Business Families for Generations – Rising Above the Storm

But so often we witness business owners who do not have a game plan when it comes to business succession or continuity, nor are they able to properly harness the qualitative capital existing within the family.

How might the members of a family business collaborate amidst the seismic market challenges we are seeing in recent times?

How does the founding generation relinquish the reins and gradually empower and engage the next generation effectively?

How do business families secure their own legacy?

These kinds of questions are best tackled during times of stability and growth, when family businesses have time to think through their succession plans. Such is the best-case scenario. However, sometimes crises happen before succession planning has finished or even started, and the ensuing storm exposes family businesses to otherwise avoidable risks.

Don’t leave it to chance

In face of disruptions and adversities like the current global COVID-19 crisis, it underscores why family businesses cannot leave their succession planning to chance.

Reinforcing this point, Jack Ma, during his farewell speech to over 60,000 Alibaba employees, reiterated his vision for Alibaba to last for 102 years, and crossing three centuries. To achieve this, Ma described how he looked at the succession practices of many firms to “keep them alive” when responsibility was passed down. For Alibaba, he decided not to simply pass the company on to the next generation or hand it off to professional managers, but instead took a third way to “nurture our own team, and make sure the succession process is smooth with the help of system and culture. That is why, I have been preparing for 10 years for today..." ¹ 

That Ma had planned his departure from and passing on of Alibaba for a decade with such a keen focus on generational succession accentuates the need to discuss candidly the legacy of any family business. During the stewardship and legacy phases of the wealth cycle, a long-term perspective is needed to ensure that all family members are working to uphold their business’s reputation and stability.

At HSBC Private Banking, we work closely with a wide range of multi-generational family businesses on their succession plans, as well as frameworks for preserving their legacy. No family business is the same, but all want to avoid the commonly cited curse of “shirtsleeves to shirtsleeves in three generations”². Turbulence and unsettled times can become a catalyst for family members to focus on discussions about the future. We are able to meet these needs and channel this focus into open discussions on longer-term legacy and succession. Communication at these times can successfully navigate the storm and protect the wealth and sustainability of family businesses.

The golden key?

Dennis T. Jaffe, a pioneer in the field of family enterprise consulting, has conducted extensive research on the subject of how family businesses sustain themselves over generations. The results, derived from interviews with established family businesses across 20 countries, were presented in his recent book, "Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises". A consistent trait that pops up is how these families are able to communicate better than others and are therefore effective in navigating difficulties hence preserving wealth and weathering uncertainty better. ³

At HSBC Private Banking, we have consistently seen that family businesses plan better for the future when they have a well thought through approach to communicating about succession. Communication is a simple concept but knotty to execute in a sea of differing views, dynamics and interests. It is therefore critical to establish proper communication and decision making mechanisms both at the family and business level.

Below are some approaches to consider to improve communication within a business family:

• Embarking on family projects and endeavours
  When family members collaborate on projects together, it builds solidarity around a common mission and purpose. Whether it’s building a new school or providing support to villagers in underprivileged communities, family members need to communicate effectively to achieve their shared goals.
• Creating family stories and testimonials
  Crystallising the legacies, traditions and heritage that epitomises your family history go a long way to unite the family through storms of change. It reminds the family how we have overcome challenges before and that we can do it together again.
• Embracing the entrepreneurial spirit
  Families establish entrepreneurial funds that look to investing in businesses across new markets and industries, while simultaneously creating opportunities for the up-and-coming generation to assume leadership roles. In this way, parents and children must learn to communicate about expectations and responsibilities, which is an important bonding process. Many families also seek help in establishing their own family office to professionalise and manage their joint assets.
• Clarifying priorities, roles and responsibilities
  Communicating about roles and responsibilities is important for maintaining stability in family business operations. Identifying potential sources of tension is a good exercise for developing effective decision-making mechanisms. In this regard, families often seek help in drafting family constitutions, which can go a long way to managing expectations about the up-and-coming generation’s commercial and familial roles.

The flip side to a crisis

Crises have a way of providing clarity to the way we see things. The suddenness and scale has awakened many family business owners to the importance and urgency of succession planning.

In Chinese, the word for "crisis" (危機) is comprised of two characters, which mean "danger" and "opportunity" respectively. During the current challenges presented by COVID-19, positives are emerging not least from the fact that it is providing family businesses an opportunity to prioritise what is most important for their cross-generational aspirations.

Let's take a lesson from the eagle and be inspired. The eagle is an extraordinary bird. During storms, instead of hiding to escape the danger, eagles use the power of wind to propel themselves higher. At HSBC Private Banking, our desire is for your family and your business to rise above the storm and emerge stronger, be more resilient and better able to ride out the next wave of growth.

Please contact us or your Relationship Manager to discuss how we can assist you in achieving the enduring legacy of your business and family.

¹https://qz.com/1706408/excerpts-jack-mas-farewell-speech-to-alibaba-employees/↩

²https://www.oxfordreference.com/view/10.1093/oi/authority.20110803100502580↩

³https://www.nytimes.com/2019/11/06/your-money/wealth-100-year-family.html↩