Agnes Au-Yeung: I look at succession planning where there is a family business as a two-fold process: ownership transfer and management or leadership transition. Families need trusts for ownership transfer planning, but trusts, depending on the type and structure, may not achieve business succession planning for families. When the only tool you have is a hammer, everything looks like a nail. A trust is one solution. A trust alone is also often not the entire solution. It needs to be supported by good family governance and corporate governance.
Business succession planning often involves a separation of ownership, management and control. If succession planning within the family does not work (either there is no qualified interested successor or the identified candidate may decline to take on the role for fear of family disharmony) the owner can still take steps to ensure that the business survives and grows. Selling to third parties or even to management or employees, taking the company public, finding an interim chief executive, splitting the business into autonomous divisions to create a business partnership can all be contemplated. Taking such steps is really just another form of business succession planning.
What are some of the other issues that you want clients û who already have trusts or other investment vehicles set up û to keep thinking about even after they have established a relationship with a bank and a law firm. I presume tax is a key issue that is often ever-changing from country to country.
Does planning stop with a trust, or does it really start with a trust? Even without the change of tax codes, the family is evolving all the time - births, retirement, deaths, marriages and separations. If the intention of planning was to keep core family assets (this can be both the family business and identified legacy wealth) within the family, then an ongoing review of not just the structures, that is the trust and other planning or investment vehicles, but the governance processes, is important to make sure that the original purpose is still served and changing family and business circumstances are taken account of.
This is where we talk about dynastic or legacy planning. Successful dynasties such as the Rockefellers, transmit not only the ownership but the values of the builders of the businesses to successive generations. John D Rockefeller travelled to work on the Sixth Avenue railway and educated his children to earn nickels and dimes from household chores. It is worth noting that the most powerful and enduring dynasties are those that do not simply maintain dynastic control over the business or investments but over the family.
How can families ensure the second generation is fully-equipped to take on the responsibility?
There is no guarantee that the second generation will be fully equipped. However, planning years ahead of time will definitely increase the chances. Children should learn about the family business.
Before we even get to your question we need to ask: 'Are the forces acting against succession planning, for the founder, the family, and the employees still very much there?' For most business owners, their business is their single largest asset and also represents a major source of self-esteem and personal worth. Assuming the owner is willing and planning to let go, then training and educating the second generation to take over the reins is important.
Training areas include decision-making, leadership abilities, risk orientation, interpersonal skills, stress management. The next generation can be encouraged to work outside before joining the family business to enhance their credibility in the eyes of non-family employees and also for them to develop a higher level of self-confidence and to bring new ideas and views to the family business.
Once the children are 'on board', and particularly with the shortlist or identified successors, allow them to: be involved in business decisions, even if not the major ones at the outset; meet key business contacts; work in different areas of the business; be exposed to the full spectrum of knowledge from the market, customers, suppliers, contractors, to employees, technology, processes, and policies; and be introduced generally to the responsibility and process of management of the business and working with family members as well as professionals inside and outside the business.
Retention of key non-family employees is important to move through the succession process smoothly. It is important that employees have or develop respect for the second generation.
Succession planning is a process, not an event. It happens in phases and extends for years. Over the period it is important to regularly revisit the succession plan, to discuss progress, and ensure that the owner is on course.
How does the cultural dynamic (e.g. newer wealth, larger extended families, older patriarchs) in Asia play into the delivery of wealth management services? How does this differ from more mature wealth management markets?
The Asian culture focuses a lot of power and leadership with the family patriarch (but I understand this is so with, for example, Latin American culture). In our times the younger generations are Western educated and exposed to Western ideas. They have a different outlook on life and success which is challenging traditional Asian family values and business practices. Wealth advisers have to balance the founder's entrepreneurial instincts with the younger generation's new way of doing business, such as their use of private equity and aggressive business expansion overseas.
Sometimes however it is not a match between the senior and younger generations, and it is no longer a simple East against West ideas duel like we had in the past. We also see senior generations more exposed to Western knowledge, more open to the idea of adopting Western methodologies, and eager to find new insights from the Western educated younger generation, while at the same time keeping part of the traditions and culture that is the legacy of the generations past.
Specifically on investing, there is frequently a conflict between the patriarch who is more risk averse and the second generation who has the self-confidence to take a lot of trading oriented investment risk. The younger generation often is exposed through education to the more mature wealth management markets. Nevertheless the dominance of newer wealth in Asia differs from the mature economies in an important dimension. The Asian wealth has tended to grow faster and this creates a more opportunistic attitude on the part of Asian clients. The rapid growth of family wealth often underpins a willingness to seek opportunities, to take more risk through new asset classes, portfolio concentrations, and more active trading approaches.
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