value.
A clear sense of what is truly important and how the different metrics affect each other is the foundation for a clear strategy.  Actually getting things done requires more. It requires clarity in roles and objectives, appropriate governance mechanisms, and sufficient resources. 
But it all still begins with those two important things – benchmarks and baselines.

The concept of threshold margin was discussed in an earlier column on valuation. You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

In a few short weeks, the Philippines will have a new President. 
While there is predictable euphoria in certain sectors, the general mood seems to be more somber, hopeful but cautious.  Of course, this is unsurprising in a presidential race marked by decisions made on the basis of elimination as opposed to competence or platform.
Already, there is a growing list of unsolicited advice for the new government, both from those whose job is to publicize their opinions as well as from those who simply want to add their voice to the growing choir.  One might theorize that this is a result of the paucity of coverage of the President-elect's platform of government; or, perhaps this is simply evidence of increased citizen engagement.
Starting Point
I am certainly not immune to this temptation. In fact, one of our favorite topics over the last few months has been that question: What do you want to see in the plan of the new government?  
Over coffee or beer, I have tended to count off the standard answers: health, education, poverty, freedom of information.  But that, of course, is simply a list of concerns.
A platform of government, one that can provide a foundation for a six-year program, must obviously be more than a raft of band-aid solutions.  It needs to start with objectives; it needs to begin with consideration of something very basic: What is the purpose of government?
Purpose
Thomas Hobbes, 17th century philosopher, believed that the fundamental role of government is to provide safety and public order. The root of this definition of purpose is social contract theory: that individuals give up certain freedoms in exchange for government provision of security and public order.
Wikipedia quotes John Stuart Mill: "Security of person and property, and equal justice between individuals, are the first needs of society, and the primary ends of government…" (1861)
This basic purpose has since expanded as the definition of security has expanded. From the earliest days, the definition of security has always involved both personal security as well as the security of property and the protection has always been against violations from within national borders as well as from concerted attack from outside the nation's borders.  Hence, military defense has always been seen as at least partly a function of government. 
However, the definition of security has, in more modern times, extended to notions of economic security.  Hence, in addition to safety and public order, governments are also now expected to provide certain basic services. In addition, as society and civilization became more complex, the list of basic services has grown to include not only infrastructure services such as access to roads, electricity or water but also to such services as social welfare programs. In many countries, governments are also now expected to protect and ensure certain basic rights.
Maya Pillai (Buzzle,com) identifies five purposes of government: defense of the borders of the nation; protection of the national identity; representation for purposes of protecting and safeguarding the interests of the nation; provision of appropriate infrastructure; and social welfare.
Provider
Since much of the literature concerning the purpose of government uses the rhetoric of provision, many governments have tended to focus on delivering services.  There are two key challenges to providing the basic services of government: capability and equity.
In order to be able to provide services, governments must have the necessary resources.  In many countries, including ours, resources are severely constrained.  This explains why the focus of the new government must be on development.  Poverty, one of our most persistent challenges cannot be truly addressed simply by reallocation.  The economy itself needs to grow.
A failure in equity, coupled with lack of resources means that those who are at the bottom of the pyramid are doubly oppressed.  This explains why the rallying cry of international development organizations is inclusive development.  This does not mean handouts.  What it means is ensuring that the structures are in place to ensure that all have an opportunity to seek wealth. In certain cases, of course, what this means is the provision of at least the very basic of services, safe water sources for example.
Finally, in order for government to be able to provide these services over the long-term, a development program must be sustainable.  This means no quick fixes.
Direction
This means then that a program of government must, like a corporate strategy, be grounded in some theory concerning what will work; and that theory must take into account the external reality of the global economy as well as the internal reality of our nation.
By way of example, the United Nations, which focuses on human rights, bases its suggested approaches on analyses of the processes of exclusion. 
The goals of our government are far more wide-ranging.  It will require a larger, analytic frame and deeper analysis.  Only then can directions be set.

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.

I am a martial law baby.  Our curfew was a government curfew, not a parental one. I belong to the generation who were children when man first walked on the moon, the generation that witnessed the birth of personal technology.  In my generation, women could aspire to a career, not just a job. I belong to the generation that believes in the possible but understands that making it happen has a price. I am a member of the generation of transition.  I am one of the oldest members of generation X
I am a child of the youngest of the silent generation, the generation that experienced the war, not as young adults but as children.  Their earliest memories are of struggling for survival.  They are the ones whose houses are never without emergency supplies.  Canned goods are an essential element in their pantries. For my parents, life is about surviving.
My children belong to generation Y. They take technology for granted. They live in a world where women are part of the leadership landscape. They want a life, not a career.  They know money is important, but that other things are more important.  They are always multitasking. They are loud, brash and passionate. They think the world needs saving.  And they want to save it.
Monday, the tenth of May 2010, during the first automated election in the Philippines, all three generations of our family chose the candidates we felt should lead our country.
Power
The reins of government and many corporations are in the hands of the generation between my parents and I, the baby boomers. The baby boomers never experienced war.  They were raised by the older members of the silent generation, the ones who were adults in the war.  They were raised in anticipation of a better world.  They were a protected, closely nurtured generation.
While the silent generation was the generation that created industry and built things, this was the generation that sought freedom. When the generation of rock and roll and "live and let live" decided to join the work force, they brought their own brand of freewheeling ambition to the corporation. This is a lucky generation.  They were pampered and fawned over. This is the generation who believed they were special; they believed they could have everything and acted on it. They live large and loud. This is the generation that inherited the foundation of industry and government and recrafted it into the world we now live in.
There is much to admire in this generation.  This is the generation that set out to change society, and, in many ways, they succeeded. They rode the crest of one of the longest economic booms in modern history. They became the poster children for conspicuous consumption. This is also the generation that tends to value the ends over the means.
On my dark days, I imagine that this explains why good governance is so difficult to attain, why greed so often wins over conscience, why convenience so often trumps justice. 
Succession
In this election, for the first time, many of those seeking the highest positions of power are from generation X, those who were children in the sixties and early seventies. 
Generation X has often been called savvy but also amoral, perhaps because this is the generation that quietly decided that personal conscience, not religious dogma or society's expectations would be its guide.
This is the generation that challenges rules. This is the generation that was shaped by the oil crisis, the fall of the Berlin wall, the EDSA revolution, the Asian crisis.  In many countries, individual wealth peaked with the baby boomers.  Generation X is the generation that cannot look forward to a life better than its parents. 
Generation X is also often called the neglected generation, living in the shadows of the generation that believed they could have it all. This is my generation.
I went to UP during the interregnum of peace, after the first quarter storm and before the demonstrations leading up to the EDSA revolution. Nevertheless, I belong to the generation that believes rules should make sense. I belong to a generation that, in spite of martial law, took to the streets when we felt there was a wrong to be righted.
This is not a brash or loud generation. This is a practical generation. This is the generation that is dealing with the backlash of the unbridled enthusiasm and development of the previous generation. This is the generation that has to believe that oil might really run out, that global warming might actually be true.
This explains why so much of the rhetoric from my generation reeks of cynicism and burden.  We are the generation that needs to deal with finding out that the monster under the bed might be real. We are the generation that gets to pick up the pieces.
Future
This year, also for the first time, my children, who are generation Y, voted in an election.  This year, for the first time, because my children's friends are connected to me on Facebook, I was able to listen to Generation Y thresh out its opinions concerning the candidates.
The millenials are multiply and constantly connected.  They get their information and their feedback instantly.  They are used to multiple sources of information, often conflicting.  They are used to weighing conflicting opinions and making judgments.  They are, perhaps, the generation most suited to making the complex decisions needed to be a responsible voter.
It is our good fortune that they are also the generation that wants to save the world.

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.

This week, we celebrate mother's day.  By design, this week, the US-based organization, "Save the Children" released its annual "Mother's Index", which saw the Philippines slip six notches to 48th in a global ranking of 77 less developed countries. We are talking about a country that exports doctors, nurses and health consultants to the rest of the world.  We are talking about a government that has publicly declared health as a primary area of concern; in fact, a government that only recently announced that it has achieved universal health care coverage.
Next week, millions of Filipino voters will trek to voting precincts all over the country to vote for a new president.  One of the most important factors being taken into account in the evaluation of these candidates is their stand on reproductive health, and presumably, how much they care about the rights of women and children.
Coincidentally, fifty years ago this week, the US Food and Drug Administration approved the birth control pill.
Have we become the victim of a cosmic joke? Or is there a message here somewhere?
Mother's Index
Contries are divided into three groups for the Mother's Index.  Developed countries such as Australia, Norway, Greece, Spain and the US are in Tier 1.   Least developed countries such as Ethipia and Chad are in Tier 1.  The Philippines is in Tier II, with countries such as Chile, India, Thailand and Korea.
The Philippines ranks 48th; the same as Lebanon.  Virtually all our near neighbors outrank us, Malaysia at 38, Thailand at 11, Vietnam at 31. But let's not look at rankings. The rankings are a composite of many things. Let's look at the most critical statistics. 
In the Philippines, the lifetime risk for maternal death is one in 140. It is one out of 280 in Vietnamn (half our rate!), one out of 500 in Thailand (less than a third of ours) and one out of 560 in Malaysia (a fourth our rate).  The numbers for children are equally depressing.  32 of every 1000 children born in the Philippines will die before they reach the age of five.  The under-five mortality rate for Vietnam is 14 in a thousand; it's 14 in a thousand for Thailand; it's 6 in a thousand for Malaysia.
The irony is that maternal and child mortality have been in the forefront of the health sector reform effort for over a decade.  The Philippines is one of the countries that adopted the millennium development goals, two of which have to do with reducing maternal and child mortality.
Choosing a leader
As disappointed as we may be with the voter attitude with respect to the presidential elections, we must admit that it is heartening to note that certain factors have become matters of popular national concern.  A candidate's stand on the reproductive health bill is one of them.
Unfortunately, under the fine rhetoric of many of the presidentiables, you will find a politician treading the fine line between courting the informed voter and toe-ing the Church's line.
Of the many characteristics of this year's presidential elections, nothing is as frankly depressing as the fact that many voters are voting by elimination, choosing, not who they believe is most qualified to lead, but who they believe might beat those they do not wish to govern.  Even more disappointing is that many of those who are most public about their choice of candidate have chosen using questionable logic.  And even these are better than those who choose without study, who allow others to form their opinions and choices for them.
Many people are opting out of these elections, believing that the election is rigged or their vote won't count.  Many people are voting for candidates they don't like because the candidates they do like are "not winnable".
It is no wonder then that so many of the younger generation are disillusioned about the elections.  We, the older generation, have not given them much to be hopeful about.
Choosing Change
But hope is not lost. Just today on my social network of choice, I found a link to an article by James Soriano, a college sophomore.  He ends by saying "I might not change who will win, but I can advocate voting in the right way.  That alone is worth voting for." 
Elsewhere on the same site, I find the voices of generation alpha, the millenials, and I am hopeful.  As a teacher and practitioner of management, I know that a tidal wave of change begins with slight swells below the surface.  In the dusty annals of management, this process of creating historic changes is called innovation diffusion.
Margaret Mead perhaps said it best "Never doubt that a small group of thoughtful, committed citizens can change the world."
Fortunately for you and me, that small group has joined our electorate.  I will let one of them speak for their generation.  Following is an excerpt from an article written by Tinka Herrera for The Asian Manager":

We are the Millennials, over a billion strong, the people born between 1980 and 2001. We were online before Google became ubiquitous, we started sleeping next to our mobile phones in our teens (if not earlier), and we don't let a day pass without logging on to our social networking sites of choice.
Our generation has been called lots of things-outspoken, demanding, brash, brimming with entitlement, even bratty, but also incredibly bold, inquisitive, experimental, progressive, wildly inventive, creative, hungry for community and kinship, and comfortably united by (and in) technology.
Also, we think we're going to save the world.
Maybe they will save the world. They have certainly taken the first step; they have chosen hope over despair, action over inaction, and meaning over materialism.  I am happy to share this choice with them.
You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

This week, we continue the discussion concerning preparing the second generation for more important roles in the organization. 
Of course, this task of preparation is something all organizations, not just family corporations, must tackle.  The advantage of a family corporation is that they have the ability to manage this process through the family business council, entirely apart from the formal organization of the firm. 
There are many ways practical, hands-on experience can be provided in a low-risk atmosphere and they all fall under some form of understudy mechanism. One method would be to "supersize" the management meetings and include the next layer of management.  Another way would be to include the next layer of management in Board meetings.  Both methods allow the next generation of management real experience with the practical realities of managing the firm.  However, these mechanisms can make formal management processes more cumbersome.  This can be a special concern at the Board level; hence, shadow boards.
Shadow Boards
A Shadow Board can address two core concerns for family businesses preparing for succession:
a) prepare future senior managers for the responsibilities of general management; and
b) prepare future owners for the responsibilities of governance at the board level. In fact, in companies where the current board is not fully operational, the shadow board may be one mechanism for ensuring that governance in the next generation is more professional.
A Shadow Board addresses the latter objective by providing members with an opportunity to learn about Board Level governance.  In addition, if the candidates take on the role of "Shadow General Managers", the Shadow Board could assist in further preparing the candidates for their future roles in general management.  Clearly, this latter mechanism does not have to take immediate effect as it would, of necessity, only be implementable once the Company is ready to formally identify the candidates.  Also, care must be taken to ensure that there is a pool of candidates for each post, rather than a single candidate.  Hence, the role of "Shadow General Manager" would be one that rotates across the candidate pool.
So how would a Company go about establishing such a mechanism?  Who would be in the Shadow Board?  How often would it meet?  What would its agenda be?  How would it interact with the rest of the family business? Would it have any formal responsibilities or authorities?  What is the lifetime of a Shadow Board?
Composition
For preparing the new generation for being owners, ideally, a shadow board would include at least one member per family.  If there is great heterogeneity in ages, this may not be practicable.  The urgency would normally lie with the members who expect to receive shares in the near future.  This would normally depend no only the ages of both the current and the next generation but also on readiness.
For utilizing the shadow board in order to prepare candidates for management succession, then all candidates for management would need to be part of the process. They can be part of the process as members of the shadow board or as shadow executives.
Finally, regardless of which objective the shadow board is being created for, it is important for there to be members who can provide guidance and coaching.  In fact, a certain level of mentoring may be desirable especially for candidates for general management.  These "mentors" can either be members of the current board, existing executives, external independent consultants, or a combination of the above.  What is important is that, together, these "mentors" cover the main competency areas - e.g. strategy, finance, marketing, operations and organization, governance.  It is also important that they have the time and ability to provide the necessary guidance.  Finally, they must have the confidence of the current generation.
Mechanics
The main purpose of the Shadow Board is for training.  From this point of view, ideally, the shadow board would function much as the real board does.  This means that they would receive a copy of the minutes of the real Board (cleansed, as appropriate) and tackle the agenda of the real Board.  Ideally, all of the reports that go to the real board in order for the real board to meet would be available to the Shadow Board.
The Shadow Board decisions would be recommendatory to the real Board.  This means the Shadow Board meets one or two weeks before the real Board. 
Ideally, the shadow board would meet quarterly or even monthly.  If this is more often than real Board meetings, then the company could create an ad hoc group that would review what the shadow board discusses and their recommendations.  This small group could be a subset of the family business council, and could include the general managers of each of the family businesses.  The shadow board mentors would meet would be the bridge between the shadow board and this review group.
Getting Started
The ideal way to begin shadow board sessions is with training on governance (this is the standard training board members take) and attendance at a group-wide strategic planning session.  It is actually possible to ask a subset of the shadow board to lead preparation for this group-wide strategic planning session.
Shadow board sessions, of course, end when the succession is fully implemented.  In certain cases, one-on-one mentoring sessions, especially for new general managers, may be useful to ease the first few months of the transition.

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

Continuing our discussion concerning succession in family corporations, we now consider how to best prepare the next generation for the responsibilities they are about to take on.
Talent
Succession involves two things, the transfer of management responsibility and the transfer of ownership.  This means that preparing the incoming generation for their new roles also means sorting the generation based on what roles they are expected to play in the future.
All members of the incoming generation are potentially future owners.  Hence, theoretically, all would need to be prepared for the responsibilities of ownership.  However, for practical purposes, the preparation could be done in batches.
Selection of those who might be candidates for management or directorship would require individual evaluation and this evaluation would cover such things as individual situation, native ability, education, experience, and personal goals.
Roles
Once the talent pool is sorted out, the next step is to create a plan for development.  This begins with understanding the responsibilities involved in their future roles.
For those who are expected to wear the owner hat, there are two levels of readiness.  First, there is the level of readiness expected of an owner whose main responsibility is to peruse the performance of the organization from the perch of a passive investor, one whose main active participation is to question the Board and management, and to vote for members of the Board during shareholders meetings.  Second, there is the level of readiness expected of those who are expected to take on a more active governance role, those who are expected to form the pool from which future members of the Board of Directors will be chosen.
Clearly, those who are expected to be part of governance require more preparation than those who are going to be passive investors
For those who are expected to wear a general management hat, there are at least three dimensions of readiness: general management competence, specific organizational competence and organizational acceptability. 
General management competence refers to the basic skills needed by any general manager.  In terms of basic theory, this would not be dissimilar from the curriculum of any basic MBA program. However, competence involves not just theory but also practice.  This means a certain level of ease and expertise that comes only from actual experience on the job. 
Specific organizational competence on the other hand refers to an understanding of the specific situation and capabilities of the organization to be managed.  Again, while some of this can be gained by poring through reports and records, there is no substitute for actual on-the-ground familiarity. 
Finally, no matter how competent a manager is, he cannot manage unless he is accepted by key members of the organization. 
Preparing to Lead
For those being prepared for a management role, there are many possibilities for preparation.  Theory can be gained through reading, classroom education or mentoring.  In fact, much theory can be learned on the job if the manager is discerning and has a mentor to help illuminate experience.  Practical expertise, on the other hand, can really only be gained on the job.
For many family corporations, it makes sense to provide opportunities for family members to have work experience outside of the family corporation.  This gives the family member an employee perspective as well as an external benchmark for how to do things. 
However, there is still going to be a need for familiarity with the specifics of the family corporation.  There are many ways this can be achieved.
Family members who are currently employees and who have been identified as potential candidates to take over general management positions can be asked to take a more active part in management.  To provide a whole company view, these candidates could be rotated through the key functional areas.  As an alternative, they could be asked to spend time in one of the oversight or middle office functions, e.g. corporate planning or finance. 
Ideally, candidates for succession would be put in positions where they will have an opportunity to attend executive committee meetings, either as formal members or in some other role, such as executive assistant to one of the executives.  At some point, the candidate finally chosen could then be given a more central and more senior position.    A good preparatory position for a future general manager would be head of any functional area that is key to operating results. More senior preparatory positions would be: Chief of Staff, Chief Operating Officer, or even Deputy General Manager.  The downside of the Deputy General Manager position is that there is an implication of impending succession.  This title should be handed out very carefully.
One advantage of these sorts of formal positions is that these candidates can then attend board meetings in the capacity of management. This means they can make reports during Board meetings, listen to discussion and be available for questions from the Board.  Of course, this does not preclude the Board for asking for certain portions of the Board meeting from being executive sessions, excluding management who are not Directors.
When the current board is not fully operational, however, or when it is completely formal, especially where external non-family directors are involved, other mechanisms, such as a "Shadow Board" can be used. 
We continue this discussion next week.

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

From last week, we know that the most straightforward mechanisms for transferring shares in a family business are through a sale, as a gift or as part of inheritance.
Considerations
If inheritance is chosen as the mechanism for transferring ownership in the family business, at least two things must be considered.  First, appropriate legal documentation must be made for the disposition of the shares.  This includes a legal will that would be acceptable and be relatively safe from contest.  In certain jurisdictions, it may be possible for the will to pass probate prior to death.  This minimizes the risk of the will being contested. Second, appropriate provisions must be made for the payment of estate taxes in order to ease the transfer of ownership of the shares.
If gifting is the chosen option, programming the gifting of the shares over a few years is one available mechanism for managing the applicable tax rate.  However, the exempt amount in the Philippines is relatively small and may be impractical for businesses with a high value.
The appeal of the gifting option is that the donor has the flexibility to dictate the terms of the gift.  For example, the donor can retain voting rights while gifting dividends.  Also, the gift document could include a program for continuing to receive all or part of dividends for a specified period.  Finally, the gift document can have a mechanism for taking the gift back.  Of course, there are legal considerations that govern all of these possibilities.
If a sale is the option chosen, the typical concerns tend to be the valuation of the shares, the ability of the purchasing generation to pay, and the readiness of the purchasing generation to govern the business. Affordability can be addressed through a deferred payment mechanism, but contingencies must be taken into account.  For example, if a series of programmed sales is the option chosen, any share not yet sold as at the time of death of an existing owner would then form part of the estate. 
The readiness of the outgoing generation to relinquish control over the company is also an important consideration.  While it may be possible to create some level of flexibility over the rights to financial benefits and control through a shareholders agreement, the general rule is that there must be a true sale.  Hence, the sale option seems to be less flexible than gifting.  One way to address this flexibility is either to change the ownership structure by creating voting and non-voting shares or to create a holding company, which can then have the two types of shares.  Another option is to create a trust that will have legal ownership and, hence, management control over the shares, with beneficial ownership extending to a broader membership.  Of course, this entails more complicated governance mechanisms and may be more complicated from a regulatory standpoint.
Getting it Done
Three things are important in implementing an effective transfer.  First, as we have discussed, there needs to be a fit between objectives, considerations and mechanics.  Second, the plan must be acceptable to all concerned.  Finally, the plan must be practicable. 
Obviously, it is important for the plan for transfer to be the result of open discussion among those primarily involved.  Even more importantly, the transfer of ownership of shares in the family corporation also implies a change in governance. 
While there is always some level of transition involved in any change, it can be particularly difficult in the case of a family corporation. The first part of smoothing out this transition simply has to do with ensuring that the next generation is prepared for the responsibilities of ownership.  This is especially important for those who will be expected to sit on the Board of the family corporation.  A program of training and preparation for those expected to govern the corporation must be developed and implemented.
In addition, new patterns of behavior must be learned.  Family members tend to get more involved in the workings of a family business and the lines between owner, owner-board member and owner-manager can become very blurred.  This is further complicated by the reality that, while ownership is often distributed equally among siblings, management typically devolves only to a few. 
In order to ease this, there must be clarity in the roles, authorities and responsibilities of each individual and it must be clear which authority and responsibility is assigned to which role.  Within the corporation, it is the role in the corporation that must define authority and responsibility.  Clearly, this does not preclude within-the-family discussions.  Ideally, however, these discussions would take place within the family and not within the business.
Finally, contingencies must be prepared for. Some family members may not wish to maintain ownership of shares in the family corporation.  A business continuation plan outlining the guidelines for handling this eventuality would be useful.  In certain situations, a shareholders agreement can contain mechanisms for easing sales of shares.
Many of the decisions involved will require technical advice. This is especially true when documents need to be drafted. It always makes sense to consult specialists.  Make sure you choose the right ones.
You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

There are many mechanisms for the transferring ownership of a family business from one generation to the next.  Of course, the mechanics for a sole proprietorship are different and simpler.  Here, we consider the transfer of shares of a corporation.
The first most important thing to consider is that the plan of action to be adopted must fit the objectives and take into account critical considerations.
Considerations
One of the most important objectives of transferring ownership of a family business is to enable business continuation. In addition, the objectives as well as the personal capabilities and needs of the parties to the transaction must be considered. Finally, the plan of action must take regulatory and legal considerations, especially taxation, into consideration.
For the outgoing generation, the most important considerations can typically be narrowed down to financial considerations and control.  For some, the shares in the family corporation may represent all or majority of wealth.  This means that continuing financial support after shares have been transferred would be a consideration.  If the corporation will continue to be a source of income at retirement, clearly the quality of continuing governance and management of the operation would be important.
Even in cases when the outgoing generation can afford to gift ownership, the ability of the incoming owners to govern wisely would need to be taken in account.  It is often useful for the outgoing generation to have precise objectives and decision-making factors for these two separate factors of financial effect, and control and therefore governance.
For the younger generation, the concerns tend to be level of involvement desired and financial considerations. For example, some members might wish to completely disengage, which often means not even owning any of the shares.  Some may wish to be “silent partners”, receiving dividends but uninvolved in governance.  Some may wish to be involved at Board level.  Some may wish to be intimately involved, up to actually managing day-to-day operations as part of the management of the firm.  Financial considerations would generally involve the willingness and capability of the incoming generation both to pay for the shares if the transfer involves purchase as well as to be able to support any continuing capital requirements, should the company require them.
Foundation
The basic decisions in the share transfer are: who, in what proportion, how and how much.  Who will the shares be transferred to? In what proportion will the shares be distributed? How will the shares be transferred?  How much and what sort of expenses are involved for each of the parties?
Let’s take the first two questions first. 
First, a caveat:  It is certainly not necessary for the business itself to be transferred to the next generation. The sale of the family corporation to a third party is always an option. This is a practical alternative for families whose next generation is not interested in running the business. We will discuss this again when we get to how.
While the simplest answer to “who” might be to transfer shares equally to the next generation, it also makes sense to consider who among the next generation are most capable of governing the corporation.  Also, in certain cases, not all of the succeeding generation may be willing to take on the burden of ownership. 
Legal requirements concerning legitime must be taken into account. The online Free Dictionary by Farlex defines legitime in civil law as “that portion of a parent’s estate of which he cannot disinherit his children without a legal cause.”  This does not mean that all children need to inherit parents’ shares in the family corporation; it simply means that other assets would need to be taken into account.
Mechanisms
Broadly speaking, there are three mechanisms for the transfer of shares: gifting, sale or inheritance.  The tax treatment for each mechanism varies and the tax effect differs depending on the value and timing of the transfer. 
The inheritance mechanism involves estate taxes, with a step rate table varying from 5% to 20%, with a 200,000 peso exemption.  Gifting involves donor’s taxes with rates varying from 2% to 15%, with a 100,000 peso exemption.  A sale involves capital gains taxes, with a rate of 5% for the first 100,000 pesos and 10% for amounts in excess.
In all cases, valuation is a key consideration as there are both legal constraints as well as financial, including tax, effects.
Clearly, for large amounts, inheritance involves the highest tax rates.  However, it is also the option that preserves both the financial benefits as well as control over the corporation to the current generation. 
Next week, we continue this discussion.  In the meantime, don’t forget that you will need legal advise in order to do this and I am not a lawyer.
You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.
 

It is the time of year when career choice is a trending topic.  Companies are hiring; a fresh crop of graduates is in job hunt mode and parents are worrying about what schools and courses their new high school graduates are considering.
Career choice must, I have always believed, be rooted in personal preference.  Of course, practical realities are important.  However, even within the constraints of practical realities, it is personal preference that sets the stage.
I think of it as framing.  My father, who was a golfer, would call it the approach.  I suspect his term is better.
The Green
In golf, the approach shot is the shot that puts you onto the green.  The green, of course, is the area where the hole is. Longtime golfers will tell you that the approach shot is critical to your game. David Nevogt, author of "The Simple Golf Swing" provides two tips about improving the approach shot: "Aim for the middle of the green"; and "Focus on alignment, not distance". 
Nevogt says too many golfers aim for the flag.  The problem with aiming for the flag is that it's extremely difficult to stick that small a target.  Just to complicate matters, golf holes are almost never conveniently placed on a green.  Aiming for the flag and failing will often place you in a sand bunker.  Aiming for the middle of the green puts you safely within putting distance on a playable surface.
In other words, Nevogt espouses casting a wide net when it comes to making choices for a first job. Choose a job that provides flexibility and maneuverability. In my world, this means choosing a job with many possibilities, a lot of training and many opportunities.
Nevogt says something similar about alignment versus distance.  If you are hitting in the right direction but you are off a few yards in terms of distance, you are probably ok.  However, given the long distances of approach shots, a small deviation in direction could put you in pretty serious trouble - in the rough, in the trees or in the water.
The problem, of course, is many golfers practice their approach shot on the driving range.  And, in the driving range, the objective is most often distance and not alignment.
The same thing is true of decisions concerning a first job. Many fresh graduates allow the dazzle of a high starting salary or a pretty title to tempt them away from the careers they had set their hearts upon.  Then they wake up one day in a boring job with no future and wonder where they went wrong.  That is what went wrong. They chose distance, not alignment.
Failing to choose happiness
In the elective on happiness that I teach in the MBA program of AIM, one of the things we say most often is that happiness is a choice.  For practical purposes, this means two things:  knowledge and choices.  Choosing to be happy involves understanding the personal meaning of happiness as well as making the choices that will lead us to the state of happiness.  This means there are two barriers to happiness: First, we need to be able to predict what will make us happy and second, we need to be able to make the correct choices.
However, research has showed that even when people are able to predict what will make them happy, they can still make bad choices.  The reason for this is that they have become the victim of biases.
Christopher K. Hsee and Reid Hastie from the University of Chicago says there are four main reasons we don't follow through with decisions that would lead to happiness (Hsee & Hastie, 2006). 
The first three reasons are related. The first reason is poor rules of thumb. Research shows that when people are double-booked for activities that are already paid for, they will often choose the more expensive one even if it is not the one they know they will enjoy.  The reason for this is that many people follow the maxim of "Don't Waste".  Another example of the misfiring of the "Don't' Waste" maxim is when individuals eat what is in front of them even when they know overeating is unhealthy.  They don't want to waste the food.  They forget that the cost of being unhealthy can be higher than the value of the wasted food. 
The second reason is individuals can become slaves to rationality.  For example, when choosing prizes, people will choose a more expensive item simply because it is more expensive even when they know the less expensive item will make them happier.
The third reason is choosing medium over outcome.  Many people choose to collect tokens of value, often forgetting what they are really for.  An HGTV show called "Clean House" is actually focused almost entirely on the effects of this confusion.  Many people become so obsessed with keeping mementos that they create chaos in their lives. 
The fourth reason is impulsivity.  What Hsee and Hastie found so interesting is that the first three reasons actually arise from attempts to protect against this fourth reason.
Balance
In the research on learning and effective thinking, this is the precisely the balance between mindfulness and automaticity that can be so hard to keep.  There are many things we put on automatic because that is the way to save time.  However, proceeding on automatic all the time can lead to bad decisions.  A certain level of mindfulness is necessary.  The precise level required varies depending on the situation at hand. 
The most important thing to understand is that many of our decisions are affected by built-in biases. Knowing this and understanding our built-in biases is our first step in making the right decision.
In golf, we ask questions about the wind and the lie of the grass.  The reason for this is that those two things affect the eventual alignment of our shot. 
Understanding biases allows us to pursue alignment.

You can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://www.mayaherrera.com.