26 Dec 2013
Overview of the South East Asian Business Family
Business Families are significant contributors to the world's economy. According to the Asian Family Businesses Report 2011 by the Credit Suisse Emerging Market Research Institute, more than 60% of the total listed companies (with a market capitalization of above USD 50 million) in South East Asia as well as India are family owned or family-controlled.
It is also commonly accepted that a substantial proportion of these South East Asian Business Families are currently being owned and/or managed by Generation 2 or 3 thereof. This status quo presents an interesting development in the growth and management of South East Asian Business Families. Specifically, these Families are transitioning from a centralized family cum business leadership in the form of a single founder to a more decentralized family cum business leadership model comprising siblings and/or cousins. As such, there are challenges inherent in these transitions which will involve not only business development opportunities but also family development opportunities otherwise known as Family Governance.
What is Family Governance?
Before we proceed, we first need to clarify the practical meaning of Family Governance? Put simply, Family Governance comprises a set of strategies and structures that defines the way in which a Family makes joint decisions together. Those joint decisions will invariably have an impact on the Family, on its Ownership of it Business Interests and other Assets, as well as on the actual Business or Management System. As such, Family Governance comprises the inter-connected linkages between Family, Ownership and Business as per the diagram
The Case for Family Governance
As such, it is vital for Business Families to have strong Family Governance strategies and structures as Family Governance directs the inter-connected relationships between Families, Ownership and Business. As South East Asian Business Families grow and develop quantitatively and qualitatively incomplexity, it would appear that the lack of and/or ineffective Family Governance could facilitate both the gradual disintegration of the Family and/or the incremental deterioration of their Businesses and hamper the long-term sustainability of these Business Families. Development of the appropriate Family Governance Model serves as a system, a tool, and a blueprint to address the complexities of Business Family dynamics, Ownership structures and Business management. It is our belief that Family Governance will also enable the Business Family to define and strengthen their collective mission and vision, provide management and leadership, balance business growth and family continuity, help families make decisions, and harmoniously blend the competing interests of Family, Ownership and Business.
A Basic Model for Family Governance
A Basic Model for Family Governance may comprise a Family Constitution that encapsulates the core values, principles, as well as the mission and vision statement of a particular Business Family. The Family Constitution may also include provisions that state the qualifying criteria of Eligible Family Members. The qualifying criteria of Eligible Family Members may have profound impact on the ownership of Family Assets including the operating businesses as well as the management of such Family-owned operating business. It is hoped that each Eligible Family Member should honor and agree to commit to the Family Constitution. Invariably, the Family Constitution may also include provisions that govern the election of Eligible Family Members to the Family Council as well as the tenure, roles and responsibilities of such Family Council Members. These roles and responsibilities may pertain to the Family, Ownership of Assets as well as the Management of the Businesses. Family Councils are usually constituted to represent the individual and collective aspirations of Family Members and to facilitate the communication between Family Members and even manage the conflict arising from any miscommunication. Family Councils are usually expected to provide leadership and talent development cum mentorship to the Family Members as a whole in order to facilitate the successful sustainability of the Business Family.
Conclusion
In a typical South East Asian Business Family, one or more family members may have overlapping roles in the three circles of Family, Ownership and Management. Although a single Business Family Member may wear two or three overlapping hats, it may be critical for the relevant Family Governance strategies and structures to implement distinct leadership bodies e.g. the Family Council for the Family sphere, the Investment Council for the Ownership space, and the Board of Directors for the Businesses. Although it is accepted that the Family Council may appoint specific persons to the Investment Council and/or the Boards of Directors, the Investment Council and Boards of Directors should be encouraged to act independently according to their respective mandates in order to facilitate a viable and robust ecosystem supporting the Business Family as a whole. We at the Business Families Institute @ Singapore Management University appreciate that there is a need to educate and raise public awareness on the importance