Succession

 

 

 


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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