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Play generation game to win

Published on Friday, 04 Mar 2011
Illustration: Bay Leung

Careful succession planning is necessary in every organisation, but it can be especially important in family businesses as control shifts from one generation to the next. As events in Hong Kong regularly illustrate - witness the unfolding family feud over casino mogul Stanley Ho's empire - textbook theory and best management practice tend to go out the window, replaced by more elemental forces and long-held views.

"Problems are all too common and stem from decisions on succession being influenced by emotions more than by sound practice," says R J Heckman, president and chief executive of United States-based human resources consultancy PDI Ninth House. "But these emotions often cloud judgment."

There are, he notes, two distinct dimensions. For the senior figure, or perhaps patriarch, issues of pride, possession, commitment and legacy may be apparent. Among members of the next generation, though, the emotions can be even more complicated. They can range from a sense of honour or duty to one of entitlement or the desire to acquire status and power without the interest or ability to handle the attendant responsibilities.

"It's possible to balance the estate dynamics with business succession, but the only way is to have proper processes [that extend] far and wide," Heckman says.

To ensure continuity and minimise uncertainties, he directs attention to four key areas. Starting early is vital to create clarity and avoid disruption to the business. In setting objectives, the parties must recognise that a changing business landscape will present different challenges for the next generation. There should be scientific methods and agreed processes to evaluate the business for the family and other executive team members. And discussions with advisers - both internal and external - should identify gaps in readiness and aim to get accurate insights about areas of concern.

"Often, in family organisations, everyone knows who is going to succeed, and they may not provide accurate feedback, so the next generation loses the opportunity to develop," Heckman says. "Loyalty is a huge issue with these decisions, but you must have a clear view of the capabilities of family members to find the right balance. Scientific methods and the psychometric power behind them can diagnose a candidate's level of readiness."

He adds that it is increasingly common - and generally a positive step - for the heads of family businesses in the US to abstain from day-to-day matters and rely more on the board of directors. This signifies a mature and trusting leader who realises that continuity across the generations depends on relinquishing, not retaining, control.

Kevin Au, associate professor in the department of management at Chinese University, agrees that personality and perceptions play a significant part in these succession decisions.

"When you talk about first-generation entrepreneurs around Asia, they are all tough, clever people, but basically they can't let go," says Au, who has made a close study of large family-dominated businesses. "Overall, they still don't prepare that well, they leave it too late and they think the second generation can't do the job as well as them."

He says all plans should be in place at least 10 years beforehand. The ground rules should include a family constitution setting out roles, responsibilities, expectations and voting rights. It should clarify, for instance, eligibility to work for the company, requirements to sit on the board and entitlement to dividends.

Handover rules

Surround the incoming generation with experienced professionals to act as mentors

Clear communication channels to make it easier to discuss issues and pass on control

A family council should allow every relevant clan member to voice opinions formally

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