Family Business to Financial Family – complexities of succession planning

Withers_20a0oysterStacey Choong, Tax partner, Withers Singapore provided some valuable insights of wealth across jurisdictions from Europe to the US and Asia, and wealth succession across generations at our May 2015 forum. She shared her own experience working with wealthy families in Asia as well as insights from their research on The Meaning of Wealth in the 21st Century.

Succession Planning

Planning for succession of family and business wealth has been going on for hundreds of years in Europe and increasingly in the US, but is a relatively new concept in Asia. With significant wealth created over the last three decades, it is only now we are starting to see inter-generational complexities emerging with different expectations from the modernising of Asia against a backdrop of cultural expectations.

New Perspectives

Education is a top priority in Asia with many university educated in countries such at the US, Canada and Australia. Upon return, these graduates may have a different view on how the family business should be run or may not want to be involved in the business at all, seeking new opportunities, particularly with the dramatic changes in technology over the last few years.

Globally, around 30% of businesses successfully transfer from the first generation to the second, but only 10% to the third generation. Asian business owners expect an 80% success rate, but interestingly haven’t actually discussed with their children, so there is a significant gap between the pressure of expectations and the reality of the next generations vision of life for themselves.

When asked, the Patriarch expects to relinquish control of the family business to the next generation when they are aged in their 70’s. Meanwhile, the second generation is expecting to take over in their early 30’s. Whilst this is 10 year gap in expectations, it does create the opportunity for mentoring and preparing for transition.

From Family Business to Financial Family

Like many European multigenerational families, there will be increasing interest in moving away from the family business and cashing up to become a financial family. The challenge is with a different priorities and interests evolving amongst the next generations, and how to manage the wealth whilst keeping the family together.

We are seeing the rise of the family office in Asia which requires a different skill-set than those of an operational business. In the US, philanthropic endeavors provide a platform to align family values, while increasingly in Asia there is focus on social enterprise and looking for the next big opportunity, particularly venture capital.

Managing the transition

There is no one perfect solution when it comes to succession planning. From a cultural perspective, many are reluctant to air their views and don’t know how to deal with conflict or say no. This is where facilitation of family conversations by an independent third party can help, navigating the founder’s objectives with those of the next generation. Whilst many Asia families are reluctant to engage outsiders, there have been significant benefits ranging from governance, to transition and helping the parties articulate a new direction.

Founders need to lead from the back and allow the next generation to move forward.

Withers were set up in London in 1896. They act for successful individuals, families and institutions for on their business and personal legal needs both at home and abroad and have recently set up in Australia. For more information go to Withers Worldwide Sydney office or valued community member Rita Chowdhury.