The world of family businesses is full of stories of the next generation struggling to deal with domineering parents and trying to find the courage to speak out. There’s the very public and long-running spat within Australia’s Rinehart family, which saw Gina Rinehart’s children trying to remove her as trustee of their multi-billion-dollar family trust.
In the US, cantankerous octogenarian Rupert Murdoch still chairs media conglomerate News Corp. Confectioner Tootsie Roll Industries is headed by a husband and wife team, Melvin and Ellen Gordon, who are in their 90s and 80s respectively.
Although family business leaders who have founded a company or led it through immense growth may have been indispensable to its performance in the past, their constant need to wield power can be detrimental to the succession process and growth of next-gens, say market watchers.
Take, for example, the situation currently facing the third generation of a Swiss construction family business. Founded back in 1926, the business is owned by the second generation, but their fear that the next-gens – one brother and two sisters – will squander away the family wealth, is holding back transition of the business.
“Although aged 73 and 69, my parents are not willing to transfer the family business and other family assets to me and my sisters,” said the third-gen chief financial officer of the €100m-plus company, who preferred to remain anonymous. “They are unable to talk about heritage transfer and think the longer they will be the owners, the better. They in fact behave like they would never die. Although my sisters and I are not willing to inherit anything before they pass away, we want to address legal issues in order to be ready when it happens.”
But, it doesn’t always have to be this way. “LVMH is a classic example of where the issue of controlling parents has been handled well,” says Randel Carlock, professor of entrepreneurship and family enterprise at Insead. Chief executive and chairman Bernard Arnault’s children head several brands in the luxury empire, which boasts Louis Vuitton and Christian Dior among its stable. “Antoine took over the shoe business [Berluti] and did a great job building it, and now he is helping to expand Loro Piana. He’s not sitting in his dad’s shadow but is delivering business results and taking on bigger responsibilities,” Carlock says.
While yielding control of a business one has built up is difficult no matter where you are from, experts reckon it is particularly hard in some economies where strong-willed and entrepreneurial patriarchs lead many companies. “In Asia it is a very common theme that first-gens are very controlling individuals,” says Christian Stewart, founder and managing director of Hong Kong-based Family Legacy Asia. “They don’t retire, and there is usually a communication gap between them and their children. When they bring their children into the business, that’s when problems can arise, especially if the next-gens have had exposure to western values and ways.”
At United Overseas Bank in Singapore, Cho Yaw Wee sent the family business world into a tizz when he appointed a non-family chairman after 40 years at the helm instead of his son Ee Cheong Wee, deputy chairman and chief executive. It was the first time a non-family member had chaired the 79-year-old company, but it also meant the bank avoided the pitfalls numerous other family-owned firms face – that of next-gens having to take over from strong-willed and controlling parents.
“Today’s wealthy Asian families hold a variety of assets, from financial to real estate, and are often founded on an entrepreneur’s vision and hard work,” said Bernard Rennell, regional head of global private banking, Asia-Pacific, HSBC Private Bank. “After spending many years building a legacy, these founders now wrestle with how to transfer their wealth and keep their legacy alive in the generations to come. Through our long history of advising Asia’s wealthy, we understand that a clearly defined ownership structure and decision-making process not only preserves a family’s business legacy, but also reduces potential for conflict between family members to foster healthier long-term relationships.”
Following the three Es of engagement, explanation and expectation is an alternative strategy to help generations within the business avoid coming to loggerheads, suggests Annie Koh, academic director of the Business Families Institute at Singapore Management University (SMU). She says engagement should start early to ensure business and family discussions are aligned. “Succession should not be a sudden process.”
When it comes to explanation, Koh says that businesses should ensure proper communication of decisions and plans, even to family members who are not working in the company. “They often don’t have an idea about what the business is going through, so some business decisions should be explained to them,” adds Koh.
But the first two Es will only work well if paired with the third. For a founding generation family business leader who has more than one child, “keeping the cards close to his chest” will only end in disaster, says Koh, as expectations of all the children are heightened when it comes to succession. “You need two hands to clap. Similarly, there may be people who don’t want to be in the family business.”
Several typical characteristics of first-gens can make this process easier said than done, however. Many founders of companies are unused to a board of directors, or even being answerable to anyone. Additionally, a lot of entrepreneurs rely on the “golden gut” – using intuition to drive business strategy and then having difficultly explaining their decision-making processes to others.
A lack of constructive feedback can be exacerbated when non-family members feel they can’t speak frankly to next-gens in the business, explains Sian Steele, partner at PwC UK. “During appraisals, you can’t really tell your boss’s child that they are rubbish, so some next-gens don’t get any good and constructive feedback. Invariably in these situations, the parent has the more controlling role.”
The combination of little responsibility and a lack of professional feedback can have undesirable results when a next-gen suddenly lands in the driver’s seat. According to a PwC survey of more than 200 next-gens, published in April this year, 86% of that generation who have decided to work in their family firms want to “do something significant and special when they take over”. Some 80% also have ideas for changing and growing the company – by launching new products, investing in new technology, or changing how the business operates.
Such aspirations aren’t a problem in themselves, but Steele warns: “You often see next-gens making more radical changes because they feel they were suppressed all that time. So now they feel the need to show that they are credible and have something to offer. And this probably creates more disruption to the business in the medium term.”
To return a sense of ownership to the next generation, Carlock says he never lets a senior member chair a family meeting that is focusing on bridging the gap between two generations. “I always ask two or three younger generation members to get the agenda for the meeting and feed it back to the rest of the family. Because it’s not about the power – it’s about experience, development and building confidence among the next-gens."
