Something old and something new: the case for family governance
As the next generation of ASPAC family business leaders matures, the importance of a robust family governance structure only deepens.
Even in the face of changing values and mores, the family remains a cornerstone of society and major contributor of economic growth. They make up 90% of global economic enterprises, and 27% of private capital markets globally, with assets under management of more than US$6 trillion.1
Though younger than their counterparts in other regions, Asia Pacific family businesses have grown in prominence in recent years, with over half of the top 1,000 companies commanding US$4.2 trillion in value in 2023.2 The immense achievements of these companies have resulted in the onset of a massive transfer of wealth in the region — by 2030, as much as US$2.5 trillion is expected to move from one generation to the next.3
Formalizing the family
Asia Pacific business families are not immune to the shifts in values and priorities that are occurring with the introduction of a new generation of leaders. Having come of age in a time of economic and geopolitical change, younger leaders bring with them unique perspectives informed by their digital nativity and strong sense of social responsibility.
While these future-forward perspectives could lay the foundation for growth for the business down the line, they also set the stage for potential conflict between not just generations but also family members such as siblings or cousins. As family businesses in Asia Pacific grow in size and complexity, there is growing consensus on the need for a robust family governance structure.
Broadly speaking, family governance is concerned with establishing clear boundaries within the business family that enable communication, decision-making and role assignation both inside and outside the family.
In our experience in working with many of these legacy families, discussions often lean towards the need for a conflict resolution policy. Implemented properly, a strong governance framework can act as a pre-emptive conflict mitigation strategy by ensuring individuals can fall back on the family’s shared values for guidance and stay focused on their collective goals to preserve and grow their legacy wealth.
Getting the structure right
Every family will have its own natural, if informal, approach to managing their interrelations. Utilizing a family governance structure, business families can effectively formalize those unofficial or unspoken but accepted norms by making the implicit explicit. In doing so, families foster clarity, transparency and organized accountability in the day-to-day running of a business, as well as its long-term strategic objectives.
What form that structure takes is entirely dependent on each family and their shared values. It may not even sit within the traditional tax or legal definition of a “family structure” but can often be the cornerstone that enables such structures to operate.
A business family could, for example, establish distinct entities for specific functions, such as a business board or family council. Each provides a platform for discussions to take place in the correct setting with the right individuals to address strategic and/or business imperatives. Family businesses can also consider setting up a shareholders’ council or an owners’ council, as the board, shareholders and family all have unique goals and tasks within a governance structure.
Nurturing a new generation of leaders
As these governance structures come into being, the issue of ownership over management is also coming into focus in ASPAC. Rather than being nurtured for executive roles, the next generation is transitioning into roles as educated and engaged owners, reflecting the evolving dynamics within family enterprises.
Several factors are at play. First, families are increasingly diversified in their holdings, encompassing various assets such as operating businesses, real estate portfolios, equities and investments, and personal assets like vacation homes or boats and planes. Consequently, the emphasis for the next generation is to effectively manage this diversified wealth, rather than solely focusing on leading one specific family business.
Moreover, the family tree naturally grows across generations, with more individuals becoming potential stakeholders in the family's interests. As the tree branches out, it becomes impractical for all members to directly participate in business operations. The pivot towards nurturing ownership skills therefore becomes crucial to ensure effective stewardship and engagement among the growing number of family members.
Demographic shifts are playing a role in this evolution, too. Unlike with previous generations, where career paths were often determined by parental or societal expectations, the younger generation today enjoys greater autonomy and choice. Parents, sometimes reflecting on their own experiences, are more inclined to support their children's aspirations, be it joining the family business, pursuing an alternate career or entrepreneurship.
This trend underscores a broader cultural shift seen across Asia towards prioritizing — or at least giving equal consideration — to personal fulfillment and autonomy alongside traditional familial obligations. Is the next generation empowered to shape their own destinies while contributing meaningfully to the family's collective prosperity? How will their prioritization on social change impact how they invest and make decisions that shape business strategy? How can greater governance ensure the preservation of their family’s wealth?
A discourse across time
While the next generation is driving many of these changes, senior members of families have an integral role in bringing these discussions to the table. They may also serve as essential sources of wisdom and experience for the next generation business leaders to learn from.
There is an ongoing tussle between honoring the past and embracing the future, one that may be especially heightened in Asia Pacific, where discussion about succession or generational change can still be taboo. Family businesses often find themselves caught between preserving their history and legacy and evolving their operations to remain relevant in the years to come.
An extreme approach on either side can lead to conflict or hinder success, which is why the most effective strategy may be a middle way, where there is a period of overlap during intergenerational shifts. During this time, the wisdom and experience of the older generation can blend with the fresh ideas and perspectives of the young, a combination that has proven to be highly successful where operations are jointly run and responsibilities and decision-making are equally shared.
Realizing this depends on effective governance and reinforces the need for open and continued dialogue amongst the family. Do we have a clear and aligned definition of success? What relationship do we want to have collectively and individually with the business or wider wealth? How will we know if we are on track?
Governance can be a tool to help business families focus on the future by learning from their past and history, setting them up for ongoing success.
