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 2
To me, if I look at it, I think that says a lot about a country like Malaysia, it shows that in term of family we Malaysians are very close, we have values that we keep among ourselves and within the family, values that we also share with our staffs that make our staffs continue to work with us and perform the best that they could because these are all the factors that actually makes a family business survive. Not just the family but the staffs. Most successful family businesses know how to make their staffs work with them? With them, not for them. Other than that, it’s also interesting to see that in India, 67% of the businesses are family businesses. As a fact too, in Hong Kong, they actually has the least number of family businesses, only 13%. As compared to India, again in India probably the culture is so very well knitted, so that’s why you see a lot of family businesses in India.
However, most family businesses don’t survive to the third generation. From statistics, during the lifetime of the first generation businesses, 2/3 of these businesses either collapse or being sold off to someone else and it doesn’t go pass to the second generation. They pretty much have a very short life span; at the end, about 95% do not survive the third generation. So, 2/3 doesn’t survive the second generation, and out of the 2/3, 95% don’t survive the third generation. This is where the complexity comes in this is where there’s so many issues and challenges that a family-businesses face. Some of it is due to poor management, insufficient cash to fund growth or expansion. Non-alignment of incentives among family members, they lack systems, best practices and standardized procedures and they lack discipline.
It is so much easier during the first generation, during the lifetime of the founder, that he controls everything. He will says ‘we do this’ then people will do, ‘we do that’ and then the staffs will do. But come to second generation, when his child (his son or his daughter or some of his sons or spouse of his daughter) comes into the business, what will happen? They might have different ideas about how business should be run. How do you maintain an actual discipline? What happen when your child doesn’t come on time to work? How do you penalize him or her? So these are some of the issues. Anyway, I’ll share with you the common 3-circle model of family business shows that, in any family business there are 3 main components that you need to look at when understanding the complexity and dynamics of a family business.
We’ll go in detail about this 3-circle model in next issues. 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.