Succession The Critical Decision

Wealth Never Survives Three Generations

‘Fu bu guo san dai’ or ‘Wealth never survives three generations’, as the Chinese saying goes — and there is truth in the old adage. Indeed, statistics has shown that only 30% of family businesses survive past the second generation and only 13% of them are still viable in the third generation. Yet many family businesses are so involved in their day-today operations that they fail to plan or be proactive in succession planning. An interview with BCB Berhad Group founder Tan Sri Dato’ Tan Seng Leong, also known as ‘Father of Kluang’ for his contribution to the significant growth of the town, has shed insightful light on the issue.

Succession Planning as a Process

According to Tan Sri Dato’ Tan, the lack of strategic succession planning by first generation leaders to bring the next generation into the business effectively is one of the contributing factors to family business failure. Specialisation and systematisation are key factors to ensure a smooth transition of ownership and management while preserving the core value of the business.

So when is the optimal time to pass on the the baton to the next generation? In this regard, it is worth noting that succession is a transition journey, not a one-time event. Succession is a complicated process that involves not only the transferring of financial wealth of a family enterprise but also the values surrounding their wealth. Even after a succession plan has been put in place, it has to be reviewed and updated on a regular basis in accordance with changes in the company’s business environment and development strategies.

Strategic and Systematic Planning

As we can imagine, the thought of departing a business is daunting, but succession planning is better done earlier than later, noted Tan Sri Dato’ Tan. By starting early and employing strategic planning coupled with systematic approaches, many of the pitfalls can be avoided.

Tan Sri Dato’ Tan three children, graduated with degrees in the fields of Accounting, Economics and Real Estate Appraisal respectively, are equipped with specialisation related to their family business. For Tan Sri Dato’ Tan, professional training is key to success even in family businesses as gut feeling and experience by themselves are not sufficient for a company to achieve sustainable comparative advantage in the market place.

Bridging the Generation Gap

When asked for tips on ensuring a satisfactory second‐generation entrepreneurs succession, Tan Sri Dato’ Tan remark brought an insightful perspective to the discussion. ‘Second generation’, to his view, is referred to as the employees of the first generation family business while the children of the business owners are virtually the ‘third generation’.

The younger generation will benefit from the experiences and wisdom of the ‘second generation’, especially long-serving employees in a family business. If the employees are younger than the first generation business owner, this will help bridge the generation gap  in the succession process. By working alongside different generations in the work place,   the children can benefit from different perspectives based on generational attitudes and values.

“One of the major challenges in family business succession is generational differences in views and perspectives”, noted Tan Sri Dato’ Tan. “Nonetheless, we have to make sure that we are working towards the same goal despite there being different opinions. We strive to see things from others’ point of view, communicate and make compromises. When there are conflicting opinions, it requires the exercise of mature judgment based on professional knowledge and/or life experience to reach the common goal”, Tan Sri Dato’ Tan concluded.

In short, effective communication is crucial. Better communication enables the family to learn from one another.

Everything Falling Into Place

Tan Sri Dato’ Tan built his business from scratch and in the past twenty years he had run the business on his own but now, as his entrepreneurial career becomes more prominent, he has his children working alongside him – all with professional skills contributing towards the family business. His elder son has an acute instinct for investments, his articulate and trilingual daughter is good at marketing while his youngest son is trained in the field of real estate appraisal and evaluation.

As we can see, such success does not happen by chance but by systematically and strategically mapping out a succession path with foresight and wisdom. Different entrepreneurs have different approaches in preparing children to take over their business but for Tan Sri Dato’ Tan, he has chosen to let his children work in and learn from the family business. Succession is not mere ink on paper. The ancient spell of ‘Fu bu guo san dai’ or ‘Wealth never survives three generations’ can be broken!