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
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.”
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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