Preserving family legacy in Singapore

The popular idea that family wealth quickly dissipates – summed up by the Chinese saying “Wealth does not last beyond three generations” – could be a myth, according to new research by the Harvard Business Review (HBR).¹ The data, says the HBR, suggests that family businesses actually last far longer than public enterprises, and that they “dominate” lists of the longest-lasting companies in the world. The publication adds that such businesses are well positioned to remain competitive in the 21^st century.

The three-generation idea, explains the HBR, came from a single US study of manufacturing companies in Illinois, back in the 1980s. This study is the “basis for most of the facts cited about the longevity of family businesses”, the HBR says, adding that its findings have been interpreted erroneously for decades.

Nevertheless, as the frequent news reports about the difficulties facing some of the world’s richest and most powerful families illustrate, succession planning can prove challenging and can pose a significant threat to the longevity of a family’s business and the wealth that it generates.

In Singapore specifically, and Asia more generally, the ability of families to successfully pass the baton to the next generation will be increasingly tested in the coming years. That’s because a number of Asian founders are hitting retirement age, according to the Singapore-based news outlet CNA.²

Worryingly, however, many of Asia’s High Net Worth Individuals (HWNIs) have not done any legacy planning. That’s according to the research firm Asian Private Banker, which revealed in its Succession Planning 2019 report that 57% of Asia’s HWNIs were unprepared, compared with just 32% in the West.³ Meanwhile, a 2018 survey found that less than a tenth of Singapore’s family businesses have robust succession plans in place.⁴

The ostrich approach doesn’t work

Angie Han, Head of Wealth Planning, South Asia, believes that procrastinating about succession planning can cause major problems down the line:

“Families can plan well ahead to preserve the business and their wealth, and to ensure a smooth transition to the next generation. There are plenty of pitfalls for the unwary, including the potential impact of sibling rivalry and intergenerational differences in attitudes towards wealth and business management."⁵

In the Asia-Pacific region, for example, 72% of intergenerational wealth transfers fail due to poor communication within the family, according to The Asian Banker.⁶

Why it’s good to talk

A critical step towards a seamless transition is creating an open and frank dialogue between family members.

It’s also useful if senior members of the family take the time to share with the younger generations the history of how the family’s wealth was created. That can give them a connection to the business and inspire a lifelong interest in maintaining the legacy of the hard work undertaken by earlier generations.

Sometimes, however, wealth owners are fearful of detailing just how much a family is worth, because they are afraid that the information could breed a sense of complacency and entitlement amongst the potential heirs. Experts suggest parents stress the responsibilities that lie with preserving wealth.

In other words, the focus shouldn’t just be on material wealth. Families should discuss their values and their vision for the future. Skills and knowledge can be passed between generations, according to The Conversation, a UK publication written by academics and researchers. It adds that the importance of personality traits, such as resilience, “that can help prepare younger family members to work in the business” can also be shared.⁷

Another problem is that the founders of a business may be reluctant to cede control. At an age when most of their peers are achieving positions of authority, some children of founders in their mid-30s and 40s may still be seen—and treated—as a permanent heir apparent. That’s according to Roger King, Adjunct Professor of Finance and Director of the Tanoto Center for Asian Family Business and Entrepreneurship Studies at Hong Kong University of Science and Technology.⁸

“Some children reach their mid-30s and 40s: at an age when most of their peers are achieving positions of authority, they may still be seen—and treated—by the boss as a permanent heir apparent.”⁹

The founders may also insist that the way they run the business is the best way to manage it effectively. Yet, younger generations may believe their elders haven’t kept up with modern developments.

A fresh perspective

Behavioural psychologists outline the emotional barriers that often prevent families from discussing their wealth. For example, attitudes to money can vary widely among family members. The tensions these differences may engender can result in members deciding to avoid the subject altogether.

Some families may appoint an independent advisor to help facilitate these conversations. Indeed, it is preferable that everyone’s voice is heard, so that all concerns are aired and a frank discussion about the succession plan can ensue.

Younger generations tend to be more worldly in their views, due to the education/exposure they have received – often as a result of the privileged positions they enjoy. They are more aware of environmental, social and governance issues, have a desire to create better and more sustainable businesses, and are keener to allow professionals from outside the family to help run the business.

Put it in writing

As the family agree on the manner in which they organise themselves and engage in family-related, finance-related and ownership related discussions, it would be ideal to write down such governance rules, protocols, procedures and agreements in a written document, commonly known as a “family constitution”.

The consultancy Deloitte argues that creating such a document brings many benefits:

“A well-run family enterprise is grounded by a solid governance structure, which guides the business, the family, and ownership on many important matters, including generational succession. With good governance in place, confusion may be replaced with celebration as the family looks forward to ushering in the next generation of leadership.”¹⁰

Relying on an informal, often verbal, understanding is certainly fraught with difficulties.

In addition, Angie believes that just talking through all the issues – even taboo subjects related to this document – can help build trust and understanding between family members. Indeed, the dialogue can prove more fruitful than the document itself.

Capturing the attention of younger generations

Discussing philanthropic issues can be a good way of bringing the family together. For instance, the older generations could find a cause that resonates with younger family members, such as climate change or saving endangered animals.

This is especially important for those family members who may not be interested in the family business. Showing how the wealth that a business generates can be used to support causes those members are passionate about can help create a connection with that business, engender a sense of responsibility, and underline the importance of good stewardship.

In conclusion, an open and honest dialogue between the generations, overseen by an independent arbiter, is vital to avoid the issues of mistrust and miscommunication that cause so many family succession plans to fail. Parents can also inspire and excite their children by sharing how the business was founded and how their wealth can be used to help make the world a better place for future generations.