MANILA, Philippines - From neighborhood "sari-sari" stores to malls, media outlets and real estate firms, family businesses are all over the Philippines. Some of these family-owned companies may last for decades, while others lose their luster after a few months.

Just like any other venture, a family business is faced with competition, higher costs, and management issues. This is why the family, as owner, must be committed to and capable of growing the business.

According to McKinsey Quarterly, the business journal of consulting firm McKinsey and Co., a family business must have 5 dimensions of activity working well and in synchrony for it to grow and be successful. These are:

Family

The roles of family members as shareholders, board members, and managers should be regulated in a business to avoid conflicts over money, nepotism, and succession, McKinsey Quarterly said.

This may require the establishment of a family council, or a number of family forums so issues can be properly addressed.

"Large family businesses that survive for many generations make sure to permeate their ethos of ownership with a strong sense of purpose. Over decades, they develop oral and written agreements that address issues such as the composition and election of the company's board, the key board decisions that require a consensus or a qualified majority, the appointment of the CEO, the conditions in which family members can (and can't) work in the business, and some of the boundaries for corporate and financial strategy," McKinsey Quarterly said.

Some enduring family businesses also have a meritocratic approach to management, according to McKinsey Quarterly. Australia-based investment firm ROI Group, for instance, encourages family members to work outside the business first before seeking senior-level positions in the company.

"Any appointment to them must be approved both by the owner's board, which represents the family, and the advisory council, a group of business advisers who provide strategic guidance to the board," McKinsey Quarterly said.

Ownership

Since it's a major source of potential conflict, McKinsey Quarterly said a family business needs to know how to maintain family control, raise fresh capital for the business, and satisfy the owners' cash needs.

Some strong family ventures may have independent subsidiaries, but these are still generally controlled by the family's holding company, McKinsey Quarterly said. "By keeping the holding private, the family avoids conflicts of interest with more diversified institutional investors looking for higher short-term returns."

"To keep control, many family businesses restrict the trading of shares. Family shareholders who want to sell must offer their siblings and then their cousins the right of first refusal. In addition, the holding often buys back shares from existing family members. Payout policies are usually long term to avoid decapitalizing the business," McKinsey Quarterly said.

Governance

According to McKinsey Quarterly, large and strong family businesses tend to have strong governance. Members of these families are said to participate actively in the work of company boards.

Still, McKinsey Quarterly noted that the family's knowledge must be complemented with fresh perspectives from outsiders. "Even when a family holds all of the equity in a company, its board will most likely include a significant proportion of outside directors."

"Formal mechanisms differ; what counts most is for the family to understand the importance of a strong board, which should be deeply involved in top-executive matters and manage the business portfolio actively. Many have meetings that stretch over several days to discuss corporate strategy in detail," the business journal said.

Wealth management

A successful wealth management not only provides a source of cash to the family and diversifies risk, but also helps preserve harmony, McKinsey Quarterly said.

For large fortunes, the business journal said it would be best to have a wealth management office serving a single family, which may either be a separate entity or part of a family office.

But if it cannot justify the cost of having a single-family office, the business may opt for a wealth management office that serves a group of unconnected families.

"Beyond the core holdings, families need strong capabilities for managing their wealth, usually held in liquid assets, semi-liquid ones (such as investments in hedge funds or private-equity funds), and stakes in other companies," McKinsey Quarterly said.

Foundations

Running a family business does not only require maintaining ownership and managing wealth. Another important factor for a family business to be strong, according to McKinsey Quarterly, is its ability to share its wealth through its own charitable foundations.

These foundations do not only promote family values, but also generates good will towards the business.

"Foundations set up by entrepreneurial families represent a huge share of philantrophic giving around the world. In the United States, they include 13 of the 20 largest players, such as the Bill and Melinda Gates Foundation," McKinsey Quarterly said.

"To ensure high performance and continual improvement, family foundations must combine passion with professionalism and a strict assessment of their impact. Despite the difficulties of assessing it, this is vital to make progress and to allocate resources effectively," it added.