Governance ensures smooth transition between generations

Global studies have found that transitions in family enterprises from one generation to the next are all too often unfortunate. When a family is unsure how to navigate a discussion over succession, it can lead to business conflicts over strategy and direction, conflicts between siblings, as well as conflicts between family and non-family shareholders.

Each family is unique, but those who successfully navigate these transitions between more than one generation have at least one thing in common: they are well organised.

Many families will successfully transfer wealth from generation one to generation two as much by good fortune as by careful planning. But few families are likely to have the same success on the second and third transfer relying on good fortune alone.

Given the combination of increasingly longer life spans and globalisation in Asia today, it is not uncommon to find three generations in the same family business with different expectations and aspirations.

Grandfather is expecting his 50-year-old son to take over, and that his grandson will follow. While the son may accept this expectation out of filial duty, the third generation, which has often been educated abroad, may question the assumption.

So how do you plan for a successful transition? Is it simply a case of adopting a suitable ownership structure to ensure that the shareholding doesn't become diluted on the founder's death and to prevent minority shareholders being able to stall or delay decisions?