As we know, it is difficult to transition businesses heavily dependent on a successful leader, even with a strong corporate structure in place. The position is even more precarious if a patriarch is seen as the embodiment of a family-held business, with no obvious successor. The temptation here is for the patriarch to cling to power well into their dotage, especially with longevity on the up.
Ultimately, that can mean the patriarch and the business may be exposed to an increased risk of infirmity in later life; and that potential heirs may be left in the shade for too long without gaining any real business experience. Worst of all, it may serve as a catalyst for family tension with disastrous, or at least unwelcome, consequences for the business.
Although this phenomenon is no respecter of national boundaries, Asia in particular has proven to be particularly fertile ground — with a number of warring family factions jostling for the patriarch’s throne or other entitlements on his death or incapacitation. One example is Stanley Ho, who built a multibillion-pound casino empire in Macau.
It was alleged, shortly after he had a stroke in 2009, that one of his wives and some of their children had got him to sign away almost all his shares in his holding company to an offshore structure. The case played out before the media as court proceedings were issued by Ho. The family came to a private settlement in 2011; the question will be whether the truce holds when Ho dies.
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There are a number of other ageing tycoons across Asia holding very significant assets and where transferring the business may be difficult. Nevertheless, an orderly succession is important not just for the families involved but also for the wider economic prosperity of the region.
Transmitting wealth to the next generation can be even more complicated where families are dispersed over continents with different cultures and tax systems. International private client and tax lawyers and accountants can take a family so far in setting up arrangements to try to minimise fiscal exposure. However, they are often ill-equipped to deal with familial and cultural tensions.
Family tensions in Asia are increasingly spilling over into court proceedings in the British Virgin Islands, Cayman and other offshore centres where the ultimate holding structures reside. This can lead to a multiplicity of legal and other advisers stretched across different jurisdictions. While the names of the parties are often notionally redacted from the court records, the reality is their identities often leak and can be the subject of intense press speculation. This can be highly prejudicial to the interests of the families and their businesses.
In England and elsewhere, family fortunes have in the past been kept together by passing the assets down the eldest of the male line. In this way, large estates and titles have been passed on while minimising the scope for dispute among the siblings on the death of the incumbent. However, where there are complex businesses tied to the genius of the patriarch, the transition of the business empire to the eldest child is much less likely to be successful than in relation to a physical asset like a landed estate.
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There is an old Chinese proverb which says that wealth rarely survives three generations (there are similar sayings in Europe and America), and the statistics seem to bear that out. Less than 10 per cent of wealth is effectively transferred by the third generation. The position in relation to business assets is even worse: company stock values can fall by 60 per cent on average in the years surrounding the succession.
What is the answer? It’s complicated. Effective communication, management of expectations, shared family values, vision and beliefs may all assist. However, even the best-laid plans can be overtaken by events or may run aground as a result of families pulling in different directions. Simply handing over the reins from one generation to another in the hope and expectation that the transition will be seamless is too often a recipe for disaster.
There are examples of families who appear able to transmit the family wealth through generations. However, many of those families have significant family offices and structures with professional advisers whose constant energy and focus is to keep the family dynamics and the interests of the business empire in sync. The challenge for the patriarch of such families is to think not what he wants or needs today, but what his family and businesses might need in the future.
Graeme Kleiner is head of trusts and estates at Charles Russell Speechlys
