This week, Tam Chee Chong and Cathy Chow from Deloitte in Singapore discuss the effects of Asian culture on succession in Asian business families.
Asia’s business families are in the midst of experiencing unprecedented generational change; the majority are transitioning their businesses from first to second generation, and some are making the transition from second to third generation. For many, family values, underpinned by culture, are one of the most influential factors impacting succession planning and the decisions made on that journey.
Confucianism influences significant traditions in Eastern countries within the China cultural orbit (including Hong Kong, Taiwan, Singapore, Vietnam, Japan and Korea), whilst within China it shapes most of the significant traditions in Chinese business families. South Asian countries (including Indonesia, Thailand and India) are distinguished by a strong family and deep community value system, with strong ties between family members, their business and the wider community.
‘Filial piety’ (respect for parents, elders and ancestors) and humanity are considered to be the most important virtues in a Confucianism family system, followed by abiding to a hierarchical relationship structure, success through collectivism, and maintaining family harmony and unity above all.
In many Asian business families, it is considered inauspicious or taboo to talk about succession while the venerated and respected patriarch or matriarch is alive. At other times, the patriarch’s charismatic force of character extends through to a lack of willingness to “let go” and pass on the power of decision-making to a successor.
However, many first generation founders do recognise the benefits of arming their next generation successors with a more global point of view. Therein lies the predicament, where members of the next generation, often armed with overseas business degrees embedded with Western HR strategies and management system teachings, find it a fine balance to implement their learnings within an Asian business organisational structure when they return to the fold.
For Asia’s business families to preserve their legacy, and harmoniously survive and thrive past three generations, we have considered 4 dimensions where the impact of Asian culture can have significant influence on succession planning:
- Boundaries between family and business: In many Asian business families, the business is considered to be an asset of the family. Accordingly, the family still maintains strong control over the family business resources and their allocation. In times of personal need for family members, the business may be obligated to fund the family and vice versa. The degree of separation of family wealth from business assets and how this is regulated by a governance framework is an important consideration in succession planning for Asian families.
- Professionalising the business: In Confucian Asia, the professional managers within a family business usually hold operational leadership positions, while strategic leadership and decision making control is retained wholly within the family. In Western business families, non-family employees do not experience the same level of barriers to entry, and meritocracy is generally more common across both family and non-family employees. However, in parts of Southeast Asia, there is increasingly greater willingness to engage professional managers and empower employees to make both operational and strategic decisions and work with family members in leadership. We believe that negotiating the introduction of non-family employees to senior leadership positions will be a key challenge for next generation successors in Asian business families.
- Competitive succession: Within many mature Western business families, inter-generational succession is often based on meritocracy and individual personal aspirations. Often the heir apparent is given options to independently pursue a career outside the family business, and may be required to demonstrate leadership competence in order to enter the family business. In contrast, next generation Asian successors have typically been obliged to join the family business based on filial piety, and consequently may not have had the requisite commercial skills. In more recent times, there has been a shift in approach, with potential Asian heirs being encouraged to work outside the family business prior to joining in order to acquire commercial acumen and broaden their skills.
- Leadership based on gender: In recent years, we have seen daughters take a much more active leadership role in Asian family businesses, where traditionally succession has been to the oldest male child, or amongst the male children equally. This may require careful planning of mentors/sponsors within the family business who can support the female successor in a male-dominated business environment.
We believe that there is an opportunity for Asian families to embrace formal and semi-formal governance frameworks (including family constitutions, councils and assemblies) when succession planning, to create hybrid ‘East meets West’ governance models. Such models afford Asian business families decision-making flexibility and an effective communication platform, equipping them with the tools needed to successfully transition their family wealth and business whilst preserving their core Asian values.