Lever­age Your En­ter­prise Cap­i­tal

HSBC Pri­vate Bank ad­vises on how to trans­late the next gen­er­a­tion’s am­bi­tions into long-last­ing growth within the col­lec­tive goals of the fam­ily

Hong Kong Tatler - - Tatler Focus -

For the heirs to a fam­ily busi­ness, the fu­ture can seem all too rigid and pre­dictable—or worse, a dead end. But even a sim­ple un­der­stand­ing of the part that en­trepreneur­ship can play in fu­ture-proof­ing the fam­ily em­pire demon­strates to the next gen­er­a­tion that there is a freer-minded way to carve out a suc­cess­ful fu­ture. Th­ese top­ics were dis­cussed at the 2015 HSBC Pri­vate Bank Next Gen­er­a­tion Pro­gramme held in Mi­ami and Lon­don in Septem­ber. Th­ese pro­grammes fo­cused on the par­tic­i­pants’ abil­ity to forge their own fu­ture now and their po­si­tion within their fam­i­lies and their fam­ily en­ter­prises.

The unique dy­nam­ics that make up a fam­ily busi­ness can be daunt­ing for the younger gen­er­a­tion pre­par­ing it­self to take the helm. Fresh ideas, cre­ativ­ity and the urge to “get things done” of­ten jar sig­nif­i­cantly with the es­tab­lished op­er­a­tional model that has seen the busi­ness flour­ish to date.

This is not lost on Amelia Renkert-thomas, joint-md at Withers Con­sult­ing Group, who reg­u­larly draws upon the val­ues of en­trepreneuri­al­ism to help the fam­ily busi­ness lead­ers of the fu­ture cut through the old idea

of suc­ces­sion plan­ning, and make it ap­pro­pri­ate to the rel­a­tive life-stages of all con­cerned.

Chief among them is the idea that it is in­deed pos­si­ble to break the three-gen­er­a­tional cy­cle of gen­er­at­ing and los­ing wealth, by switch­ing your at­ten­tion to prin­ci­ples of cap­i­tal in all its forms. And it is here that the next gen­er­a­tion have most to gain in play­ing an ex­cit­ing and pro­duc­tive part in the com­pany’s fu­ture.

“We have bought heav­ily into the no­tion that busi­nesses and wealth are all about money,” says Renkert-thomas. “There’s an un­der­stand­ing that pre­serv­ing cap­i­tal is crit­i­cal, but there is more at stake than money.”

Financial cap­i­tal, she ex­plains, can be eas­ily de­fined as money and fixed as­sets, but hu­man cap­i­tal—that rich source of tal­ent, drive and de­ter­mi­na­tion among the fam­ily roles and re­la­ton­ships— plays a vast role in mak­ing the busi­ness what it is.

“Many fam­i­lies take a strate­gic ap­proach to man­age their hu­man cap­i­tal. They strive to give the next gen­er­a­tion the best ed­u­ca­tion pos­si­ble, and give them funds for ex­per­i­men­tal ven­tures to teach them en­tre­pre­neur­ial skills. Some make a con­scious ef­fort to ex­pose them to mul­ti­cul­tural en­vi­ron­ments,” says Bernard Ren­nell, re­gional head of Global Pri­vate Bank­ing, Asia-pa­cific, and global head of Fam­ily Gov­er­nance and Fam­ily En­ter­prise Suc­ces­sion at HSBC Pri­vate Bank.

En­ter­prise cap­i­tal, ac­cord­ing to Renkert-thomas, is what you get when the former two com­bine to solve a prob­lem. That is the holy grail that keeps the com­pany for­ward-think­ing, in­no­va­tive and long-last­ing. But it is not one with­out re­spon­si­bil­ity.

“Own­ers and fam­ily mem­bers are not just re­quired to be good stew­ards of the busi­ness; but to think too about what cap­i­tal out­side the busi­ness can be used to its best and high­est value,” says Renkert-thomas. “Think how can you take what’s there, and do more with it—and make it bet­ter. That to my mind is the cen­tre­piece of en­trepreneur­ship.”

Renkert-thomas’ col­league Ken Mccracken ac­knowl­edges the unique po­si­tion of the next gen­er­a­tion in ex­plor­ing their own en­tre­pre­neur­ial am­bi­tions within the con­text of a suc­cess­ful fam­ily en­ter­prise.

“A fam­ily can pro­vide financial sup­port and be more pa­tient with that sup­port. They can even be more for­giv­ing if that en­tre­pre­neur­ial ad­ven­ture does not suc­ceed,” says Mccracken. “How­ever, those very ad­van­tages can be­come dis­ad­van­tages and there could be ter­ri­ble re­la­tion­ship break­downs if the en­ter­prise fails.”

But the risks should not pre­vent the next gen­er­a­tion from ex­plor­ing the pos­si­bil­i­ties both within and with­out the fam­ily en­ter­prise. Mccracken adds, “I think the next gen­er­a­tion can take re­spon­si­bil­ity for ful­fill­ing their own as­pi­ra­tions by be­ing clear about what they are try­ing to do and hav­ing the con­fi­dence and courage to pur­sue those am­bi­tions, even within the col­lec­tive as­pi­ra­tions of the fam­ily.”

“Th­ese are hard con­ver­sa­tions to start within a fam­ily, par­tic­u­larly in Asia where the younger gen­er­a­tion’s as­pi­ra­tion and am­bi­tions about the fu­ture can be mis­in­ter­preted as a chal­lenge or de­struc­tion to tra­di­tional pa­tri­ar­chal hi­er­ar­chies,” says Ren­nell. “Through our over 60 years of work­ing with Asia’s most suc­cess­ful fam­i­lies, it is nei­ther in­evitable or in­sol­u­ble.”

“The in­volve­ment of the bank can kick-start vi­tal con­ver­sa­tions about the roles and ex­pec­ta­tion of the next gen­er­a­tions,” adds Ren­nell. “A clearly de­fined own­er­ship struc­ture and a ro­bust gov­er­nance frame­work can re­flect the goals of the fam­ily and each mem­ber un­der­stands their re­spon­si­bil­i­ties. A col­lab­o­ra­tive de­ci­sion-mak­ing process will bind fam­ily mem­bers to­gether. Th­ese not only help pre­serve the fam­ily’s busi­ness legacy, but also re­duce po­ten­tial con­flict be­tween fam­ily mem­bers to fos­ter a health­ier long-term re­la­tion­ship.”

Rise to the chal­lenge

No longer is gov­er­nance about iden­ti­fy­ing who can run things; it means iden­ti­fy­ing who has the busi­ness skills, financial and en­tre­pre­neur­ial acu­men to take things for­ward—a point echoed by mar­ket­ing con­sul­tant pro­fes­sor Bill Car­ney.

The cus­tomer may still be the fo­cus of mar­ket­ing, he says, but there is now a so­cial im­per­a­tive to prove to them how and why your busi­nesses does what it does. The next gen­er­a­tion are faced with this chal­lenge, but also an un­ri­valled op­por­tu­nity.

“Th­ese days you have a chance to be big, as with In­sta­gram, Airbnb or Drop­box,” says pro­fes­sor Car­ney. “In­stra­gram was sold for Us$6bn, with an ini­tial price of Us$1.2bn. Only 12 peo­ple were work­ing for the com­pany then, and not a sin­gle one of them was over 30 years of age.”

Not supris­ing, then, that new tech is dis­rupt­ing the older busi­ness mod­els and chang­ing the shape of what it takes to suc­ceed.

David Rowan, editor of Wired mag­a­zine, echoes the point that the next gen­er­a­tion is com­ing into the world of busi­ness at a hugely ex­cit­ing time.

“We’re at the be­gin­ning of mas­sive trans­for­ma­tions en­abled by tech­nol­ogy, the next gen­er­a­tion have the chance of tak­ing this knowl­edge and build­ing bil­lion dol­lar com­pa­nies,” he says.

“The great thing about the next gen­er­a­tion is they don’t come with fixed ways of think­ing and that gives them an ad­van­tage in a very fast-chang­ing world where you don’t have to ac­cept a fixed busi­ness model as the fu­ture.”

the in­for­ma­tion con­tained in this ad­ver­to­rial has not been re­viewed in the light of your in­di­vid­ual cir­cum­stances and is for in­for­ma­tion pur­poses only. it does not pur­port to pro­vide le­gal, tax­a­tion or other ad­vice and should not be taken as such. no client or other reader should act or re­frain from act­ing on the ba­sis of the con­tent of this ad­ver­to­rial with­out seek­ing spe­cific pro­fes­sional ad­vice. HSBC Pri­vate Bank is a divi­sion of the Hongkong and Shang­hai Bank­ing Cor­po­ra­tion Lim­ited.

Global ex­per­tise Bernard Ren­nell, re­gional head of Global Pri­vate Bank­ing, Asia-pa­cific, and global head of Fam­ily Gov­er­nance and Fam­ily En­ter­prise Suc­ces­sion at HSBC Pri­vate Bank

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