Evanna Phoon wrote the below article and she is a Senior Franchisee of Rockwills. She can be contacted at firstname.lastname@example.org * This article written by Evanna Phoon appeared in Money Compass (English) Magazine May/Jun issue 2012. Money Compass is Malaysia’s Leading Magazine for Money Matters *
Family Business Trust – How do ensure that family wealth and business passes through more than three generations? Part 1
I just came back from a talk in Sibu in the beginning of April. An association invited Rockwills Trustee Senior General Manager, Mr. Azhar Hew and me to give a talk to create awareness on how to preserve wealth more than three generations family business trust. The talk was conducted in Mandarin because most SME business owners in Sibu are Mandarin speaking.
Upon arrival at Sibu airport, our local organizer Eric came to welcome us and as he cruises along the road, he gave us a short and sweet explanation on Sibu culture and history. As we were slowly approaching to our Hotel, we passed by Queens Way, or they recently changed it to be called Jalan Tun Abang Haji Openg. Along the road, there were houses that belong to some of the wealthiest business tycoons of Sibu. Eric introduced us on the names and company of the each owner of the houses and when we came to an old bungalow lot, he said, this house use to be owned by one of the richest business man in Sibu but unfortunately, after the third generation, their family wealth and business could not sustain and their business collapsed.
This reminds me of a Chinese proverb saying that Wealth do not Pass Through Three Generations. The first generation is the founder of the company and they started out from scratch and worked very hard to build the family business. The second generation start to be contented with the wealth generated from family business or some, after studying overseas, choose to venture into other profession. On the third generation, because of the comfort lifestyle that they are in, mostly will not be interested to work hard and will be thinking of ways to spend, enjoy or gamble (aka invest) their wealth.
Our talk in Sibu attracted more than 200 participants and we were approached by other associations that expressed keen interest to invite us again to speak in other parts of East Malaysia. This was a clear indication that a lot of business owners would want to know “How do I ensure that my wealth can pass through more than three generations?”
Family business is very complicated; it is more complicated than a business owned among friends. One of the questions that are very interesting is how can the founder actually pass the business or wealth to their next generations. Within the family business, different people have different interest. The founder may have different interest; the children may have different interest. What happens when the cousins are in the business, the in-laws are in, the wife or the husband so on and so forth? And because of the globalization, we tend to see more intercontinental marriage, what happens if you have different cultures coming into the family business?
Conflicts that happen within the organization, the family businesses will most likely facing the same conflicts but what are the ways that can actually keep the business and family together? Finding the balance to maintain prosperity of the family business and maintaining the harmony among family members. We all have heard of what corporate governance is, but what is family governance and how should that put in or place in family businesses especially those who are in their second generation?
Key parameters like performance, how do you measure them, how do you measure performance by your own children and by the cousins? And of course, like any other companies, what are the strategies for a family business? Not just the strategies for the company but what are the strategies for the family. Because if we look into how other families in other countries has been doing, in terms of wealth creation, in terms of bring in more businesses into the company is being spread off throughout the family and not just within the family of the founder.
Family business is one of the oldest and most dominant form of business organization. It ranges from small to large conglomerates. We are not talking about the family business whereby we have five people in the company, in the shop or in the stall. We are talking about families that are in their second generation that has a substantial amount of value that has showed certain kind of performance.
The definition of family business is the children of the founder must be in the organization, working in it already. Most of the time, family businesses actually outperform non-family businesses. Some of the reasons why is because family members have very high commitment and dedication. I guess because the founder actually has a certain values or a certain legacies or certain philosophies that he was to carry throughout the business. He wants to pass his values not just within the family members but also to his staffs. We also see that family business are willing to pass all the experiences to the next generation and at times, to even their staffs and they take pride in the family name and identity.
Some examples of the large family businesses in the world that you can relate to are some of the common brands like Ikea, Hyundai, Toyota, Cadbury and etc. So this includes all kind of industries. There’s a study that shows that if a company were to be a family business, the chances of it surviving in the follows generation is higher than businesses that is formed either with a few friends. Another study that I would like to share with you is a study that done recently in Asia, I got to know about this statistic by attending a seminar organized by Malaysia SME newspaper in December last year. This study involved these ten countries (Hong Kong, China, South Korea, Taiwan, Malaysia, Singapore, Thailand, Indonesia, Philippines, India). Family business from countries like Korea, Taiwan and India are mostly technology related industries. And we also see that some of the strongest family businesses which actually outperform that does better than non-family business, actually comes from Malaysia, Singapore, Taiwan and India. So these are some of strongest family businesses that actually outperform non family businesses.
Part 2 in 3 weeks time, stay tuned …
About the Author
Evanna Phoon is CEO & Founder of www.MalaysiaWills.com, a franchisee of Rockwills International Group & as-Salihin Trustee Bhd. In 2010, she started Malaysia’s first Online Will Writing Service to help overseas Malaysian plan for their Wills & Trust. In March 2012, she became the first and only person in Malaysia to successfully market Trust services throughout Malaysia using Webinar series. She can be contacted via email@example.com.