Family Business Sharing Series 3 (2018)

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TRANSFORMATIONAL LEADERSHIP KEY TO SUSTAINING FAMILY BUSINESS The Singapore Chinese Chamber of Commerce and Industry (SCCCI) released findings of the 2017 study on Singapore family businesses, which was conducted jointly with PwC and UBS, on May 25. Two successors who successfully transformed their family businesses shared their experience and insights at the event’s panel discussion. The findings show that many local family businesses need to knuckle down to transform or face possible elimination.

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DYNASTIES rose and fell, and the same happened to many business empires.

Many companies once dominated the businesses in Southeast Asia in early 20th century, but they had now disappeared without a trace.

Then there was Mr Lee Kong Chian, the major founder of the Oversea-Chinese Banking Corporation (OCBC). Although the bank is now not run by the Lee family, they continue to hold a stake.Ever evolving and transforming, OCBC is now looking towards its 100th anniversary.

Now, transformation is no longer optional, but an urgent requirement faced by all the family businesses which want their brands and fortunes to last. With technology advancing ever so relentlessly, only family business successors who are able to lead a transformation agenda could keep their business going and growing.

At the conference co-organised by SCCCI, PwC and UBS on 25 May 2018 to share the findings on the 2017 study into Singapore family businesses, we heard many frank and interesting views from the panel discussion, which not only enlightened but delighted all present on the topic of family business succession and transformation.

The attendees, numbering more than a hundred, kept responding with nodding laughter. The journeys of Mr Pek Lian Guan and Mr Mark Lee might be different, but in replies to a question from the floor, they unanimously said they had no regrets over going back to work for their respective family businesses. Also, neither of them turned their back when being picked to be the successor.

Even if that meant having to work 24/7, losing sleep at night over company issues, and spending less time with their children.

Both are happy to have helped shaped their companies’ destiny, getting them scaled up and made over to keep pace with the times.

But being at the top or next in line does not assure success – not if they have no fire in the belly. And they need to have plenty, especially when a big hurdle they have to overcome could be none other than their father.

(From left) Ng Siew Quan, Asia Pacific Leader, Entrepreneurial & Private Clients, PwC; Pek Lian Guan, Managing Director, Tiong Seng Holdings; Mark Lee, CEO, Singlun Holdings; Amos Ng, CFO, Straco Corporation Limited.

“When I first came back, I had to write out a proposal if I saw an area that required change,” said Mr Pek, now the executive director and chief executive officer of construction company Tiong Seng Holdings.

“That was how things worked at first.

Eventually, I could just walk in and say we should do this and that, and the ideas were taken,” added Mr Pek, suggesting that capability could gain recognition and trust be fostered over time. Results would further reinforce trust.

NO RED CARPET FOR SUCCESSOR “There should be no red carpet laid out,” Mr Pek replied, when asked whether a family member who has no track record should be allowed to take over a business just because it is in desperate need for an heir. “The person must prove his mettle.

He must show passion. The one to take over should be the best choice,” he summed up.

As for Mr Lee, the chief executive officer of apparel manufacturer Sing Lun Holdings, the key terms in taking a family business forward are apparently “work ethics”, “professionalisation” and “hunger to learn”, which peppered his narratives.

“I learnt very early from my father’s investments that a business could make a huge difference in the lives of others,” said Mr Lee, citing the creation of job opportunities as one of his motivations to plunge into business.

He also believes in taking non-family professionals on board, as successors tend not to be as hands-on as the founders and may lack the “hunger to learn”.

But hiring non-family professionals would give rise to another question: what platforms to be created that could best tap and reward these capable people who do not share the same surname and blood line. And there is also the consideration of how to safeguard family interests.

“Often the generals are smarter than the emperor, and managing them is itself a tricky business,” mused Mr Lee.

“THERE SHOULD BE NO RED CARPET LAID OUT. THE PERSON MUST PROVE HIS METTLE. HE MUST SHOW PASSION. THE ONE TO TAKE OVER SHOULD BE THE BEST CHOICE.” ——Mr Pek Lian Guan, Executive Director and Chief Executive Officer of Tiong Seng Holdings

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MILLENNIALS WILL FIND THEIR OWN WAY When asked whether millennial successors would find it harder to take charge at the helm when their turn comes, Mr Pek was quick to dismiss the concern.

He believes that a pragmatic society like Singapore would never let itself collapse, and the young cohort would find their feet in due time in a stable society. “There is no need to worry about the millennials.

Let them go and they will find their way,” Mr Pek asserted.

Recalling a trip to South Korea, Mr Lee said he came across a company whose millennial employees were not treated as just another age group of undifferentiated faces but individuals each with a distinct personality.

“They are encouraged to talk about their pet interests on the company’s noticeboard. Thanks to this, colleagues who share the same hobby get to link up,” said Mr Lee. He also discovered that during Christmas the company would shop for the things their millennial employees had indicated as their desired presents.

Mr Amos Ng, the third panelist, played what he called the role of “observer” at the discussion. He shared his perspectives and experience as a professional working for a family business.

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According to the senior vice-president at Straco Corporation, the importance of segregating ownership and management can never be emphasised enough in cases where professionals need to be hired from outside. Expectation gap always exists between the two parties, and to bridge this there need to be a shared sense of purpose and a good balance of power, Mr Ng stressed.

SUCCESSION AMID TRANSFORMATION Mr Ng Siew Quan, who leads the Asia Pacific Entrepreneurial and Private Clients network of PwC, pointed out some instructive survey findings before chairing the discussion.

Nearly 24 per cent of family businesses polled believe continued success could only come from innovation of products and services. About 21 per cent have partnership and collaboration with other businesses in their game plan, while another 20 per cent look towards restructuring. Only 6.2 per cent consider selling away their business – a low proportion which suggests most families see their business as inalienable property.

While one may think family businesses would stick to the tried and tested ways, over 23 per cent said they want to expand into new growth sectors.

Mr Ng highlighted a point that SCCCI President Roland Ng made in his opening speech – many family businesses urgently

need to transform amid the disruptions by digitalisation, and it comes at a time when a younger generation is taking over.

That means family businesses need to do two things in one go: institute innovative changes while the old generation pass down their experience and painstakingly built networks to the young.

This requires the incoming and the outgoing to communicate well with each other and together do the necessary.

“In fact, succession is no longer an event.

It is now a process that must start as soon as a successor is identified. There is no starting time, say, 21 years old, for a successor to start learning,” said Mr Ng Siew Quan. “Better fail fast and get on,” he added. Mr Ng also advised business owners not to let their ego get in the way when they collaborate with other enterprises. “One-man show is not sufficient in this new age where technology affects all businesses. Talent is critical and it’s often better to let the professionals run the show,” said Mr Ng. He also touched on globalisation, saying that family businesses should seek farflung markets as competition has turned global.

The survey was conducted in Singapore between May and July last year, with 115 companies polled and seven representatives interviewed face-to-face.

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“Those that are prepared to evolve, innovate, and reinvent themselves will be the ones that achieve long-term prosperity in the business”, Mr Roland Ng, SCCCI President, advised. Fortunately, not all business owners believe they could have their cake and eat it.

Mr Joseph Foo, founder and executive chairman of Jason Marine Group, remarked that he would open his door to competent professionals, if his children are not keen to take over. According to Patrick Ng, deputy chairman of Pan United, ultimately the preservation of the family wealth and harmony should take precedence.

Therefore, he would opt for separation of ownership and management should that become inevitable. Closing the conference, UBS’ Mr Eddie Gan reiterated the point that generational transfer of wealth and succession planning were important twin issues that family businesses have to deal with.

“The formation of a family office can help to manage key family assets and preserve the wealth in the family,” advised the market head of Singapore UBS Global Wealth Management.

It is included in our strategic plan, but we have not mapped out a well-considered approach

10.9%

Although there are exemplary successors like Mr Pek and Mr Lee, the study inferred from the findings that not all is well on the family business scene.

While about 86 per cent of family firms said they plan to be part of the digital economy, only 5 per cent said they have an established e-commerce arm. The study also pointed out that the next generation, although more digitally savvy and more global in their outlook, may not have the capabilities to lead the transformation agenda.

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5.0%

FAMILY BUSINESSES SLOW TO DIGITALISE

“Digital solutions offer family businesses increased agility and efficiency, as well as better delivery of products and services.

Despite these apparent benefits and the right intention, adoption has been slow and progress has been varied,” the survey said in its summary.

IN THE LEAD

We are in the early stages of rolling out our digital strategy

34.7%

FIGURE 1 How involved is your business in the digital journey?

22.8

%

We are currently experimenting with technology and platforms to build or enhance our digital presence We have an extension of our business online, but it’s not generating the returns we expected

25.7%

We have an established e-commerce arm and are already providing services and client experience online

6.1% 11.2%

Finding a way to transform the business through Technology

36.2%

FIGURE 2

14.9%

Managing the financial costs of digital transformation/innovation Dealing with new entrants who have a first-mover advantage in terms of digital business strategies

20.9%

To what extent are the following factors a challenge to your family business as you prepare for the digital economy?

28.7%

Availability of internal capabilities/resources Finding the right business partner

26.1%

Changing existing company mindsets/culture Convincing stakeholders of the benefits of digital transformation/innovation

0.6%

Pass on ownership to next generation but bring in professional manager to run the business

4.4% 6.2% 7.5%

Don’t know yet 34.2%

FIGURE 3 9.3%

What are your future ownership plans for the business?

Pass on to the next generation to manage IPO Sell to private equity investors Sell to independent third party

18.0% 19.9%

Sell to management team Exit the business