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    The modern family business: professional, agile and relevant

    Creating a modern, fit-for-purpose family governance framework
    Lee Wong - Head of Family Services, Asia

    Lee Wong

    Head of Family Services, Asia

    Greek philosopher Heraclitus once quipped that the only constant in life is change. For a number of leading families in Asia, this statement is proving true.

    Family businesses are the building blocks of Asia’s growth engine, with many in the hands of leading families and entrepreneurs. While they remain at the forefront of wealth creation in the region, they are also at the confluence of potentially disruptive trends. Not only are these family-owned businesses currently experiencing upheavals and challenges brought about by technology, new business models, and volatile market conditions; many are also having to consider changes at the helm, as control passes from one generation to the next.


    For many leading families, the pandemic encouraged a stewardship approach and accelerated the preparation of succession plans. It encouraged a stewardship approach, to ensure early preparation for succession and transition. By 2030, an estimated 70,000 High Net Worth Individuals (HNWIs) across the region will pass around USD 2.5 trillion to the younger generation1 .


    However, families do face challenges in transferring wealth down the generations. Implementing well thought-out family plans are, in many cases, still a work in progress. Lombard Odier’s 2023 APAC HNWI Study found that while close to 80% of HNW clients noted the importance of sharing a common goal and vision as a family, succession planning is not often discussed between generations, and individual goals are seldom shared with parents, children or siblings.


    For Asia’s family businesses, the need to instil robust governance structures is more pressing than ever.

     

    Bridging the generation gap

    When a patriarch or matriarch founds a new business in Asia, their intention is often that it should be run as a family business, to be handed through the generations. However, as families mature and businesses grow, goals and objectives often lose clarity, or are not properly communicated across the generations. Frequently this disconnect can result from cultural norms or the patriarchal nature of many Asian family constructs. Often there is vagueness regarding roles and responsibilities, decision-making, the direction of the family business, and its future leaders.
     

    It is important to recognise that successfully bridging the generation gap within Asian families begins with establishing transparency and communication between members


    These disconnects can grow even as the first-generation business founders reach their 70s or 80s, with much of the wealth remaining in their hands. Thus, it is important to recognise that successfully bridging the generation gap within Asian families begins with establishing transparency and communication between members.


    It is crucial for families to create and implement a family governance framework. Although each family’s needs are unique, such frameworks typically outline the vision and mission of the business; a leadership and decision-making structure; communication protocols; conflict resolution procedures; and, critically, the process for amending the framework – all of which should be documented in writing.


    Read more about managing wealth with purpose


    Every family governance framework must also incorporate the common values of the family and an agreed code of conduct that each member embraces. It should contain details regarding the organisation of the family – such as composition of the family council; criteria for each council member and their tenure; and how decisions are made. Furthermore, the framework should outline what defines a family member, what each individual is entitled to, and what are their responsibilities and behaviour expectations.


    The process of creating a family governance framework is time-consuming, but it is essential in developing the foundation of family wealth that can grow through generations.


    Families need to be aware that differences in opinion are inevitable, and that considering different perspectives often results in better decisions. In such instances, families must set the rules of engagement upfront, commit to creating a safe space where all views can be heard, and take time to understand and discuss differences. They should also consider involving a trusted, neutral external party to facilitate discussions and mediate disagreements between family members.

     

    Agility and relevance


    To create a modern, fit-for-purpose governance framework, families can capitalise on the increasing professionalisation of family businesses and family offices.

    To create a modern, fit-for-purpose governance framework, families can capitalise on the increasing professionalisation of family businesses and family offices


    A number of family-owned and managed businesses and family offices are looking towards an alternative model in which they remain family owned but non-family run2, where external skilled professionals with expertise in finance, marketing, human resources and more operate the company.


    However, many Asian family businesses remain both family-owned and managed, and are reluctant to let non-family members run the enterprise. It is important that families formalise their leadership criteria and put in place a robust, well thought-out next generation training program to equip next generation family members with the necessary skills to run the business.


    Where families lack the interest or appropriate skills to run a family business, they should consider appointing non-family members to management positions. Bringing in an appropriate non-family member can help the enterprise thrive, which then benefits all family shareholders. This also enables the younger generation, who may be eager to establish their own venture away from the legacy family business, to work towards their own dreams and goals.


    Is Asia’s great wealth transfer the rise of a new “inheritance economy”? Read on.

     

    Championing causes that matter

    Many younger generation HNWIs are concerned with investing sustainably and for impact, with a new breed of investors seeking socially-responsible profits along with an emphasis on ESG investing3. Sometimes, these concerns may lead them to pursue paths that deviate from the family businesses.


    Thus, the family governance framework should also account for supporting the aspirations of future generations. It should not only serve to preserve, sustain and grow family wealth, but also to embrace the complexities and evolving needs of a family group.


    A modern, fit-for-purpose family governance framework is able to empower the younger generation to thrive and offer their support to causes that matter to them, while helping to pass on the torch of the family’s legacy and entrepreneurial spirit to the next generation.

     

    1 Preservation and succession: family wealth transfer 2021 (Wealth-x report)
    2 Creating value through good governance (kpmg.com)
    3 A new breed of investors are driving purpose plus profit (entrepreneur.com)

    Important information

    This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
    It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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