|
 
Nothing like money [ & ego's - often
wives! - the Outlaws] to tear apart dynasties. Chinese in
Hong Kong especially are experiencing a difficult transition with some
exceptions.
 
Departing tycoons won't open up, can't
let go
The pressure within dynastic families is especially difficult on siblings. Often they
are ill equipped and it could have been the parent's issues for not
having dealt with transition of management [of billions in family
wealth. World's
Richest Brothers. Or consider for example the
uproar at Hong
Kong's Sun Hung Kai Properties KWOK
family. Poor guy!
The riveting tussle involving the wealth of Macau casino tycoon Stanley Ho
is merely a stage-setter for other Asian family dramas to follow.
MR HO
His family's riveting tussle over his wealthhas the stage for other Asian family dramas to follow |
mortality over the next 15 years or so,
with the transfer of billions of dollars of wealth on the cards. But bankers
say that the process will be far from smooth.
Patriarchs, who have shown their genius in the world of business, sometimes
find their 'winning' qualities working against them in the legacy process.
They are secretive. They would rather control than delegate. And they have
their quirks.
Multiple wives and numerous children complicate matters. Add a mistress or
two and illegitimate children, and family dynamics becomes combustible when
millions are at stake. Then, not all tycoons trust their bankers and a
tendency to use several banks to park the wealth often leads to complications
when it comes to making the will.
'The high profile succession cases that you refer to are merely the tip of
the iceberg,' said Ravi Raju, Deutsche Bank private wealth management head,
Asia Pacific.
In fact, the vast majority of families are not fully prepared to transfer
wealth to the next generation, he said.
'It is fairly common for Asian patriarchs to have multiple families/wives,
and it is understandable that the patriarch may wish to set aside different
segments of the wealth for different families,' said Lee Woon Shiu, Bank of
Singapore executive director, wealth planning (trust & insurance).
'What is crucial for wealth planners and private bankers to achieve is to
win the trust of the patriarch so that they are honest with their private
bankers, even if they choose not to be totally so with their families!' he
said.
'When they come clean to their bankers, we will then be able to structure
separate trusts for the different family members to address different needs of
the different families, taking into account their different demographic
profiles and background, and specifically exclude unwanted illegitimate
descendants from benefiting from the trust assets if desired,' said Mr Lee.
Though trusting bankers, for normally private Asian tycoons, does not come
easy.
According to Justin Ong, PwC Singapore Asia-Pacific wealth management
leader, 'Asian families don't want outsiders to know what they have, and
anecdotal evidence suggests that most private bankers have not yet developed
that level of trust with families to know what the entire family wallet size
is.'
But using several banks to handle division of assets is generally a recipe
for disaster.
'These situations tend to arise when planning is carried out without full
and honest disclosure of facts and circumstances, or if material facts were
omitted,' said Yee Chin Lit, Clariden Leu head, South-east Asia.
If two or three banks are involved, there is a high probability that
planning will fail to cover certain issues and concerns, he said.
'Allowing one bank to handle all the asset planning would allow it to
comprehensively and conclusively see the whole picture and reduce planning
deficiencies,' said Mr Yee.
Bankers said engaging the services of a private bank can help tone down the
emotions when it comes to who gets what.
'Often, this is a difficult and emotional conversation to have as it could
potentially bring up sensitive topics such as children telling their parents
they have no interest in joining the family business, or parents telling their
children that they are not strong enough to be CEO of the family business,'
said June Lee, head of family governance at UBS wealth management research.
This is where the involvement of third party specialists can be helpful,
she said.
'Increasingly in Asia where we are seeing the generational transfer of
wealth, there has been a growing interest in developing family agreements to
set out the family's vision, code of conduct and rules of engagement to
sustain value creation and family harmony,' said Ms Lee.
But Mr Ong said that family planning services are relatively new in Asia
and private bankers are not generally seen as experienced in this area.
'Our PwC global private banking survey in 2009 also suggests that many
private bankers lack the knowledge and skill sets to understand family wealth
issues, and are also not well trained in dealing with extended family matters
or with the next generation,' he said.
'The lack of trust also stems from the financial crisis where private
bankers were seen as product pushers and not necessarily having the interests
of the clients in mind. That prevents clients from opening up more to private
bankers about family issues,' he added. --
2010 February 26 BUSINESS
TIMES
_ _ _
Hong Kong richest man Li Ka-shing has the
fame of a movie star, while the court case involving the will of eccentric
pig-tailed billionaire Nina Wang last year enthralled Hong Kong with its brew
of sex, money and power. But Wang's death in 2007 and the hospitalisation last
year of casino tycoon Stanley Ho were a stark reminder that some of Hong
Kong's 40 richest tycoons - synonymous with its post-war economic success -
are in their twilight years.
They will leave behind eye-popping fortunes
worth more than US$130 billion and vast business empires that control
everything from supermarkets and property development to ports and telecoms.
'Hong Kong in this respect is very
special,' said Henry Hirzel, managing director of wealth management for
Asia-Pacific at Swiss bank UBS. 'The question is can this mega-wealth be kept
together?'
That will depend on whether Hong Kong's
super-rich families descend into squabbles and bitter lawsuits once their
entrepreneurial patriarchs die, analysts said.
To avoid huge fights over their fortunes,
many ageing tycoons create trusts leaving properties and other assets to
specific family members.
'But that doesn't guarantee relatives won't
go to court after their death,' said Jonathan Mok, a partner at blue-chip firm
Mayer Brown JSM.
There is also no guarantee that the
tycoons' offspring will have the interest or ability to run the business -
less than 20 per cent of first-generation companies survive by the
third-generation, Mr Hirzel said. 'This is a region of family businesses,' he
said. 'Some families do (succession planning) very well and others don't . . .
Most people leave their succession to chance.'
Stanley Ho, who controlled Macau's gaming
sector for four decades until it opened to foreign competition in 2002, has at
least 17 children with four women - an extended family not entirely unique to
some of Hong Kong's wealthiest people.
Two of Mr Ho's children, Pansy and
Lawrence, run rival gambling concessions with overseas partners in Macau.
Pansy Ho also sits on the board of her father's Shun Tak Holdings conglomerate
along with siblings Daisy and Maisy Ho.
The 89-year-old Mr Ho - released from
hospital in March after an eight month stay - has long been embroiled in a
bitter legal dispute with his estranged sister Winnie over control of his
casino firm Sociedade de Jogos de Macau.
Reports of his poor health sent shares in
his casino firm tumbling.
Li Ka-shing's son Victor is deputy chairman
of his father's conglomerate Cheung Kong (Holdings), while the billionaire's
other son Richard took a hit last year when a Hong Kong court scuppered his
bid to privatise telecom giant PCCW, ruling that a shareholder vote on the
deal was rigged.
Despite exceptions like Pansy Ho and her
sisters, Hong Kong sons are most favoured to take over the family business,
although the eldest doesn't necessarily get the spoils, said author Joe
Studwell.
'Very, very occasionally a girl might be
chosen over a boy if that boy is particularly incompetent,' said Mr Studwell,
whose Asian Godfathers: Money and Power in Hong Kong and Southeast Asia takes
an inside look at the region's super-rich.
'So it is a best-male-gets-it deal. And
fathers are pretty ruthless about bypassing elder sons who don't cut it.'
'Many patriarchs make the inheritance
decision late, not least because not deciding gives them a lot of power over
family members,' he added.
Nina Wang - once Asia's richest woman, who
controlled the Chinachem property empire - highlighted a key red flag for the
tycoons: unclear wills.
The long-running saga kicked off after
Wang's tycoon husband Teddy was kidnapped in 1990 and never seen again,
sparking a nasty legal dispute between the wealthy woman and her father-in-law
for control of the fortune.
Both had competing wills, but the courts eventually sided with Nina, who
died two years later.
She, in turn, purportedly left two wills -
both scant on details - which became the subject of another bitter legal
battle between her family and Wang's former lover, feng shui master Tony Chan.
Wang's family prevailed in February, with
the trial judge accusing Chan of profferring a fake will to get his hands on
the multi-billion-dollar estate. --
AFP 2010 July 22
REAL
STORIES
Nine Chow buildings sold in Singapore
Nine properties owned by the companies
of three feuding brothers have been sold for more than $175 million.
  |
| Chow House: The
freehold property went for more than $100 million and could be
redeveloped into a residential project |
Chow House, the most prominent of the
nine assets, went for more than $100 million and could be redeveloped into
a residential project.
The nine assets were owned by
Associated Development Pte Ltd, Chow Cho Poon (Pte) Ltd and Lee Tung
Company (Pte) Ltd. Property investor Chow Cho Poon set up these firms and
his three sons became directors and shareholders.
Mr Chow owed debts to the companies
when he died in 1997. The debts could not be paid off as his estate's
assets were mainly tied up as shares in the companies.
In 2007, eldest son Chow Kwok Chi asked
the High Court to wind up the companies so the brothers could go their
separate ways.
Deloitte & Touche's head of
financial advisory services Tam Chee Chong was appointed liquidator to
sell the companies' assets and distribute the proceeds among shareholders.
DTZ handled the public tender for the nine properties.
According to DTZ, there were
'overwhelming responses from both local and foreign interested parties'.
The freehold Chow House drew nine
bidders and was sold for just over $100 million. BT reported earlier that
the buyer could be a group whose shareholders include WyWy Group founder
YY Wong.
DTZ said the authorities have granted
outline permission for the site to be developed into a new residential
project with commercial space on the ground floor.
The other eight properties - at Lorong
Telok, North Canal Road, Jalan Besar, Upper Serangoon Road and Lavender
Street - went to various other investors.
- 2010 August 5 BUSINESS TIMES
Without doubt, this is the hardest topic for
Asian families to address. Our strong foundations in Confucianism
mean probably we've experienced conditional love somewhere in our upbringing and
perhaps we are only dealing with it now? dunno.
Some issues to be aware of are:
Preserving family wealth
The delicate matter of succession
planning is best taken on at an early stage with the aid of independent
advisers, to preserve intellectual and financial assets for generations
The family business structure is the oldest
business structure in the world. About 35 per cent of Fortune 500 companies
are family-controlled, with examples such as Wal-Mart, News Corp and IBM, and
there is no doubt that family-run enterprises play an integral role in global
economic development. Their role is also increasingly significant in Asia,
where in keeping with the region's rapid economic growth, family businesses
are emerging in increasing numbers.
According to the latest World Wealth Report
by Capgemini and Merrill Lynch, the wealth belonging to the world's super-rich
is likely to rise from US$33 trillion to US$49 trillion by 2013, with the
fastest growth coming from Asia.
In Asia today, a significant amount of
wealth generated is 'new money' that is attained through means other than
inheritance, such as entrepreneurial ventures, investments, and even
high-paying professional jobs. The 2009 Forbes Asia Singapore Rich List also
highlighted that Singapore alone saw the total wealth of its 40 richest people
soar from US$32 billion a year ago to US$39 billion this year.
The Chinese idiom - 'Wealth does not last
more than three generations' - resonates with the growing concern that wealthy
families face. The idiom depicts an older generation who, starting with
nothing, started a business, worked very hard, amassed wealth, and passed it
to the second generation who respected it. However by the time their
great-grandchildren inherit the business, the family is back where they
started, with nothing.
Statistics have shown a dismal trend for
the survival of family wealth. According to a Straits Times report in 2006, 66
per cent of family businesses do not survive beyond the founder's generation.
A study by Professor Randel Carlock of business school INSEAD also noted that
on the global front, only about 10-15 per cent of family businesses survive up
to the third generation.
Family wealth includes both human and
intellectual capital, not just financial capital, and must be intentionally
preserved, otherwise it will not only dissipate as it is passed down, but also
cause huge strife and conflict amongst the family members.
Therefore it is important for wealthy
families to dedicate time and resources to fighting this all too frequent
inevitability.
Succession planning: Taking the first
steps
When it comes to succession planning,
getting it right can mean the difference between a successful empire and a
failed family business. There is no doubt that this can be an emotionally and
financially significant decision for a wealthy individual or family to make,
because maintaining harmonious family relationships is paramount when
addressing issues surrounding the distribution of family wealth. Therefore, it
is important to understand the various issues at stake and take proper steps
towards ensuring long-term financial security and harmony for the family.
This process will begin with an in-depth
analysis of planning needs required; and these needs could include wealth
protection strategies, education funding, intergenerational wealth transfers,
tax reduction strategies, and even philanthropy.
The engagement of a good experienced
financial professional during the wealth planning process is essential as they
can provide resources and expertise to help with all aspects of the wealth
planning needs. This could be an auditor, lawyer or tax advisor. However,
increasingly, wealthy individuals are also turning to their asset managers or
senior private banker for confidential discussions on this matter.
Involvement across generations
During the planning of the future of the
family wealth, it is important to consider and involve the extended family in
the course of the plan. A comprehensive multi-generational strategy produces
not only numerous tangible benefits such as reduced spending, lowered estate
taxes, greater investment opportunities, and more effective asset protection
strategies, but most importantly, it can also produce more knowledgeable
future generations.
Multi-generational planning also provides a
forum for teaching financial management skills to children and grandchildren,
and allows the sharing of business and philanthropic values during the
grandparents' lifetime.
Divorce, financial mismanagement by younger
family members, and other unanticipated situations can have a negative impact
on family wealth. Therefore with the use of planning structures such as
trusts, you will be able to establish appropriate controls to reduce the
financial risk of these events, as well as ensure that the next generations
are well-equipped and able to responsibly manage the family wealth when it is
finally put into their hands.
Trustworthy and independent advisory
Experience has shown that entrepreneurs are
naturally reluctant to entrust an outside agency with their concerns on
succession planning. This is considered a relatively sensitive issue, thus
preferring instead to keep everything 'within the family' to maintain privacy.
The problem with this strategy is that their usual confidantes are the general
manager of the company or a family member, who cannot be unbiased about
matters as they will, ultimately, play a part in the succession.
A third-party consultant would be able to
offer an impartial viewpoint and has the ability to review the situation and
needs holistically. In their role, they can offer a comprehensive analysis of
the situation with the knowledge of sensitive and confidential information,
and still be able to offer viable advice and solutions without any conflict of
interests. This is where an experienced senior private banker can take on this
role and add value and expertise in the process of succession planning, as the
process would inevitably require sufficient specialised knowledge in this
area. It goes without saying that they must be trustworthy, competent and most
important independent.
Succession planning is frequently a
difficult task because very often, it is initiated at a very late stage,
resulting in hasty decisions being made on very important issues. In general,
entrepreneurs and their loved ones can only benefit when this delicate matter
is discussed at an early stage with trusted, competent advisors. Successful
planning will allow greater involvement of the younger members of the family,
and give them the opportunity to develop the financial management skills they
will need to become effective stewards for the family wealth.
- 2010 May 1
BUSINESS TIMES
Keeping it in the
family
Ninety per cent of businesses across the
globe were founded by families. They employ half the world's workforce and
contribute half of the world's GNP.
Popularly cited statistics state that only
between 10 per cent and 13 per cent of these remain under the control of their
founding families by the third generation, and the expectation for their demise
in the third generation is legendary.
Among those that survive are some of the
largest and best run in the world, such as Cargill and WalMart in the USA and
Toyota Motor in Japan. At the same time, typing 'family feud' in Google surfaces
a stream of business families that have hit the headlines for all the wrong
reasons. As family businesses that have been founded and flourished in Asia
since WWII approach a generational transfer, UBS has seen an increased interest
amongst our clients to engage in designing governance structures and processes
to keep family relationships harmonious and the family business successful.
While each family is unique, the intertwining
of family relations and business ownership results in business families facing
many similar situations.
Typically, the family business is the primary
engine of the family's wealth. Often it is also the source of the family's
influence and the symbol of its success. It is not surprising that an important
aspect of planning for continuity of family control over the business focuses on
ownership considerations.
Many business families that UBS works with
seek an ownership structure that enables the wealth to be enjoyed by all family
members while at the same time avoids fragmentation of shareholdings to the
extent that no single shareholder controls a substantial block of shares. The
ability of the family business leader to control the voting rights of a
substantial block of shares is viewed as important in order to move quickly and
decisively to drive the business forward.
There is also a need to address questions
pertaining to the involvement of individual family members in business
operations and strategy.
Should family members work in the family
business or seek an independent career? Should the CEO be a family member? The
answers to these questions depend on how the family views the business.
In family businesses at their best, the
family CEO enjoys a high level of trust from his family, the controlling
shareholders in the business. He would have been exposed to the family business
from an early age, have proven himself capable and worthy, and command the
respect of family and staff alike.
The security of the CEO's tenure and his
stewardship mentality give him a multi-generational investment horizon that is
reflected in higher risk capacity and staying power to remain committed to a
course of action despite short term setbacks. In such a scenario, a dynamic and
insightful CEO is able to move quickly and decisively to take advantage of a
wide opportunity set.
On the flip side are family firms where trust
is low and family politics pre-occupy family employees. Not surprisingly,
capable family members would rather find an independent career than be embroiled
in family strife. Hence a pre-requisite for long-term engagement of families in
business success is the existence of a framework of rules of engagement that
provides consistency and clarity regarding among family members in respect of
how they deal with each other and the family business and that ensure decisions
are made in the best interest of family business continuity.
Family expectations of corporate growth
provide the next set of questions. The intentions of the family to retain
control over the business demands that the family factor be considered in
answering the questions that follow: What is the best way to raise capital?
Should the company be listed? How can the family's long-term controlling
shareholder position be secured?
Answers require factoring in the commitment
of individual family members to the family business. Clarity regarding
commitment will determine corporate dividend and reinvestment policy, as well as
capital raising options. We have found it important to provide an exit avenue
for family members wishing to pursue a path outside of the family ventures. In
addition to working with investment bankers, business families might want to
consider securing the involvement of their bank's family advisory consultants in
this discussion.
With a growing number of family members in
each generation, the potential for differences in expectations between family
members increases. Family members who are passive investors will need assurance
that their investment is being well-managed and senior management is being
supervised. Ensuring good corporate governance is the role of the board of
directors. On the other hand, family members leading the business seek the
support and non-interference of family shareholders. Managing the family and its
interface with the business is handled by a family council. The family council
is the guardian of the family reputation. It is also responsible for good family
governance, and for transmitting the family vision and values.
The family vision is the beacon that lends
direction to the pursuits of individuals and the family as a whole. The family's
values define what the family stands for. How is success defined? Do family
values influence business activities or does the business define the family? Is
there family beyond the business?
Shared family values and vision can help the
family navigate difficult discussions to arrive at good decisions. A family that
agrees on the importance of leadership for their flagship company can more
easily agree on the best person for the CEO position. A family that agrees on
the pursuit of personal excellence and happiness can better accept talented
family members choosing an independent path outside the family business. A
family that agrees on the importance of maintaining a common family destiny can
decide on a sale of the family business based on business fundamentals with the
understanding that the proceeds will remain in a common pool and be managed by
the family office for the common benefit. Here again a well-designed governance
system will provide transparency and clarity of goals and decision-making
processes.
In the final analysis, the continued success
of the family business under the control of the founding family lies with the
clarity and alignment of family goals, the demands of the business and a shared
set of vision and values which underpin the way family and the business
interact.
The writer is an executive director with
UBS Wealth Management's Family Advisory Services
- 2008 September 26
BUSINESS
TIMES
Succession
planning: Keeping it in the family
Agnes Au-Yeung,
head of family office services and family wealth advisory at HSBC Private Bank,
talks about succession planning in Asia.
When people think about succession
planning, they usually think about setting up trusts. But a trust may not
be they way to achieve the underlying objective of the client. What other
options are there?
Agnes Au-Yeung: I look at succession planning where there is a
family business as a two-fold process: ownership transfer and management
or leadership transition. Families need trusts for ownership transfer
planning, but trusts, depending on the type and structure, may not achieve
business succession planning for families. When the only tool you have is
a hammer, everything looks like a nail. A trust is one solution. A trust
alone is also often not the entire solution. It needs to be supported by
good family governance and corporate governance.
Business succession planning often involves a separation of ownership,
management and control. If succession planning within the family does not
work (either there is no qualified interested successor or the identified
candidate may decline to take on the role for fear of family disharmony)
the owner can still take steps to ensure that the business survives and
grows. Selling to third parties or even to management or employees, taking
the company public, finding an interim chief executive, splitting the
business into autonomous divisions to create a business partnership can
all be contemplated. Taking such steps is really just another form of
business succession planning.
What are some of the other issues that you want clients – who already
have trusts or other investment vehicles set up – to keep thinking about
even after they have established a relationship with a bank and a law
firm. I presume tax is a key issue that is often ever-changing from
country to country.
Does planning stop with a trust, or does it really start with a trust?
Even without the change of tax codes, the family is evolving all the time
- births, retirement, deaths, marriages and separations. If the intention
of planning was to keep core family assets (this can be both the family
business and identified legacy wealth) within the family, then an ongoing
review of not just the structures, that is the trust and other planning or
investment vehicles, but the governance processes, is important to make
sure that the original purpose is still served and changing family and
business circumstances are taken account of.
This is where we talk about dynastic or legacy planning. Successful
dynasties such as the Rockefellers, transmit not only the ownership but
the values of the builders of the businesses to successive generations.
John D Rockefeller travelled to work on the Sixth Avenue railway and
educated his children to earn nickels and dimes from household chores. It
is worth noting that the most powerful and enduring dynasties are those
that do not simply maintain dynastic control over the business or
investments but over the family.
How can families ensure the second generation is fully-equipped to take
on the responsibility?
There is no guarantee that the second generation will be fully equipped.
However, planning years ahead of time will definitely increase the
chances. Children should learn about the family business.
Before we even get to your question we need to ask: 'Are the forces acting
against succession planning, for the founder, the family, and the
employees still very much there?' For most business owners, their business
is their single largest asset and also represents a major source of
self-esteem and personal worth. Assuming the owner is willing and planning
to let go, then training and educating the second generation to take over
the reins is important.
Training areas include decision-making, leadership abilities, risk
orientation, interpersonal skills, stress management. The next generation
can be encouraged to work outside before joining the family business to
enhance their credibility in the eyes of non-family employees and also for
them to develop a higher level of self-confidence and to bring new ideas
and views to the family business.
Once the children are 'on board', and particularly with the shortlist or
identified successors, allow them to: be involved in business decisions,
even if not the major ones at the outset; meet key business contacts; work
in different areas of the business; be exposed to the full spectrum of
knowledge from the market, customers, suppliers, contractors, to
employees, technology, processes, and policies; and be introduced
generally to the responsibility and process of management of the business
and working with family members as well as professionals inside and
outside the business.
Retention of key non-family employees is important to move through the
succession process smoothly. It is important that employees have or
develop respect for the second generation.
Succession planning is a process, not an event. It happens in phases and
extends for years. Over the period it is important to regularly revisit
the succession plan, to discuss progress, and ensure that the owner is on
course.
How does the cultural dynamic (e.g. newer wealth, larger extended
families, older patriarchs) in Asia play into the delivery of wealth
management services? How does this differ from more mature wealth
management markets?
The Asian culture focuses a lot of power and leadership with the family
patriarch (but I understand this is so with, for example, Latin American
culture). In our times the younger generations are Western educated and
exposed to Western ideas. They have a different outlook on life and
success which is challenging traditional Asian family values and business
practices. Wealth advisers have to balance the founder's entrepreneurial
instincts with the younger generation's new way of doing business, such as
their use of private equity and aggressive business expansion overseas.
Sometimes however it is not a match between the senior and younger
generations, and it is no longer a simple East against West ideas duel
like we had in the past. We also see senior generations more exposed to
Western knowledge, more open to the idea of adopting Western
methodologies, and eager to find new insights from the Western educated
younger generation, while at the same time keeping part of the traditions
and culture that is the legacy of the generations past.
Specifically on investing, there is frequently a conflict between the
patriarch who is more risk averse and the second generation who has the
self-confidence to take a lot of trading oriented investment risk. The
younger generation often is exposed through education to the more mature
wealth management markets. Nevertheless the dominance of newer wealth in
Asia differs from the mature economies in an important dimension. The
Asian wealth has tended to grow faster and this creates a more
opportunistic attitude on the part of Asian clients. The rapid growth of
family wealth often underpins a willingness to seek opportunities, to take
more risk through new asset classes, portfolio concentrations, and more
active trading approaches. -
2008 February 22 FINANCE
ASIA
Weathering the crisis
with family values
The strengths and weaknesses of family
businesses
FAMILY-OWNED businesses have been hit by the
economic downturn like many others. But while they have suffered along with
everyone else, they are able to leverage an inherent competitive advantage to
ensure they survive and prosper despite the poor business and financial climate.
According to Randel Carlock, professor of
family business, and Berghmans Lhoist, chaired professor in entrepreneurial
leadership at Insead, this advantage encompasses committed owners, long-term
strategies, industry knowledge accumulated over generations, and values such as
trust, stewardship and longevity.
However, such characteristics on their own do
not ensure survival or success. More than at any other time, businesses need
competent leadership.
Some 95 per cent of businesses in Asia, the
Middle East, Italy and Spain are family-controlled. So are over 80 per cent of
companies in France and Germany, and between 60 and 70 per cent of those in the
US.
Wal-Mart, Fiat, Ford, Peugeot, Cargill,
Michelin, Gap, Ikea, BMW. There's a family behind the largest block of voting
stock in each of those companies. Make no mistake about it, family businesses
are a major source of wealth creation and employment. So what makes them unique,
and what can we learn from them?
'Family businesses are unique in two main
ways,' Prof Carlock says. 'First, they hold a long-term perspective; and second,
they are driven by values. Their decisions tend to be based around what's good
for the family, what upholds the values they hold. But you also have family
emotions, and so you need professional management. It's all about these
'professional-emotional' families - combining family passion with professional
management.'
Ford was the only one of the three US
carmakers not forced into bankruptcy. Did the family's name on the dashboard
make a difference? 'The Ford family made sure Ford was protected: ownership and
legacy. They took on long-term debt before the real trouble hit so the company
wouldn't have to go to the government and beg for money. Toyota, Fiat, BMW and
VW (all family businesses) are also well-positioned.'
Prof Carlock has similar stories in the
banking sector. 'Pictet, Banco Santander, Julius Baer, Lombard Odier...all
family-controlled, none of them in serious trouble because the family owners
said to the employees, 'we're not out to make quick money; don't see how many
risky products you can sell, just make good solid investments for our clients'.'
They were concerned about their businesses, not their bonuses.'
Then there were the battling Bancrofts -
heirs to the Dow Jones publishing business. The older generation acted as
stewards of a great journalistic heritage, heralded by the Wall Street Journal;
the younger, third generation saw a bleak future for the industry itself and a
share price that wouldn't budge. Rupert Murdoch - himself embroiled in family
business skirmishes - faced no competition in his bid for the Bancroft family
business. The Bancrofts lost their business because they lacked a shared vision
with which to build the family's commitment.
'Firms don't last more than three
generations,' says Prof Carlock. 'They go bankrupt or they merge or they close
down because they just can't face the competition. If you look at the Fortune
500 in 1955, you will see just 77 of those companies are around today. In family
firms, the problem is partly strategy, and partly the family itself. If a family
can align its values and vision and communicate its values and agree to invest
their human and financial capital, they will succeed.'
Prof Carlock likens positive family dynamics
to piloting a plane. 'It's great if a family owns its own jet. But who's going
to fly it? You want someone with training and experience. You all have to decide
on where you're going, together. And it has to be clear as to who's going to
have the authority to change direction mid-stream. You can't have everyone
yelling at the pilot.'
He believes communication among family
members is the key to success. 'If a family doesn't communicate, they are no
better than any other business,' he says. Other strengths that family businesses
have and which translate well in the business world include:
- Stewardship. 'This is like corporate
social responsibility,' says Prof Carlock. Thinking for the long term
instead of 90-day cycles. Family businesses do this naturally. It's their
name on the business, out in the community, for posterity.'
- Values. 'Look at Apple,' Prof Carlock
offers by way of example. 'The fear everyone had over Steve Jobs' health was
not so much about him per se; it was about his values - who would be able to
be the innovator, staying out there in front of the competition?'
- Encourage entrepreneurship. 'Almost every
family business in the world was started by an entrepreneur,' says Prof
Carlock. 'This spirit continues to keep the company alive and regenerating.'
And it shores up long-term performance levels.
And finally, there's the ability to
crystalise the family's vision for itself in the future: how the business
will succeed. In times of economic crisis this vision is especially
important, as it can re-direct otherwise destructive and inhibiting emotions
such as fear and anger. 'Real leaders recognise the emotional impact of
their leadership style on the company and its employees,' says Prof Carlock.
Or, as Napoleon I is believed to have
opined: 'A leader is a dealer in hope.'
Shellie Karabell is deputy editor of
INSEAD Knowledge. This article was first published on Sept 22 in INSEAD
Knowledge (http://knowledge.insead.edu).
This article published on 2009 November 2 in BUSINESS
TIMES
North American
Perspective
For many of us, cooking Sunday dinner with the folks is the closest we'll
ever get to working together. And given Aunt Helga's obsession with perfectly
sliced vegetables and Grandpa's tendency to leave the kitchen a complete
disaster, that's a good thing.
But for many Canadians, family members are also co-workers. The majority of
businesses in Canada are family businesses, from mom-and-pop convenience
stores to large corporations.
According to the Alberta Family Business Institute at the University of
Alberta, family enterprises generate about 60 per cent of Canada's gross
domestic product, employ six million Canadians, and make 55 per cent of all
charitable donations.
"When you look at the figures, (family businesses) are certainly the
most prevalent organizational form in most of the world," says University
of Alberta business professor Jennifer Jennings, adding that their impact on
the economy is significant.
Nonetheless, 70 per cent of family-owned businesses fail before they're
passed to the second generation. Experts agree that all family ventures need
to deal with their unique challenges to succeed in the long term.
Communication is one of the biggest issues for family businesses, Jennings
says. While family members may have a long history with each other and know
each other well, they're prone to making assumptions as a result.
"Often those assumptions are so inaccurate," she says.
Assumptions can crop up in everything from small, day-to-day matters, to
the question of who will succeed the older generation.
Fortunately, the solution is simple.
"It's one of those prescriptions that sounds so obvious, but difficult
to practise: It's just consistent, open, honest communication," Jennings
says. "Taking time on a regular basis where different members of a family
actually talk about this incredibly complex system they're part of."
Business adviser Francine Carlin, who owns Business Harmonizer Group in
Vancouver, helps family enterprises to succeed and has worked with companies
large and small.
"The companies that are successful have a compelling sense of purpose
and policies that help them achieve that purpose," she says.
Carlin says family ventures need to be strategically structured to keep
family life and business life separate. This means separate meetings for
family and business concerns, clear governance of the company and well-defined
roles for everyone, even if family members wear multiple "hats" in
the business.
One of the most important things families can do to ensure harmony, she
says, is to create a "family business charter" -- an agreement of
expected behaviour and attitudes to keep everyone working cohesively.
Generational issues are also a source of conflict for many families, as
they are for any workplace. In family businesses, those generational concerns
are complicated by parent-child dynamics.
Jennings estimates about 70 per cent of her students are involved in
family-run businesses and she hears complaints that their parents, often the
founders of the company, aren't receptive to their ideas. Sometimes the
founders have built a successful enterprise without university education,
unlike the upcoming generation who "may be seen somewhat as a threat by
the senior generation," she says.
But it can also be the case that an idea just doesn't work, and younger
generations are quick to presume their elders don't accept them as valuable
contributors.
"The students are often interpreting the response with their family
hat on, when really, raising a new business initiative is a business sphere
issue," she says
It's better for everyone if the younger generations can treat their parents
as bosses and themselves as employees.
Sometimes, two generations are going through periods of extreme change at
the same time. A middle-aged parent might become concerned with the legacy
they're leaving at the same time a 20-something child is struggling with his
or her identity. This can make communication -- particularly about succession
planning -- difficult.
Jennings' solution: "Just not rushing it." Taking a break from
working together can be a good thing for the relationship. Also, if the child
launches a career outside the family business, they can return to the company
with wider experience.
While there are unique challenges to working with family, there are also
advantages, Carlin says. "A lot of people say, 'If it wasn't for the
business, I wouldn't have a relationship with my family.' It provides an
opportunity to create a community, to create a legacy in the community."
- 2010 March 17 OTTAWA
CITIZEN
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