PwC survey reveals only 16% of Malaysian family firms have a proper succession plan in place

KUALA LUMPUR, 20 April 2015 - Almost half of Malaysian family firms identified succession planning as a key challenge in the next five years, according to PwC’s Global Family Business Survey (the Malaysian cut). Out of the 52 participating family firms in Malaysia, 16% of the respondents acknowledge succession planning as a key internal issue in the next 12 months.

Succession planning is a sensitive issue, often fraught with potential conflict, especially in large families. When the business reaches a certain size, the patriarch typically finds it a challenge to ensure that their vision of the future is fully documented, shared and understood by other family members. Only 16% of the respondents have a succession plan in place which is robust, documented and communicated to all stakeholders.

Family business breakups can often be traced back to family conflicts and tiffs. Breakups can be costly as they hinder the business from progressing and achieving its true potential.

The survey revealed that slightly less than a third of the respondents have some form of conflict management mechanism in place. When asked further on the mechanism used to manage conflict, only a handful (20%) have family councils to manage conflicts and to provide advice on issues faced by their family business.

Much can still be done by Malaysian family firms in the area of succession, managing inter- generational change and conflict management.

The survey report highlights two key factors which are essential to effective succession planning, recognising that both the family element and the business element is closely intertwined in tandem with the growth of the business. The two factors are:

• professionalising the business to make it more attractive for the right talent and skills to join and stay in the business; and
• professionalising the family to give the business the structure and discipline that enables the family members to be cohesive and effective as owners through the good and bad times

“Many family businesses started out through sheer diligence, hard work and with a little bit of luck, but to take it through many generations, you will need more than that. And this means professionalising both the family and the business, and having the right measure of both courage and humility when it comes to bringing in professionals to help run the family business. However, it is easier said than done because ultimately, this involves changing mindsets and dealing with the softer issues which can be confrontational,” said Fung Mei Lin, Senior Executive Director and Entrepreneurial and Private Clients Leader, PwC Malaysia.

“As the business grows, the owners need to acknowledge that not all issues can be resolved within the family. The challenge is identifying when to let go, whom to pass the business to or whom to recruit to take the business to greater heights,” she added.

Professionalising the business

Across the world, more and more family firms are seeing the value of getting professional help to provide a growing business more structure, discipline and control. Processes, governance and skills are three distinct areas in which family firms across the world feel the need to professionalise their operations.

Talented and skillful human capital (which includes both family members and outsiders) appreciate businesses that are able to define their scope of responsibilities and hence, reward them for good performance. If the business is unstructured, chances are the boundaries of responsibilities will be vague (or even overlapping) which may result in a poor sense of ownership and accountability. Good talent may go unappreciated in such businesses and they run the risk of losing such critical talent to better organisations. Retention of key staff is a key challenge in the next five years for 44% of the respondents.

Professionalising the family

Professionalising the family – on the other hand – is aimed at giving more objectivity and structure to the interaction process and communication between family members who are shareholders of the family business. Normally the interaction between family members are restricted to family events and is dependent on how well the various family members get along with the founder of the family business. This may cloud the objectivity of the founder when he/she is deciding on the successor of the family business, or in making business decisions involving certain family members.

With the right structure and process in place, family members who own the family business are able to view such issues more objectively, apply the principle of fairness and agreed family values in deciding what is best for the family and the business in the long term, rather than thinking of their own interests.

Most family business owners recognise that succession planning is a sensitive topic which is often ignored till it becomes a threat to the longevity of the business. By then, it will be too late to take any remedial steps to save the business from a potential breakup.

Professionalising the family may be an onerous exercise but it cannot be postponed indefinitely. Family firms need to start having these conversations around succession early, and make it a point to do it regularly, to ensure that everyone is aligned with the founder’s vision for growth.

The rewards will be significant for family firms that are committed to doing so, making them well-positioned to respond to new commercial opportunities with greater agility and purpose.

ENDS