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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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

 

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Tam Chee Chong – Deloitte Singapore

Chee Chong has more than 32 years’ experience in corporate and financial advisory, working in various Big 4 accounting firms in London, Hong Kong and Singapore and is currently the Deputy Managing Partner for Markets for Deloitte Singapore. Chee Chong leads the Deloitte Private practice in Southeast Asia which focuses on providing a range of services to HNWIs, family offices, Next Generation, Private enterprises, start-ups and Small Medium Enterprises. Prior to his current roles, Chee Chong was the Regional Managing Partner – Financial Advisory for Deloitte Southeast Asia from 2006 to 2016.

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Cathy Chow – Deloitte Singapore

Cathy is a Director in Deloitte Singapore. Cathy works with high net worth families, private and family business owners, to assist with the creation, protection and generational transition of their wealth, businesses and assets. Prior to relocating to Singapore, Cathy was the Australian Deloitte Private Chinese Services Group leader serving local wealthy families and inbound private client investors from North and Southeast Asia. Drawing on over 20 years‘ broad experience in taxation, accounting and business advisory consulting, Cathy works alongside business families and entrepreneurs to co-design family governance frameworks and tax efficient structures which meet their wealth planning objectives. She provides a range of services to these families including creation of Family Charters, set up of Family Offices, Outsourced CFO services for Family Offices, structuring of private wealth and business assets, and cross-border business establishment for privately held investments.

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Alexandra Sharpe – Deloitte UK

Alex is a partner who leads the Deloitte UK Family Enterprise Consulting team and works with all types of enterprising families: those who own businesses, hold investments, and/or engage in philanthropy together. Working with families across the globe, her main focus is supporting and advising on generational transitions and governance issues. She helps families define their goals and establish the structures, processes and relationships that enable them to achieve success. With a background as a Chartered Accountant and a Masters in Organisational and Social Psychology, Alex seamlessly addresses the multifaceted business and relationship challenges that entrepreneurial families often face.

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