For many families, particularly in Asia, the family business has been the main driver of the family’s wealth. As such, it represents the most valuable asset of the family. The much used idiom of “riches to rags in 3 generations” is founded on the past difficulty to find a way to successfully transition the future management and control of the family’s engine of wealth. Families today are very conscious of the need to properly plan for the future governance of their core wealth asset and protect the future success of the family business.
Across Asia, the transition status of the management and control of the family business varies. Most contemporary enterprises in China are controlled and managed by first generation entrepreneurs. However, in countries such as Indonesia, Philippines and Taiwan, while the first generation founder may still own the business, the second generation are already actively involved in its management. Indeed, for many families the third generation is becoming involved. Many studies have been carried out to identify the issues and obstacles to successful transition of the family business and there are common themes amongst all families, wherever located.
- The founder generation want to pass on the business they have created to their own family members (whether second or third generation);
- The founder generation want to stay in control and/or management until they reach their 70’s, but the next generation want transition to take place while the founder is their late 50’s or early 60’s;
- Despite the above, most founders recognise that the next generation should take over management between their 30’s to 50’s;
- Family businesses are most challenged by the lack of talent and/or the readiness of the next generation to lead the business. One of the biggest challenges to developing an effective succession plan is the lack of “talent inventory” in the next generation, whether this arises from issues such as the next generation’s lack of capability or desire to be involved in the business, intergenerational differences in culture, the lack of connectivity with key partners to the business or under-developed respect from the broader family to the potential successor’s leadership capability within the family;
- The highest concern is the threat of sibling favouritism or rivalry which gives rise to the potential for lack of consensus or dispute on key issues.
Fragmentation of ownership, division in management, dispute and lack of controlled transition can all stem from ineffective transition governance and result in a significant deterioration of the value of the family business and, thus, the wealth of the family as a whole. Creating an effective platform for the governance and transition of ownership and management of the family business is a critical factor to the on-going success of the family business and the fortunes of the family. Capital Solutions can help and guide you through the creation and implementation of a suitable family business governance platform.
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