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Succession Planning – The Key to Enduring Family Businesses

October 1, 2015

For how long can a family business sustain? 50 years? 100 years? Celebrated examples of long-established family businesses around the world abound:

  • NINBEN: NINBEN is a Japanese katsuobushi (dried bonito) distributor founded by Ihee Takatsu in 1699. Today, 316 years since the launch of its first redemption coupon during the Edo period, NINBEN is owned and managed by the family’s 13th generation.
  • TORAYA: Founded in Kyoto, Japan in 1520 as a wagashi manufacturer committed to innovation for 495 years, TORAYA is now managed by the family’s 17th generation.
  • The Rothschild family: With a history of over two centuries, the Rothschild family has been a financial and banking giant in Europe with the five sons of Mayer Amschel Rothschild running their own banks in five European cities. Rothschild Senior announced in 1812 before his death that he would strictly require the future generations to maintain strong family ties.
  • The Guggenheim family: Emerging in Philadelphia, U.S. in 1850, the Guggenheim family gained its first success with its silver, copper and aluminum mining business. With a history of over 160 years, the family has since been committed to carrying out art collection and education through the renowned Guggenheim Museums across the world.

Statistics shows that about 30% and 10% of family businesses can survive into the second generation and the third generation respectively, while only 4% can pass down to the fourth generation. According to the “Chinese Family Businesses Report 2014” published by the Taiwan Institute of Directors, family businesses accounted for a total market share of 74% in Taiwan, and the figure in China was 45%, which is nonetheless increasing rapidly. On average, the family businesses in Taiwan have a history of 33 years with leaders aged over 60 years old, while those in China have a shorter history of 18 years and younger leaders who are in their 50s. Building a sustainable family business is now an important issue for the entrepreneurs across the Straits.

Chinese people value sentiment over rationality and law, and the tight bonding within a family is irreplaceable. Modern families generally have fewer children, partly attributed to the “one child policy” in China, and the number of potential successors has been dwindling. Therefore, passing down the business to a single family member not only leads to risk concentration, but also results in unfairness.

The first-generation entrepreneurs should evaluate the current global political, financial and competitive environments carefully, and review the competence and willingness of the second generation to take over the family business. One should never assume that the next generation will be more than happy to take the helm. Since it is common for the second generation to pursue studies overseas, they may have broadened their horizons and show little interest in taking over the traditional businesses. As such, family members should work together to explore the solution. For instance, with the help of some experienced advisors, the second generation may be able to inherit the business smoothly. They may also preserve and grow the family wealth by entrusting a professional management team to oversee the operation.

The Western family businesses that have survived a century or two usually have a well-established succession system, avoiding those challenges faced by their Chinese counterparts. They manage and supervise the family’s wealth and operation following the stringent rules of Family Governance, Family Council, Family Constitution and Family Foundation, ensuring that all family members can participate in the decision-making process and maintaining the family’s control over the business.

The idea of “Family Office” that has drawn the attention of the Chinese entrepreneurs originates from the succession tradition in the West. Examples include Rockefeller & Co. founded by oil tycoon John D. Rockefeller in 1882, BNY Mellon Wealth Management founded by the Mellon family in 1868, and Guggenheim Partners established by the Guggenheim family. Also known as the “Single Family Office” (SFO), the office provides bespoke services for a wealthy family, covering investment, wealth management, legal issues, taxation, philanthropy and family governance. Many professional consultancies offering Family Office services have emerged in recent years to meet the needs of the UHNWs.

The core of business and wealth succession is to preserve the family’s unique heritage and values, which are the cornerstones of the family business. Founded in 2012 and led by Dr. Amen Lee, the Legacy Academy focuses on the values and succession of the leading families; moreover, it assists family businesses in succession planning with the five theoretic models. Business and wealth succession are a challenging mission and a vital responsibility. Professional advice, in-depth understanding and early planning, complemented by trials and adjustments, will ensure smooth sailing ahead. Start planning now for an enduring family business!

Ethan Yen
VP, Business Development

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