Wealth Advisory

Sustaining a Family Business Over Generations

Sustaining a family enterprise across generations involves an increasingly complex set of considerations.

To help families better understand how to address them, J.P. Morgan Private Bank recently published the Asia Family Enterprise Study—a comprehensive look at challenges and best practices in the areas of rising generations, transition and governance.

The study draws upon detailed survey results from over 140 private clients with successful family enterprises in multiple jurisdictions throughout Asia. It provides insights into how succession planning is evolving, with implications for family businesses not only in Asia, but across the globe as well.

Facing a transition

Of those surveyed, 91% plan to keep the family business rather than selling it or taking it public. However, most families—88%—are either not prepared at all or only somewhat prepared to transition to new leadership.

This seeming indecision underscores a recent crossroads for families in Asia. Traditionally, the patriarch and/or matriarch handpicks the family member who will succeed. Today, however, there is increasing focus on identifying the most capable and motivated individual in the next generation for the leadership role.

In addition, the new generation often holds views, perspectives and even values that differ from senior family members.

Capability raises the issues of education, training and leadership skills. In addressing the dual needs of business and family, succession must now also encompass the development of the rising generation of leaders, as well as the satisfaction of individual family members.

Who will take the reins?

Of families intending to keep the legacy business within the family, more than 80% in the survey plan to pass management reins to other family members. More than 60% of the families surveyed, however, have yet to pick their successor(s).

Unlike a public company, a family enterprise owner today must not only choose the best successor, but also engage the talents of all family members who may be interested in working in the business. This may include shared leadership roles or the creation of several business opportunities.

How best to develop talent?

As the study highlights, not every member of the rising generation is necessarily suited to work in the family enterprise. It may even be that a younger member is more qualified and interested in a leadership role than someone older.

To manage these expectations and realities fairly, an employment policy can be useful. As the study suggests, an employment policy can define the qualities that family business owners deem important for second-generation candidates, such as a professional degree or outside work experience.

The survey also found that family business owners vary as to how much they encourage family members to develop—whether outside or within the family business:

  • 38% of families have no formal program for the successor generation
  • 36% encourage outside work experience
  • 26% have a defined rotation program in place

By working at a distant or larger business, potential successors gain greater perspective on the challenges the family business is facing as well as its opportunities to grow and develop. Outside experience also allows prospective leaders to develop their skills and build a track record of success.

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