The dire consequences of having family no. 2
Enforcing governance and crafting a succession plan for our clients in Asia are two of the most critical challenges that we encounter in our regular work at W+ B Family Business Advisory.
Providing a tailor-fitted approach for every family-owning business and combining it with Asian values have been our core competence since the firm broadened its reach to cover Asia Pacific and South Asia.
But there are two other major risks (ownership and succession) that are often neglected and yet take center stage when immediate family, extended and in-law members battle for power and ownership. Succession coupled with ownership issues gets mired in controversy when many marriages end in divorce, legal separation or annulment.
In Singapore alone, where I engaged most of my regional clients, the country’s divorce rate spiked a few years ago, catapulting the republic into one of Asia’s top economies with very high incidence of failed marriages. The latter was exceeded only by South Korea, Japan, Hong Kong, China, and Taiwan. But it is worth mentioning that all these countries are among the most affluent in Asia that share a common Chinese cultural heritage background.
When we look at the total picture, the marriage rate in Asia has gone down in recent years while the divorce rate continued its upward trajectory. From a family business perspective, what does a failed marriage have to do with succession and ownership issues? What are the implications when couples terminate their marital vows by saying “I don’t” or “I won’t any more” instead of continuously professing their “I do’s?” The implications and the consequences are too important to ignore.
For starters, most couples who go into business together never dream their relationship will end. But when things unravel and the divorce or separation is set in motion, the emotional turmoil is further complicated by the question of what happens to the business and the children produced by the union.
Problems emerge when a significant number of these parents will remarry, adding new children to the marriage and further complicating the already complex family business ecosystem.
The consequences can be daunting, as the creation of a not-so-merry mix of family members we refer to as a blended family can include half-siblings, step-siblings and children from the current marriage. Expectedly, all of them will jockey for attention and, as they become adults, will expect employment, power, participation in decision-making, and future ownership.
Naturally, we can anticipate deep schism and undercurrents within the blended family and, if ignored, these can cause real tension. Neglecting the latter can devour the best-laid plans of business succession.
But the biggest risk of them all is the inherent risk that will impact the family business system, especially when illness, incapacity and death of a key family shareholder happens. When the enterprise is caught unprepared, we can almost always expect the entire family, business, ownership system to turn chaotic overnight as practically all ownership-related issues relating to shareholder’s composition, leadership and unity will end up in disarray.
It is, therefore, important to note that sensitive issues like anticipating failed marriages, remarriage, adopting children and having children out of wedlock are brought into the open so governance and ownership policies can be formulated. In doing so, there is less likelihood that family dissent will cripple the business during the critical next generation transition period.