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CNY Tales: Wealth never survives 3 generations

January 29, 2009

My CNY kicked ass. I ate a crate of mandarin oranges all by myself and survived – without killing my voice. Caught up with my uncles and aunts. The economy seemed to be on everyone’s mind. Money, money, money. The topic of succession planning also made its way into one of our conversations.

Succession planning is the main reason why I’m here from the US. No, not to take over a business but to help facilitate such a plan for my dad.

Family-owned businesses suffer a common fallacy – the belief that there is no need for a succession plan. Ask and they’ll say of course my son or daughter will take over. Silly question. Or so the logic goes.

You how many family businesses have fallen into the ditch just on that assumption? I can’t begin to count

Case in point. One of my uncles has an heir who had decided to venture into the fashion business. He had put his heart and soul into it and the result is starting to spring up in Sydney and New York. Does he want anything to do with his dad’s scrap iron business? Most definitely not. Does anyone see haute couture going hand in hand with iron smelting? I don’t, and neither does he.

The reality is, some kids have a different calling than their parents. Horrors if they’re the only child.

Because drama always seems to follow family wealth distribution, it is actually much simpler to craft a succession plan for a business that’s NOT family owned. Firstly, your choices are not restricted to the 1-2 people who may be incapable or completely disinterested in the business. Secondly, if the leader doesn’t perform, its easy to replace him or her with another person.

To be fair, I have met bright and capable heir apparents who did wonders after they took over the reigns. I’ve also met imbeciles who don’t know how to run the biz and refuse to be told how, causing breakups in partnerships. And don’t get me started on family disputes that erupt in the boardroom and go public.

This is why I depart from tradition. I say go meritocracy. If the heir can handle it, then by all means let him or her take it on. If not, the partiarch or matriarch, depending, should allow for a professional CEO. The family will retain the ownership of the company but until an heir is certified fit for office, its best to let the professionals run the business.

As to who should assess who is fit for the job, I would leave it to a competent third party – professionals who will do an honest job in talent assessment. I would not leave it to people with vested interests who are only keen to butter up the heir.

But if the business owner would rather pass the baton to a son simply because he is the favorite son, then he may unwittingly cast an old curse on his family: the one that ensures wealth never survives 3 generations.

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2 Comments leave one →
  1. LC Teh permalink
    January 29, 2009 2:41 pm

    I’ve seen some sleazy plots of various Asian-made soap operas play out that curse of wealth and power held in the single hand of an inflexible partriach (normally). I wonder if this could be the Law of Karma at work esp when the wealth & power of these individuals, having been gained through dubious means, finally is turned around like the tail of a scorpion to sting the old guy in the face when the heir-apparent decided to let the old man disinherit him just to go his own way and giving his old man a heart attack in the process.

    OK, maybe I’ve gone out of point. But I think being a successful (& legitimate) business leader, the out-going chief should be wise enough to decide who takes over, with the help of some unbiased advisors. Unless the old chap has some skeletons to hide. (there I go again…)

    Good point. What you mentioned is a real problem. Dirty secrets and old feuds may not surface until the partricarch has passed on. To be far, all businesses have this problem but family-owned ones are usually worse because they tend to be the least transparent. All the more reason to “clean house” by having a professional CEO run the show for a few years before handing it back to an heir.

  2. January 29, 2009 9:42 pm

    Bingo!! Nicely said. I would add that one of the best ways for a family to design a succession plan is to ask the children if they want to risk their own money and buy stock in the family business. I have been a professional public speaker on the subject of business succession planning and have literally met thousands of family business owners and their children –havn’t found one child that loves their parent’s business enough to go to the bank and risk their capital to authenticate their ownership of the family biz. When families gift operating businesses –especially to a child given their birth order or gender, I always tell my audiences to short the stock, run for cover because the seeds of wealth destruction have been planted. BTW great Blog.

    Haha, I’ve seen that before – investors running for cover when control is passed on to an heir. Transitioning is always tricky, even in mergers and acquisitions, and it’s a time when people sit at the sidelines before deciding what to do next. Thanks for the compliments on my blog. 🙂

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