LAW&COURT: Do children have a birthright to their parents’ wealth?

BUSINESS COLUMN-OPINION BY
PROF. ENRIQUE SORIANO

 

In one of my recent governance and succession talks with business owners in Singapore, I was asked by a high net worth (HNW) entrepreneur, “I’m 69 years old, contemplating retirement for the past 5 years but worried for the future of my enterprise. I started working at 13, and I don’t see anyone in the second generation who is willing to go the extra mile, make sacrifices, unlike [in] our generation where we would always instinctively think about survival because we were poor. Do my children have a right to my wealth?” My reply was quick, “In the first place, who led the children to this false sense that your wealth is their birthright?” The gentleman stepped back and the room fell silent. I gamely assured him that he is not alone.

Clearly, more and more business owners are expressing concerns about a cancerous sense of entitlement among their next generation successors. Family business expert Jeff Faulkner once warned business owners, “Entitlement issues are rampant in family owned businesses. It is a stealthy and dangerous disease that can have a widespread and prolific impact on our business culture, as well as at home. How do we keep it from becoming an epidemic in our business and family lives?”

Transitioning a business is a once-in-a-lifetime event and any unplanned, hasty judgement on succession can take out a business overnight. When you are planning on retiring soon, then having someone ready to take over the business is undoubtedly very important. However, it is not an easy task. The family business ecosystem is so complex and naturally confusing. It is further aggravated when family members are actively working in the business. An enterprise with several family members has twice as many opportunities for conflict, misunderstanding and resentments. Therefore, teamwork is essential and effective communication is critical in aligning the entire organization to the succession objectives initiated primarily by the visionary, governance adviser and the family members.

Consultant Rick Johnson correctly stated that “an attitude of entitlement that is displayed openly can create major challenges for even the most successful family business. He further expounded that “these children often manage with an autocratic style with little empathy for employees and leaving the impression that they can do whatever they want because they will run the company someday.” Having entitled and confused successors in the family business is fraught with danger. When they are made (forced) to join the family business straight from college and without rules that define their participation, you can expect them to act like spoiled brats and bully their way by demanding power without accountability.

This apparent role confusion is a real danger that must be nipped in the bud. It is so pervasive as the behavior feeds into the child’s last name and then suddenly degenerates into a mindset of an owner mentality. So how can you transition the business over to your children sans entitlement? Why do other family businesses transition successfully and some woefully tragic? This is probably the toughest question any business owner will ever face. So allow me to share some non-negotiable interventions in laying the foundation for a successful transition:

– Instill the right leadership qualities into the children.

– Reinforce governance by appointing highly qualified nonfamily directors.

– Institutionalize a culture of accountability.

– And every decision must be guided based on “what is best for the company and not self.”

It is also important to understand that the process depends on how well the owner has prepared himself or herself and the children for this transition.

Second, what really touched off the succession? Was it due to a triggering event like death, an illness or a medical scare? Was it a bruising conflict among senior business owners (siblings and cousins) or plainly the owner’s advance age. Or a realization that death is near and that he or she has to “pass the baton” now. The important task ahead is to seek out a family business adviser that will assist the family in instituting appropriate rules and guidelines that will instill on the next generation owners a sense of accountability, stewardship, self-control and responsibility.

Prof Enrique Soriano is a World Bank/IFC Governance Consultant, Senior Advisor of Post and Powell Singapore and the Executive Director of Wong + Bernstein Family Advisory Group, a research and consulting firm in Asia that serves family businesses and family foundations. He was formerly Chair of the Marketing Cluster at the Ateneo Graduate School of Business in Manila, and is currently a visiting Senior Fellow of the IPMI International School, Jakarta.

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