Cloud Talk: The Science Of Succession Planning
In the latest edition of Cloud Talk, Gen.T invited three business leaders to engage in a discussion about the importance of succession planning, its processes and how it can impact the stability and sustainability of a company.
Asia has the largest population of billionaires in the world today, and the number will continue to grow in the next few years. But our most affluent are also the least prepared globally to hand over the reins of their business to a successor.
How do you plan for a smooth succession? When should you start grooming your successor? And should he or she come from within the company or outside?
When the potential successor is part of the family, the conversation takes on an entirely different hue. For many, joining the family business—let alone taking on the top job in the company—may not always be a choice, but a cultural obligation. In such a situation, how do you find your footing? And how do you prepare for working with family?
The July 22 edition of Cloud Talk addressed these questions, with insights from three speakers who approached the topic from three different perspectives.
Hospitality veteran Claire Chiang is the senior vice president of Banyan Tree Holdings. She co-founded the Singapore-headquartered group with her husband Ho Kwon Ping in 1994 and has been integral in building its portfolio of hotels, resorts, spas, galleries, golf courses and residences across the world. Chiang also chairs the Banyan Tree Global Foundation, where she champions the group's dedication to environmental sustainability and human empowerment.
Gen.T honouree Dexter Lau is executive director of Kim Teck Cheong, the largest distributor of packaged goods in East Malaysia. Lau is a third-generation leader of his family's business, which was founded by his grandfather as a small retailer in the Malaysian state of Sabah in 1938. Under Lau's helm, the company went public in 2015.
Succession planning expert Cynthia Lee is the regional head of private wealth solutions, Asia-Pacific at HSBC Private Banking. Armed with more than two decades of experience in wealth advisory, the Hong Kong-based banker has helped her clients in their trust and estate planning as well as philanthropy and succession needs.
Here are the key takeaways from the discussion.
Why It Matters
Asia's wealthiest are not thinking about succession planning as much as their Western counterparts. As a result, around 60 percent of Asia’s high-net-worth individuals have no such plan in place.
This is worth noting because nearly 85 percent of Asian companies are family-owned. Moreover, the world’s richest individuals are expected to transfer about US$15.4 trillion of wealth to the next generation by 2030.
Most notably, public companies without a proper CEO succession plan in place stand to lose, on average, up to US$1.8 billion in shareholder value.
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Science Or Art?
The secret to acing succession planning isn't just about getting the technicalities—the processes and structures—right. "There's an art to it as well, especially when you're a parent passing down the business to your children," says Claire Chiang. "As a founder, there were a lot of questions that I had to ask myself. Is it necessary that my children are fit for the purpose? What do I pass on to them? How will this affect the business legacy that my husband and I have built? And how can this legacy be continued?"
She goes on to say that maybe it's time for leaders to try and better understand what's required by and of their successors. "Maybe it's time for us to pause. Maybe we don't need our successors to take over [what we've done], because they need to think about innovation and finding their own way. Perhaps this could lead to reverse mentoring, where we listen to our successors instead."
A Successor's Dilemma
From the perspective of a scion taking over his family's 82-year-old company, Dexter Lau pointed out some obstacles successors may face. "I think successors need to be encouraged to take over the family business, to continue their family's legacy, because sometimes we can be discouraged by certain things," he said. "In some cases, potential successors may see how hard their predecessors had to work, and may prefer an easier life."
"For me, I was discouraged at first because I saw the conflicts our family had [because of the business]. Hence as a third-generation leader, I sometimes have to play it safe. In a way, I have to be a fire hydrant to make sure that things continue to move forward."
The Planning Process
In Cynthia Lee's experience working with families on succession planning and wealth transfer, she said "there's usually at least an intensive 10-year transition period. This is when the generation in control of the business is passing on the torch to the next generation."
When advising families during this process, she said professional advisors such as herself take into consideration not only the objective of the transfer at hand, but also the values and roles of each family member in the business to ensure a smooth transition.
To this, Chiang shared that she believes in the benefits of introducing successors to the business a few years before they are given a leadership role, especially if they are from within the family. "I don't think they should be jettisoned into high positions, because there are organisational elders that they may need to convince of their worth. Also, when you plan for succession, you may not always get it right. Instead, you need to fit the successor with the purpose. To do that, you need to understand your successor's strengths."
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Avoiding Friction Between The Old And New
"Intergenerational communication is the key to the sustainability of a family business," shared Chiang. "In my case, we started planning our succession a few years ago. During this period, I'm still around to support my successors as they run and when they fall. I find that it's easier to let go [of the family business] while watching and encouraging our successors."
"For the successors, because they were brought up with the same values as those before them and they understand the hard work that their elders have put in to the business. So they will know to respect the views of their predecessors, and I think this mutual understanding is very important."
Is There Truth In The Saying?
Among wealth advisors, there's a saying that goes, "The first generation makes it, the second generation spends it, and the third generation blows it." When asked if there was any truth to these words, and if establishing a family office can help to prevent this, Lee said: "This is, unfortunately, a problem that's more real than we want it to be. And the solution is not establishing a family office, family governance or mission statement. Instead, it's for families to look into how they can communicate better."
"When it comes to making a decision for family, I think it's important for all stakeholders at the table to put the collective interest of the family first before their individual interest. If everyone is able to do that, then the success rate of family businesses will be higher. Also, in order to do this, we cannot allow important decisions such as whether to sell off the family business or not, to be the first decision that successors make. It takes practice, consensus and compromise for family members to be able to come to a collective decision."
Cloud Talk is a virtual event series that takes place twice a month, alternating between Chinese- and English-language editions. Visit our Events page to learn about upcoming editions. For more insights into succession planning, read our Deep Dive newsletter on the topic.