One of the biggest hurdles for most Asia-based business-owning families continues to be sustainability across multiple generations.
Unlike business families in the US and Europe, many of which count several generations of successful transitions, most Asian business families are in the early stages of their life cycle.
That means the second generation in most cases, and the third generation in a few. As such, they continue to grapple with the challenges and constraints that are intimately related to management succession.
“There are different stages of development within Asia, with some more mature families in some parts, where some families want to go global, with the others still in the early cycle of their development,” says Annie Koh, vice president, business development & external relations, associate professor of finance, at the Singapore Management University.
This is where the Business Families Institute at the Singapore Management University (BFI @ SMU) aims to play an instrumental role.
Connecting the dots
Established in 2012 as South-east Asia’s first regional business familycentric institute, the objective of BFI @ SMU is to develop strong and successful business families by providing education, engagement and research programmes in the key areas of family, ownership, business and governance.“
The focus is thought-leadership research that represents issues faced by various families,” explains Koh.
From a global perspective, BFI @ SMU is part of 42 universities focusing on producing case studies on how entrepreneurs successfully engender a trans-generational transfer of entrepreneurial skill-sets from one generation to another.
Within Asia, the Institute intends to help mainly regionally-based, business-owning families to develop, harness and leverage their family and financial capital across generations.
This can then precipitate growth to perpetuate an enduring business family legacy in their communities.
According to Koh, one-third of the business families who participate in the programmes, events and research platforms are Singaporean; another one-third are comprised of business families who are based in or have a presence in Singapore – and they hail from the region as well as from Asian Families & Their Wealth 2014 19 Europe; and the final one-third fly in from neighbouring countries such as Indonesia, Malaysia, Thailand, Myanmar, etc.
Long-term approach
The independence of BFI @ SMU is a key component of its effectiveness, giving it a unique value proposition.
“Development of trans-generational wealth does not marry with short-term financial targets that might exit within banks,” says Koh. “We run programmes for advisers that are independent and can be aligned to the same horizon as some of the families they are helping.”
Essentially, it is about creating long-term solutions. “That means involving more stakeholders than just bank employees,” she adds. “It is important to re-tool wealth managers for the future, to understand families better, and to understand the wider set of skills and partners to bring to the table as a value-enhancer for families going through the transition.”
The positive thing for Koh is that advisers – which she says need to be in strategic alignment with their clients – are showing a growing interest in training to be able to understand family advisory, rather than pushing products.
Indeed, it is a team approach to delivering advice to families, adds Elaine Tan, director of BFI @ SMU until mid-2014. “While it is about getting specialist skills, it is also about finding people you trust.”
Given that this was what the original role of the relationship manager was supposed to be, she says these individuals need to be groomed with the connections and social networks and skills. This is particularly important in Asia, where facilitating transitions is different than other parts of the world. “A lot of wealth managers have just focused on the C-suite clients, but the ecosystem needs to support the next generation and families connected to the business, even if they are related by marriage,” explains Tan.
To achieve this, BFI @ SMU is focused on supporting families in professional ownership positions, by empowering them to become professional managers. Yet it also recognises that the ecosystem needs to be supported by non-family members in the business to develop an ownership stake to understand the dynamics of families, to appreciate the need for patience within this process.
While the founding generation cares a lot about legacy, having built their wealth with a vision that they want to pass on to the next generation, they increasingly recognise that the same passion doesn’t necessarily come from the family members.
“So they are much more open to the possibility of hiring a non-family member as the CEO,” says Koh, “although with the family still very much engaged within the business – either as shareholders or through their DNA as the business vision for the development or direction of the business.”
When it comes to investing, developing cross-generational entrepreneurship within the family is also an important goal for BFI @ SMU.
“One of the big challenges for Asian families wanting to go global is growing their wealth,” explains Koh. “Theold European model, with a family office to do wealth preservation, might not yet be relevant for Asia. The investment platform is also used for growing wealth.”
Another important dynamic emerging for some business-owing families in Asia, without a lot of wealth, is their desire to be a catalyst for change within their community. For example, says Koh, it is about financial wealth, along with intellectual, social and human capital.
“Asia’s growth was so fast that advisers had been rushing to manage the financial piece,” she explains. “But for families who grow their wealth without intellectual, social and human capital, then it is incomplete.”
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