A report by NUS Business School’s Centre for Governance, Institutions and Organisations, and sponsored by DBS Bank, found that while leadership transitions in Singapore’s family firms have been rare, with only 5.7 per cent experiencing a handover so far, half the companies that had experienced successions appointed outsiders to either the chairman or chief executive positions, with a family member taking the other leadership role. The researchers have termed this “partial professionalization”.

The findings may be significant because if a family brings in outsiders to run a firm, it can increase the chance of a business being eventually sold or floated on a public market, creating a liquidity event that wealth managers will want to exploit.

The study is published in the report Asian Family Firms: Success and Succession’, which defines family firms as companies in which the founders, co-founders, or their kin are present among the 20 largest shareholders, or as board members. The research covered 692 Singapore exchange-listed firms, of which 421, or 60.8 per cent, have been classified as family businesses.

The study found that outsiders held both chairman and CEO positions at another 16.7 per cent of family firms that underwent successions. Family members however held both positions in a third of the firms that underwent a leadership change.

“The traditional view of succession in family firms is one where a younger family member takes over from an older family member,” said Dr Marleen Dieleman, lead researcher and associate director of CGIO.

“However, if the trend of joint leadership by family members and outsiders continues, family firms are advised to prepare for the entry of non-family professionals, as well as new family members”, she added.

Family members continued to feature prominently on the boards of their companies, with 78.6 per cent of CEO positions and 72.9 per cent of chairman roles occupied by the founders or their kin.

Directorships held by family members were usually executive and lasted an average of 18 years, with the founders and co-founders having the longest average tenures of 20 years. In contrast, directorships at non-family firms lasted on average seven years.

The study, which was conducted in 2012, also found a higher degree of individual ownership among the main shareholders of family firms compared to non-family firms. The top five shareholders of family firms held an average individual shareholding of 20.1 per cent, compared to 7.3 per cent for non-family firms. In addition, firms with founders on the board had higher individual ownership than those without founders. The top five owners on average controlled a 65.9 per cent stake in SGX-listed family firms, of which 38.3 per cent was held by founders or their kin.

The report, however, warned that the transfer of ownership to a subsequent generation could lead to fragmentation, as there are typically more family members in the next generation than in the previous one.

Researchers also found that firms that were 40 years old and above had slightly less concentrated ownership than their younger counterparts, although this observation was based on a limited sample as Singapore-listed family firms are fairly young. Only 41 are at least 40 years old.

“As many of Asia’s family businesses are still owned by their first or second generation of the founding family, one of the biggest issues facing these firms is that of succession. There’s a Chinese saying that wealth does not go beyond three generations. However, this may not be the case for family firms which have proven that they can last several generations as long as they can ensure there’s proper leadership and succession planning in place. Some business owners may find it hard to let go, but they have to realise the value and future of their businesses are still dependent on a continuation of competent and effective management,” said Tan Su Shan, managing director, group head of consumer banking and wealth management, DBS Bank.

According to the report, family firms have performed significantly better than non-family firms, recording an average of 3.7 per cent return on assets (ROA) compared with 0.9 per cent at non-family firms.