This article first appeared in Wealth, The Edge Malaysia Weekly on August 23, 2021 - August 29, 2021
A family business is an enterprise founded by one or more family patriarchs with a vision, in which family members work together to achieve the shared vision, and with the intention to have the legacy last for generations to come. So, how do family members ensure the attainment of this vision?
This can be seen from the family members involved in management, exerting the family’s control over the business and overseeing the operations in accordance with the family’s vision. For example, husband and wife or siblings working together in the first-generation family business. Then, there is the involvement of offspring in the business, with the intention of generational succession and passing down the legacy. The father who is the founder would be the chairman, his son would be the CEO and his daughter, the chief financial officer.
There is generally a misconception about the notion of “succession” in family businesses. For instance, a second-generation member of a family business in Indonesia expressed that, “I wouldn’t call our company a second-generation family business as my father still has the ambition to lead the group to achieve the next level of success. And we children are here to assist him.”
Succession is actually a process that takes time, not an event, where the overlap of more than one generation in the family business allows the intended successor(s) to learn from the incumbent and work together to attain the family’s vision.
Family legacy is the shared perception of the unique values of a family that is preserved across generations. It is a unique identity that family members identify with and is perceived by outsiders, just like how you identify yourself as a child of your parents and your neighbours identify you as a child of your household.
In a family business, a family legacy would include aspects that cover both the family and the business. A family legacy that is passed down the generations can be seen as both tangible and intangible.
The tangible artefacts of a family’s legacy can be the physical materials such as the family’s estate, legal patents and the family’s wealth. Intangible artefacts would typically include the family name and bloodline, family traditions, family history and family values.
Take Genting Group. Tan Sri Lim Kok Thay would be identified by himself and the public as the son of Tan Sri Lim Goh Tong, as well as the successor of the business founded by his late father, and he is to preserve the family’s legacy. Except for the family name and biological aspects that are inherited, most of the intangible artefacts of a family’s legacy are psychological endowments that are passed on from generation to generation through communication and interaction among family members.
In a family business, the family legacy is an identity that family members can feel proud of, and we can see how family members strive to preserve the family’s legacy by being in management to oversee the business. The founders established the business with the vision of building a legacy, thus having an entrepreneurial drive that steers the business towards growth and expansion. The succeeding generation joins the business to assist the founding generation to grow the business further or expand into different industries.
Many of the next-generation successors of family businesses choose to work in the family business despite having their own dreams and aspirations. However, the attitude towards preserving the family’s legacy and its effect on the business can vary, depending on the generational stage of the business.
Typically, the founding generation’s focus would shift from building the legacy to preserving it when second generation starts to get involved. Therefore, they tend to be more entrepreneurial in scouting for business opportunities. But at the same time, they take the necessary steps and calculated risks to avoid any potential setback.
Madura Group, founded in 1996 by Mr and Mrs M S Pandian, is a second-generation family business. It is currently led by the founders, together with two of their sons, Tharchanaa and Deepan.
While Tharchanaa has envisioned helping his parents since he was young, Deepan is a medical doctor but chooses to help the family business by being on the board of directors. Over the past 25 years, the family business has grown from a humble neighbourhood store in Klang, Selangor, into a group of businesses comprising Madura Retail, Madura Properties, MSG, M S One Capital, Madura Store Holdings and Indus Export Corp.
In an interview, Tharchanaa expressed that among the many options for diversification, property was chosen as a relatively safer way of expansion while being able to preserve the family’s legacy.
Family values, which are part of the family legacy, are the shared norms and mutual expectations of family members that usually influence how they perceive situations and determine what actions to take. We can expect to see the influence of family values on the family’s strategic decisions when operating and managing the business. For example, how the family interprets the market, builds relationships with stakeholders, leads the workforce and allocates resources for various purposes.
In a family business, family values are usually formed by the founder at the entrepreneurial stage, when the founder established the business based on his or her own values and strived to achieve success. As the founder achieved the desired goals and sustained growth of the business over time, he or she would endeavour to pass on these values to other family members and the generations to come.
Ipoh-based Kinta Saujana, founded in 1991, is a second-generation family business in the property development industry. Its founding philosophy was based on the ancient Chinese saying, “Yi Shi Zhu Xing”, expressing the essential requirements in life, where the founder believes that “Zhu” (housing) is one of the most important things in life. With this core founding value, as well as the family value of providing housing for Malaysians, the two generations of the Cheng family work together to develop properties and build more homes for Malaysians.
National Group Bangladesh (NGB) is a second-generation family business in the logistics industry, based in Chattogram, Bangladesh. The founder, Kamar Uddin, has always told his children that they are not earning for themselves, but for the community.
Saidul Haque, a member of the second generation who is now NGB’s managing director, says, “Unlike other business families we know, where they drive luxury cars such as Ferrari and Lamborghini, none of us have any savings. We keep only three normal cars for the four of us, our family home, 100 vehicles for the business operations and the two parcels of land on which the businesses sit, to continue operating the businesses to be able to generate income for the community.”
Despite the difficult times in 2020, when factories had to remain closed due to the pandemic and the company suffered a substantial loss, the family was determined to uphold its values and commitment to the community by continuing to make salary payments to garment workers and fund their corporate social responsibility projects. Kamar will be donating 5% to 10% of the company’s profit to Islamic orphanages and schools while Saidul is raising funds from all over the world for his Antaheen Foundation to help people in need.
Across the sphere of family business, there is this thing called the “three-generation curse”. Some have called it a myth while some statistics have shown that many family businesses, indeed, fail to go past the third generation, where up to 90% of the families lose most of their wealth. This is partly because a firm organisational structure and strategic planning were almost non-existent in the past, with many family business founders attributing their success to their intuition. Although successors are generally much more educated in modern times, the consensus is that such intuition cannot be transferred through education.
Keeping this in mind, along with early preparation for succession, good communication among generations and family members can ensure that each and every one is aligned, so that the family identity and values — the crucial ingredients in ensuring the family’s legacy — live on.
While many will argue that family businesses are being overly traditional and conservative, a lot of these businesses around the world have actually stood the test of multi-generational challenges and come out stronger to become mega empires. Even in times of crisis — many businesses are facing a lot of challenges due to the Covid-19 pandemic — we can see that many family businesses have prevailed and still stand strong with family members working together hand in hand. Time and time again, it has been shown that family identity, family values and the passing down of knowledge and familial foundation are essential to the success of the family business.
Dr Feranita is a senior lecturer at Taylor’s Business School’s Faculty of Business & Law
This article is a collaboration between Family Business Network(FBN) Asia and Taylor's University. FBN Asia, a regional chapter of FBN International, which represents family businesses in 65 countries across five continents, offers opportunities for stakeholders of the family business to learn, thrive and transform across generations to build a sustainable future.
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