THE most immediate two winners of the EY-Barclays Family Business Award of Excellence have something strikingly in common: both are legacies that span well over a century. B P De Silva Holdings Pte Ltd was founded in 1872 while the Kewalram Chanrai Group has been in business for more than 150 years. Succeeding through generations does not come easy. Various bodies of research have pointed to a dismal reality that many family businesses do not survive beyond the second generation.
Generational change in family businesses is a highly complex process and often involves a balancing act for everyone involved. Resolving issues around succession is both emotionally and practically driven. Many fiscal, legal and financial questions need to be considered, in addition to the personal aims and values of each family member, and the views and aspirations of the next generation of family business owners.
To succeed through generations, family businesses need to sustain the entrepreneurial spirit that not only ensures the pioneering mindset and values which established the business continue to flourish, but also creates future opportunities to deliver innovation and business value.
Taking a long-term perspective of the business is one of the defining features of family businesses. The most crucial element that ensures the viability of the long-term perspective is succession: the aspiration that the business will continue to be run by future generations.
As Narain Girdhar Chanrai, group CEO of Kewalram Chanrai Group, said: "We have been successful through a clear vision and a common set of values . . . We have been able to sustain a highly engaged organisation with an entrepreneurial culture, which is anchored in our vision of being a family-owned but professionally led group with a strong portfolio of businesses."
For Navin Amarasuriya, a director of B P De Silva Holdings Pte Ltd, it is the philosophy gleaned from the Greek proverb "a society grows great when old men plant trees whose shade they know they shall never sit in", that has harmonised the family in growing the business.
There are many intertwining factors that can drive down a family business. Sometimes, unfortunately, the family business has only itself to blame, whether it is due to the inability of the owners to agree, a lack of succession planning, poor conflict resolution or any other reason. There is thus a growingly compelling case for good family governance - and a place for external advisers to help entrepreneurial families to manage themselves systematically and successfully.
A successful family governance model must address the elements of forward planning, succession management and conflict management.
Instituting good family governance helps to increase awareness of the links between the family and the business; clearly delineating the issues that concern specifically the management and the owners. It ensures that all family members understand their roles within and their responsibilities towards the business; documents and addresses the expectations of individual family members; and facilitates more effective communications within the family.
It is important for every family to have a vision of its own future, as well as of its role in the future of the business. For example, if keeping the business going is a declared goal, then are there potential successors within the family, or is it conceivable that someone external of the family run or co-run the business?
A QUESTION OF SUCCESSION
Succession can pose a great danger to family businesses, if handled unconvincingly. Sooner or later, everyone - whether it is an owner or a manager - needs to find a suitable successor. While keeping the business within the family is usually highly desired, it was interesting to find that in a global survey of students with family business background, which was conducted by EY in collaboration with University of St Gallen, only 22.7 per cent of these students expressed an intention to succeed the family business.
Of course, there could be capable successors outside the family. However, many companies that are particularly successful in the long term have had numerous generations involved in its development. Clearly, there could be a misalignment between the succession intentions of family businesses themselves and those of the next generation.
Potential next-generation business leaders are sometimes uncertain about following their parents' path. Often having benefited from a good education, in a world full of opportunities, they are divided between their own aspirations and the expectations of the family.
On the other hand, the readiness of next-generation leaders can be questionable too. The phenomenal rise of fu er dai, a term often used to negatively label the lavish and high-spending second generation of the rich in China, comes to mind. China, through its transformational economic progress over the past couple of decades, has seen the emergence of successful entrepreneurs whose empires are now due for succession planning. However, whether the second generation is best suited to take over the helm is often hugely debated.
These days, family businesses are increasingly aware of the value of non-family executives and the merits of professionally managed companies. Along with that comes the need to bridge the expectations and align the mindsets and behaviours of both family and non-family employees to develop effective working relationships.
Jens and Felix Fiege from Fiege, a logistics company based in Germany, summed it up well in an EY report. A pair of cousins in their 30s, they entered Fiege as the fifth generation to work at the family firm. Emphasising that structure is vital, they said. "It's also important that roles and parameters are transparent and clear to everybody. Those sorts of rules have to be discussed before you go into the business. If you look at cases when things don't work out, it's because there is a frustration on one of the two sides or because there is a lack of trust, because there is confusion about what was agreed on. Guidelines and transparency are key."
Whether a family member or non-family member provides succession, a robust family charter, clearly defined expectations and transparent communications will be vital to the continued success of the company under new leadership.
The writers are, respectively, Asean Markets Leader and Tax and Private Client Service Partner, at EY in Singapore