Profitability trumps legacy for family businesses

4 in 5 said legacy should not get in the way of business growth.

If the latest report by KPMG and CPA Australia is anything to go by, then it seems that business founders in Singapore do not want family legacy to get in the way of business growth and profitability. According to the report, 9 out of 10 said continued profitability is more important than preserving their legacy.

Meanwhile, the report revealed that 98% of business owners struggle with succession as it is a complex and sensitive issue, requiring more time to develop long-term workable solutions. KPMG head of enterprise Chiu Wu Hong said most family businesses in Singapore falter at first transition, with only 13% surviving to the third generation.

“Informal governance structures that may have worked well for the founders of the business may not meet the needs and interests of a new generation. With limited external influence, there could be questions about whether family businesses are allowing for rigour in their governance and if they are overlooking the added value of non-family members,” said Chiu.

More so, 46% of the respondents cited professionalising the business as a pressing issue, compared to 41% who indicated that retaining family control was of utmost importance.

Almost all founders interviewed recognise that succession planning needs to be addressed with a professional or interpersonal approach. Amongst successors, many believe that a formal learning process would have given them a holistic understanding of the business faster, which in turn would have enabled them to make a difference to the company’s performance much sooner. They are also more open than founders letting outsiders run the business, prioritising business sustainability over family control.

CPA Australia Singapore country head Melvin Yong said 56% cited the challenge of attracting and retaining talent as the most important issue.

"It is critical for founders of the business to develop leaders who will run the business, not just inherit it. Instead of just identifying, family business owners could empower successors to make independent decisions, provide challenging assignments and increasing responsibilities whilst incrementally letting go of control to focus more on mentoring,” noted Yong.

The report also stated that despite safeguards to avoid controversy whilst maintaining business profitability and family control, family members can and will face conflict. 60% of founders interviewed said they prefer to make difficult decisions themselves. Only 37% let their successors manage the conflict but remained available for mediation at all times.

In terms of technology, all founders interviewed were committed to keeping up with technological advancements, noting that this is an imperative. Yet, almost all survey respondents were keen to err on the side of caution when it came to investing in technology. 75% see the disruptive power of technology but 9 out of 10 business owners interviewed did not outline a specific technology strategy.

Chiu concluded that the research suggests that it is time more family businesses consider creating family charters and councils to improve governance and align the values and culture in the company. "Whether a family business thrives over time, isn’t about family succession but about leadership. The best successor is the best leader whether a family member or a professional,” he said.