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Stepping up: preparing the next generation to lead

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Some of the world's largest family businesses are located in Asia and many are still mostly run by their founders.

LAST year's filming of a movie on ultra-high net worth families in Singapore had everyone talking about it. If you haven't read the widely popular book, the story is focused on the generational inter-play of several Singaporean ultra-high net worth families.

The movie is a good premise for what can actually happen.

There is substantial wealth but the assumed heir has taken his own course and pursued an academic career. It raises the question, in his absence, who will become the next generation leader and how does the wealth get transferred?

It's a big question facing many families. Research indicates about a third of family businesses may survive into the second generation making the call to action all that much more needed.

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Some of the world's largest family businesses are located in Asia and many are still mostly run by their founders.

Having spent their lives building the business, the founders are reaching a point where they want to take the foot off the accelerator but realise that the succession plan for the family business has serious gaps which could eventuate in the company closing shop or being sold off. This then has serious consequences for the sustainability of the family's wealth.

Don't leave the family in the lurch

Succession planning can be an awkward and uncomfortable conversation particularly as it deals with the emotional and sensitive issues of retirement, death and money. For many, it's easier to overlook than to tackle.

Many also see succession planning as simply passing on the family wealth to the eldest child and entrusting them to take care of the family without a clear sense of plan or purpose.

With so much at stake, that leaves a lot up to intuition and the assumption of aligned values, and without an agreed and deliberate discussion can be difficult to unpick after the fact.

Working with clients often involves years of planning and execution to ensure that the next generation is ready to take over the family wealth, and equipped with the skills and knowledge needed for a smooth transition.

Succession is not a single event but a process. Setting up a "family constitution" can be one of the first steps to identify guiding principles on how decisions will be made and who will be accountable. It can also help address any future conflict by having a framework in place on how to resolve it.

Adding in the element of a family business can definitely be an extra layer of complexity. Not all of the children may want to take as active a role in the business. The broader question becomes how do you allocate the wealth accordingly?

Prepping the Next Gen

Gone are the days of parachuting into a senior role at a young age. Instead, I have started to see more clients embed their Next Gen in the business and rotate them into different teams. Not much different from a graduate recruitment programme many companies have on offer to give employees a broader company perspective.

Increasingly if the Next Gen want to lead, they have to take ownership and prove themselves. Women are also increasingly being the ones to take the helm.

Some are also gaining external work experience before joining or returning to the family business.

Clearly, a temporary stint away has its merits including enabling potential future leaders to get different perspectives and insights that will benefit the family business later on.

Another approach is bringing in a professional team to have key roles within the business to work alongside the family to transit the business to the next level. Perhaps in some cases, a distinction between ownership and management of the business.

Generational tug-of-war

According to research by a global consultancy, the younger generation overwhelmingly want to leave its stamp and chart its own course within the family business.

But will that stamp be consistent with the previous generation, and does it matter?

This can actually become a source of conflict if not addressed because it's not unreasonable for founders to want to stay involved in the business in some shape or form.

Having invested so much emotionally and physically into building a business, it would take an extraordinary individual to not have their nose slightly out of joint if the next generation wants to change what they built over many decades.

So while experience, knowledge of the business and industry, leadership traits and education are rightly the main factors for leadership selection, the ability and willingness of the successor to manage inter-generational collaboration cannot be dismissed.

When the time finally comes

Clearly, there are a lot of moving parts in generational change but success comes in getting the balance and timing right.

Underpinning all of these dynamics is simple communication. While so obvious, it is striking how often this is the root cause of inter-family business disconnects.

The discussions that need to take place between founder and successor would almost be akin to two parents discussing how they want to raise a child - reaching a view on how the responsibilities will be divided, future aspirations, future scenarios that could arise, and how they're going to be handled.

Time in the business inevitably has a gravitational pull for employees towards the corporate values but it can't be left there. Having clear and conscious conversations for how the generations will work together is essential. Too much is at stake otherwise.

The writer is head of Private Wealth Solutions, South-east Asia, at HSBC Private Banking

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