Family forum key to success

PUBLISHED : Monday, 07 May, 2012, 12:00am
UPDATED : Monday, 07 May, 2012, 12:00am


Successful entrepreneurs and high-net-worth investors generally take tough meetings and strategic decisions in their stride.

Often, though, there is a marked reluctance to do just that when the issues at hand relate to succession planning - passing on wealth, investments and, possibly, control of the business to members of the next generation.

The consequences of getting it wrong are easy enough to see: protracted arguments, court battles and lingering acrimony. But still it can take years, and all kinds of advice and persuasion, to put in place the agreements and structures needed to effect a smooth transfer of assets.

In most cases, the legal and technical aspects present no great problem. It may be necessary to set up trusts, establish the future ownership of overseas properties and offshore accounts, realign shareholdings or limit tax liabilities.

However, there is no shortage of professional expertise to deal with each of these areas.

The real sensitivities of succession planning concern the questions about what, when and who. Finding the answers is a matter of understanding not just the wishes of the current business owner, patriarch or matriarch, but also agreeing on the values, goals and attributes that motivate the intended beneficiaries.

A key step to achieving a successful outcome is create a family forum in which relevant issues can be aired and where everyone directly involved can have a fair say.

'You have to build momentum,' says Singapore-based Bernard Fung, head of family office services and philanthropy advisory, Asia-Pacific, at Credit Suisse.

'The purpose of these discussions is that we can't drive change unless it is wanted from the family side. As advisers, we need to frame things from their perspective and then work slowly to get the different family members on board.'

If necessary, it is important to make an early distinction between issues affecting ownership and management of the business and those purely related to the handing on of personal wealth or a family inheritance.

Decisions about the former can well have an impact on revenue, employees, share price and strategy. Members of the next generation may not be equipped or inclined to take over as expected, or may hope to impose a vision for radical change.

Discussing the latter can stir up long-suppressed views about obligations, expectations, entitlements and conditions to meet.

Sometimes, these are precise and well meaning - for example, the requirement to obtain certain qualifications before inheriting. At others, they look like nothing more than an unrealistic attempt to exert control from 'beyond the grave'.

'We can't teach people to suck eggs and we don't try to be too presumptuous,' Fung says. 'But often a lot of complexity has been created, so we step back, take a deep breath, and ask the 'simple' questions to get the family to align their business and other interests in a coherent way.'

The first simple question is usually 'who are you intending to take care of?' Phrased like that, it sounds neither fatalistic nor negative, and the answers generally provide a sufficient framework to build a comprehensive succession plan.

'Once that question is solved, the family can think through the mechanisms of how the assets will be managed and passed through time,' Fung says. 'It is fallacy, though, to think a legal structure solves problems or to assume this is all very static.'

Mark Evans, London-based head of Coutts Institute, notes that effective succession planning comes down to ensuring three things for the younger generation.

First is exposure to the business or an understanding of the source of family wealth. Second is education, both formal and within context. And third is to gain diverse experience working in the business and outside. That does a great deal to clarify interest, aptitudes and ambitions.

'We are not all born to be business leaders and the relationship between siblings may determine who takes over,' Evans says. 'To assure harmony, we have to know the family circumstances and be able to tease out [hidden or unstated] concerns.'

Whatever structure - will, trust funds, foundations, legal and tax jurisdictions, and offshore accounts - is ultimately put in place, it has to be strong, but not rigid.

Usually, the assets must be adequately protected from creditors and predators, but the methods proposed should also seek to simplify estate planning and probate procedures.

'The world in changing very fast, so what works today may not work in 20 years,' says Fan Choi, head of wealth planning, north Asia, at Coutts. 'The best way to get this done is start with a very simple agenda, set the ground rules for family meetings and agree to disagree if necessary.'