Frank discussions about personal relationships can help family firms thrive, says Bernard Rennell
Family-run businesses risk dispute and division without a clear succession plan, according to Bernard Rennell, Head of Global Private Banking for Asia-Pacific, HSBC.
Speaking in the run-up to an HSBC forum for family enterprises in Shanghai, China, Mr Rennell explained that a succession plan – setting out how the family business would be run as one generation takes over from the next – could help avoid conflict. He said: “If a family business is to succeed over the longer term, it needs a strategy. Success doesn’t just happen. Wealth tends to erode after the third generation and what’s really unfortunate about that is not just the destruction of wealth, but the family disputes that go with it.”
If a family business is to succeed over the longer term, it needs a strategy
Mr Rennell, who is also HSBC’s Global Head of Family Governance and Family Enterprise Succession, said that the key challenge for family enterprises is that it gets harder to make decisions as the business grows and more people get involved.
In the first generation, authority is concentrated in the hands of a few individuals, making it relatively easy to take decisions – even major decisions, such as acquiring a rival or selling the business. But by the second or third generation many different family members, with a range of viewpoints, may be involved.
Mr Rennell said that families who are willing to have a frank conversation about personal and emotional relationships, as well as purely commercial issues, are more likely to be able to build an enterprise that lasts. It is important to discuss “not just the family business, but the business of the family” – including the different roles and responsibilities people want to take on, he said.
Drawing up a framework for collective decision-making could help defuse potential disputes, Mr Rennell added.
HSBC family enterprise forums bring together business owners to share experiences and insight about managing the transition from one generation to the next. The Shanghai forum took place on 2-4 November 2015.
Listen to a podcast about the event on the HSBC Private Bank website.