Family-owned businesses in Asia are growing in the face of global challenges. They strive to maintain their presence in an increasingly interconnected marketplace. Such companies benefit from addressing the question of family succession. However, many Asian family businesses are hesitant to have these discussions. The topic can cause great tension between generations – sometimes, it’s even forbidden. Most families are comfortable discussing other financial aspects like spending, education, and pertinent decisions. But when it comes to matters of estate and family succession, communication can be difficult.

This issue was the subject of a recent panel discussion between business and financial experts. The panel was organized by Hubbis, a community for wealth management professionals in Asia. Kate Weiss of the fiduciary services firm Asiaciti Trust was one of the primary panel members.

According to one-panel member, a recent study of 200 Asian businesses revealed that 46% of Asian families fear discussing the future of their company beyond their lifetime.

Obstacles to Family Succession Planning

There are several dynamics at play in the resistance to addressing family succession. Two of the most pertinent factors involve communication and cultural gaps between family members.

Generational Differences

The economic boom in Asia in the late 20th century resulted in several new, family-run companies. Many of these businesses are still led by their first-generation founders, who built their companies out of necessity. They didn’t enjoy many of the educational resources that business leaders have in the 21st century. But they had a strong understanding of tradition and work values.

The second generation, however, has matured in a different world. They’ve supplemented their knowledge with formal education from business schools. Bridging the gap between first-generation traditions and second-generation approaches can be tricky. But the reconciliation must happen. A family succession plan depends on it.

Informal Arrangements

Family businesses in Asia are typically dictated by family charters. In general, they don’t duplicate the business structures of Western companies, with corporate boards, CEOs, and merit-based hierarchy.

Issues of family succession are, therefore, often dictated by informal or semiformal arrangements. Founders often assume their successors simply “know what they want.”

However, seamless communication between family members is never a given. The second generation may not understand what the founders intended; if they do, they may not agree with them. An informal or vague succession strategy clouds the situation further.

Mortality and Changing Reality

The unfortunate truth is that those who began their businesses during the Asian economic boom are facing mortality. The companies they built 40 or 50 years ago confront that reality, as well. This fact has been amplified by the massive loss of life from the coronavirus crisis.

“The COVID-19 pandemic has brought mortality into sharp focus, forcing patriarchs of high net worth families to grapple with estate planning,” Weiss of Asiaciti Trust said. “However, this may not be an easy process because talking openly about succession with Asian families is often considered to be inauspicious and sometimes even a taboo.”

There are financial angles to the mortality issue, as well. Asian companies participating in a recent study experienced a 60% decline in stock value in the years immediately before, during, and after they transitioned from one generation to the next.

Businesses without a formal succession plan in place can undergo wholesale changes in their operations. These include the possible sale of the business, management buyouts, and strategic partnerships with outside interests.

While some founders may welcome those changes, many do not. They can also cause disruption and displeasure within the family. This is why it’s critical to begin succession planning as soon as it’s practical, rather than waiting until the last possible moment.

How Family Succession Planning Helps

Family businesses may understandably feel uncertain about soliciting an outsider to resolve succession issues. But doing so can be greatly beneficial.

“An independent fiduciary like Asiaciti Trust, who has multi-jurisdictional expertise, is well-placed as a dependable resource to help business families address these challenges,” Weiss said.

Here are some of the benefits of consulting an outside trustee and setting up a succession strategy.

Objective Viewpoint

An independent trustee balances the considerations and interests of the family setting up the succession plans. They serve as a central point for family communications with whom each member can consult. Rather than disrupt the family dynamic, an outside trustee seeks to create the basis for sound succession decisions.

All-Encompassing Expertise

Passing down the family business isn’t a simple transfer of assets anymore. Complex regulations can strongly influence how succession proceeds. This is especially true if your company has an international presence. Modern trustees align important outside entities — banks, corporations, lawyers, and so forth — with the needs of the family business and concerns about upcoming succession.

Stability and Transparency

A trustee brings order and respect to the sensitive issue of family succession. By encouraging clarity and transparency among family members and outside parties, they help to limit the element of surprise and the effects of sudden change.

Balancing Legacy and Future Planning

Most of all, an outside trustee better prepares a family business for future success. They help to preserve the traditional spirit and values of the business. They also help to ensure the family legacy has a meaningful and profitable presence in the economies of the future.

“It’s all about working together,” Weiss said. “This is true both inside the family and with the advisers who assist in formulating and putting the business succession strategy in place. Involving non-family advisers in a succession plan may help with objectively balancing the collective interests of the family members.”