A quick read of the headlines will reveal how fraught the succession planning process can be. People know well the stories of brothers and sisters who get locked into bitter disputes when fighting for control of the family business.
What is less well known is how work on family governance can anticipate and contain these problems. Inherited businesses typically do not survive intact when in the hands of the new generation. Family enterprises willed to the sons and daughters tend to get shut down or otherwise radically changed. That should give pause to entrepreneurs who build highly successful enterprises and hope these will live on for generations.
Roy Chen, the head of the multi-family office Grace Financial and an heir to a fortune left by one of the founders of the Hong Kong-listed Hang Lung property group, has confronted these issues more deeply than most. In the 1990s Chen and his four siblings came to control investing decisions surrounding their inheritance. They had a lot of money, and they were also better prepared than most in taking this on. Following expert advice, they launched a family office to professionalise management of their inheritance.
So far so good. The Chen siblings did everything they were supposed to do, and they also had great skills to contribute to their newfound family office: one sibling was trained at private equity, another at fixed income, another was a tax lawyer, and another had an MBA. But fissures soon opened up among them. The brothers and sisters were simply unable to get along while managing the family office, and that was distressing to them.
'Being good responsible second-generationers we felt a need to steward the family business, without realising that was putting the cart before the horse. We were doing this before focusing on our own relationships,' said Chen.
Things came to a head when one of the sisters dropped out of the family office after finding herself repeatedly outvoted on business matters by her siblings.