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FUTURE PLANNING Family governance across generations


Generational transitions are a deep challenge for a family not just with a family business but who own any shared assets. Any sort of enterprise faces difficulty when it gets to be 20 or 30 years old – it matures, faces new competition or declines. It needs fresh and new leadership. But for family owners, the challenge has another facet, writes Dennis Jaffe.


O


ver generations, new family owners emerge who are siblings in the second generation, and then cousins. They are family, but what does that mean? What do they have in


common? Why are they partners? Do they still owe any allegiance to grandpa? I have been working with next-generation family


businesses who are members of Family Business Network Asia Region, helping family members develop leadership to help the family move across generations. In meeting them, I have found that they face special challenges as they become global, try to make a place for next-generation members with different education, values and life experience, and sustain their business for the future. The challenges they face are different from those of


public companies, whose owners are strangers, whose personal bonds are not a factor in making decisions, and who sell their shares if they aren’t happy. If they are no different from stranger owners, distant relatives with no common purpose or attachment, then they simply stop being a family business. The family dimension has lost salience. So many families drift apart, and that is fine for


them. Others want to sustain their legacy but are hampered by the complex emotional baggage they carry as a family. They may have a wonderful legacy of wealth, but in the second generation, rivalries or jealousies across families emerge. Was there covert favoritism, was one branch kept out of management, was someone fired unfairly? These issues become huge in a family. They may try to settle them by using the business as a hostage.


Rediscovering purpose Added to that, there is both a family legacy and an emerging legacy for different individual families. Why should they be partners? What does it mean?


82 FAMILY OFFICE: ASIA TOMORROW Each generation of a family has to rediscover


and redefine their common purpose. This is easy to say, but what about the legacy agreements – trusts, shareholders’ agreements, inheritances – that were created by previous generations for good reasons having to do with values and personal relationships as well as tax consequences? A generation-skipping trust passes money tax-free to grandchildren, but do they then have no choice about being partners, or no ability to decide whether they want to be partners and what form that will take? They have benefits without control. A third or later generation family can forget that their


wealth is a gift and feel angry, trapped or controlled by these agreements and the relationships that are forced upon them. As they grow up and become responsible adults, they want to make their own choices. Do we want to be together as a family? Under what conditions? What is my voice and role in this to be?


Different values Each generation faces this as they become adults and their parents’ generation is still young. So there begins the highly personal and political process of two generations struggling for control and place. They have


“A third or later generation family can forget that their wealth is a gift and feel angry, trapped or controlled by these agreements and the relationships that are forced upon them”


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