“Managing and financing family-controlled firms entail specific challenges and issues,” stated Professor David Mitchell Reeb, Mr and Mrs Lin Jo Yan Professor of Banking of Finance, National University of Singapore (NUS) Business School. Professor Reeb was the Event Chair at the Greater Good Series lunchtime talk on ‘Keeping it in the family’ featuring Mr Serge Pun, Executive Chairman of Yoma Strategic Holdings Ltd.
As one of the world’s most prominent scholars on family-controlled firms, Professor Reeb further posited a few challenges unique to family-controlled firms to the audience. “How do we think about family and non-family members in the succession planning of the firm? How do we deal with potential conflicts?” he asked.
Guest speaker, Mr Serge Pun, shared his thoughts and philosophy on how to deal with potential conflicts in the family. “Every family has a different set of conditions, a different set of descendants and unique situations. Each family will have to work their way and see what fits best for them,” he remarked.
When certain ground rules are laid, good succession development can be achieved. First and foremost, Mr Pun believes that the definition of the types of rights a descendant is entitled to must be firmly set in place. “Descendants may feel a sense of entitlement towards the company, and assume they have rights to it. This is the root cause of all problems,” he explained.
While it is generally acknowledged that birth rights encompass economic rights, it is important that we learn to differentiate birth rights with the rights of succession. Does a person necessarily have the rights to succeed the business just because they are a descendent? While most family-controlled firms may answer yes to this question, Mr Pun cautioned that this is not wise. “If family-controlled firms want to preserve the longevity of their family business, they must base succession on meritocracy. Wealth can be inherited; the family business must be earned,” he explained.
“The kinds of values that parents instil in their children, a sense of entitlement versus the right to succeed the company, are of utmost importance,” Mr Pun emphasised. If the children are not capable of managing the business, parents should not insist on them succeeding the company. This is the only way that the firm can be kept going. In addition, by using meritocracy as a criterion for succession, one can be objective when deciding which of their children will take over the company, without favouring one child over the other.
Mr Pun shared with the audience how he drew inspiration and guidance on succession planning from a prominent Thai family business owner who was also a family friend. “He shared that because of blood line dilution, the third generation should not be automatically allowed entry into the family business. They must first prove themselves outside—whether in their own venture or in another company. I thought that this was a very good formula,” Mr Pun says.
Education of the successor is also very important to prevent potential power struggles in a family-controlled firm. The future successor must have the qualities to take care of other family members – generosity, magnanimity and wisdom. In Mr Pun’s opinion, a good heart is more important than competence when choosing a successor.
The NUS Greater Good Series features talks by leading minds on topics related to philanthropy. These include generosity, giving and service to the community, as well as leadership, personal well-being and mental resilience. The Series aims to raise awareness of philanthropy and its impact on society. The Series was made possible thanks to a generous gift from Newsman Realty Pte Ltd.
For further information on the NUS Greater Good Series, contact Ms Chow Wei Ling at firstname.lastname@example.org