Asian Family Businesses Increasingly Look To Bring In Outsiders - Research

Chrissy Coleman

27 March 2013

The days when the children of Asia business owners were expected to take over the reins from parents seem to be fading, according to a survey by Coutts showing that only 16 per cent of family business owners in China and Hong Kong expect the next generation to be involved in the running of the business.

The Celebrating Cultural Trends - Family Business Report, conducted in collaboration with Ledbury Research, surveyed close to 100 family businesses in China and Hong Kong.

Family first

Considering over 80 per cent of businesses in China are family owned, the small proportion of owners that expect their children to take over may come as a surprise.

Fan Choi, head of wealth planning at Coutts, told WealthBriefingAsia that this finding does not necessarily indicate the end of family-run business dynasties. "It just reflects that increasingly family business owners are willing to consider hiring external professional managers to run their businesses."

However despite this observation, it doesn’t mean that the entire family would be best pleased to welcome an “outsider” into the family firm - the study found evidence to suggest that 80 per cent of Asian family business owners would prefer to see a family member at the helm.

This is likely because family members “may feel threatened by the introduction of new rules and procedures and may be concerned about replacing family members who they trust,” Coutts said.

In some cases, families may consider performing an assessment on family leadership and management abilities, “to define roles and responsibilities of both family and non-family, and to be clear on who has the final say”, the bank said.

Values

Some 80 per cent of respondents suggested that they are “testing” professional managers for a fit with their own values, reflecting the importance of common values, which “often act as glue to hold the family business together, and can be a differentiator for the business", according to Coutts.

Non-family employees who do not understand or embrace these family values can lead to family members feeling disgruntled - this situation can act as a potential source of conflict for the family and cause damage to the reputation of the family business, the bank added.

Governance

Family business owners are also increasingly aware of the need for good family governance, but often do not know where to start or what to do. The report found that 77 per cent of Asian business family owners feel they need a formal family governance system, while only 13 per cent disagree.

Barriers to establishing family governance include the risk that challenging topics will be raised, which the family may not want to, or is not equipped to discuss, Coutts said.

“There is no one tool or structure which works universally. It could be as simple as having a mission statement or a family constitution for a particular family. Others could have a combination of tools or structures such as a family trust, a family constitution with a family council and a family office run by family members with professionals,” Choi said.