|“We realized that the development of our family’s human capital is the key for our long-term success.”
- An entrepreneur and patriarch of a very wealthy Hong Kong family
Succession planning is at the heart of a successful business transition
“We were strongly convinced that succeeding as a family meant solely putting elaborate written succession plans and watertight legal structures in place,” remembers the Hong Kong entrepreneur. “We found out that we actually neglected to consider important factors such as the development of the human capital of our family, the next generation.” Following this revelation, the company decided to include the young generation in the process. “This gave us new insights on how to develop as a family and, in parallel, how to further grow the business and successfully lead it in the future.”
This is not a unique case, and many family business transitions do end in failure. If there are succession plans, they are often not implemented or prioritized. More often than not, the plans are developed unilaterally, and are unacceptable to or not appreciated by those intended to be the successors.
Including the next generation at an early stage is key to long-lasting family businesses
When UBS started working with a very wealthy family in the textile industry in Hong Kong, the current generation was considering the future sale of their business as they felt that the younger generation was not interested enough in the operations to be successful. The outcome of a workshop on their family values, however, made them realize how important the business was for the family’s identity.
Subsequently, they embarked on a project to create an overall strategy for the family and the business that greatly involved the younger generation. The younger generation suggested that the rules of engagement be formalized in a family constitution, and asked that a junior board be established. This enabled the younger generation to get involved in projects, bring in fresh ideas and thus work hand-in-hand with the elder generation towards a smoother transition.
Development of family talents and potential and early communication of a clear succession strategy is at the heart of a successful transition. Family wealth transitions can be both inefficient and destructive, as rigid and inflexible structures are dictated to inheritors. Succeeding generations can find themselves lacking knowledge or family support, issues that can be avoided with an inclusive, consensual process that bridges
Preserving family wealth over generations
Much has been written about the infamous “third generation trap” – where heirs push a family business founded and run by the preceding generations into decline – and how to prevent it.
Yet despite all these theoretical discussions, families remain unsure about how to proceed. In a UBS study1, in which more than 120 wealthy families from around the world participated, 75% claim to be concerned or very concerned about protecting their wealth, but only 24% consider the way they approach the issue to be sufficient.
The key factors for this include: