Family Governance Advice For Asian Families
The Family Circle & The Role Of The Family Advisor
Family Legacy Asia
The goal of Family Legacy Asia is to help families in Asia preserve their family wealth. But this is not an easy task. Only one in three family controlled businesses successfully pass into the second generation and only about 12% last to the third generation. In Chinese there is a saying that wealth only lasts for three generations. While the above statistics are well known, it would still be the exception rather than the norm to see a family in Asia with a written succession plan, a family shareholders agreement or a formal “Family Council”. It is also becoming increasingly common to see Private Banks and the wealth management industry in Asia providing their clients with educational events and talking about the merits of having a written “Mission Statement” or “Family Constitution”. However the core expertise of these institutions is in the investment and asset management area and while they can help give families some very good ideas, ultimately they may not be able to help with implementing them. Family Legacy Asia was established to provide Asian families with an independent alternative that is focused solely on helping families plan and then implement best family governance practices. We act for families that control a business or listed company, for family offices, and for private trust companies. Our services include structuring complex trusts (e.g. incentive trusts) and family foundations; helping to administer private trust company structures; facilitating family meetings; and providing families with advice on Family Governance. The preservation of family wealth requires families to engage in an ongoing strategic planning process. We can provide families with the models frameworks and tools they need to get organized, to facilitate communication, and to plan ahead in an objective impartial manner. Our experience includes facilitating family meetings, setting up the family council, creating the family foundation, drafting family shareholder agreements, and drafting the family employment policy. We believe that ultimate responsibility for long term strategic planning for a family lies with the family itself. Our approach is to advise the family as to the proper process and the key tasks they have to undertake. We play the role of the independent project manager and facilitator. We aim to bring a wide perspective that is intended to make families think beyond the trust structuring, the asset management decisions and the business management decisions.
Family Legacy Asia (HK) Limited
Models Frameworks and Tools
Examples Of Our Experience
Tasks for the Family System and the Role of the Family Advisor1 1. Background The following notes are intended to sketch out or to outline a certain logic for working with families, who jointly own a family business together, or who jointly own financial wealth. The following notes are heavily influenced by the work of US governance expert Jay Hughes. But Jay Hughes is not the only advisor – there are academic and other family business advisors in the US ‐ who stress the importance of
considering how the family emotional system impacts on the business management system. Throughout these notes, I will use the term family owned business, but I am really referring to any family controlled enterprise, whether that is an operating business, control over a listed company, or a purely financial family with a family office. 2. The Three Circle Model There is a well‐known three circle model for looking at the family owned business. This model says that a family owned business is really comprised of three different overlapping systems. The first is a family system. The second is an ownership system. The third is the business management system. There are various principles that can be drawn from the three circle model. For
example, one of the things the model tells us is that, depending on where you stand in the three circles, this will colour your perspective on issues. In this regard, the model says that your location within the three circles may be more significant in explaining your perspective than other factors such as personalities. In this regard, it is quite a good way of de personalizing issues. Another principle that can be drawn from the model is that there is a tendency for behaviors and dynamics from the family system to creep into and impact on the business management system. In other words, the model says the family system, clearly has an impact on the management system as well as the ownership system. If the family dynamics are unhealthy, or if there is unhealthy family conflict, then the model
This is a summary version of an article written by Christian Stewart, Managing Director, Family Legacy Asia (HK) Limited
predicts this will impact in a negative way on the management and ownership systems. Or at the extreme, if there is no sense of family unity, then you could be left with a situation which is not a family owned business and in reality it is just a group of co investors who have no interest other than a pure financial interest. The logical conclusion therefore is that it is very important to look at the family system, and to think about it separately from the ownership and management system. For families who share the goal of wanting to continue their status as a family owned business, this goal should be taken as including working to improve the quality of the family system. The three circle model tells us that there needs to be a good balance between the three circles.
There needs to be responsible ownership of the family business. There needs to be good business governance. And there needs to be a healthy family system. The three circle model tells us that you need to have good boundaries between family, ownership and business. It is recommended that there should be separate forums for discussion of family issues and ownership issues outside the boardroom.
3. Tasks For The Family Circle
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4. What is the role of the family advisor? Sometimes, family members don't want to be involved. They want their freedom. In that case, let them go. Sometimes the role of the family adviser is not about helping a family stay united. Sometimes
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the role of the family adviser is to help the family members untangle themselves in a gentle way that avoids unnecessary family conflict. The role of the family adviser is to help families to be honest about the future and what they really want, which could be totally different from what the founder wants….. In practice, often families cannot see their own transitions. In practice, often families cannot see their own systems or dynamics. They are not conscious of the obstacles. Sometimes, families are not organized and fail to do basic planning for the future, so they need a little push. What then is the role of the adviser, vis‐a‐vis the family system? The adviser can provide education, they can help to motivate, they can model and teach, they can help families to be
more organized, and they can encourage families to plan ahead. They can make sure the family is having at least an annual family meeting. The advisor can act as a sounding board, to help family members talk through their own ideas. The advisor can help normalize the situation, by pointing out that the challenges the family faces are not unique to them. The advisor can make the family members start thinking about their emotional commitment to the family business. The adviser can provide technical advice, of course. The advisor helps to bring in outside perspective. If the goal is to have family unity, and if the family group needs to be properly organized and to choose a system of family governance, then a question to ask is whether they family communication patterns and the family dynamics are consistent with the
more businesslike approach this level of organization requires. It is easier for the adviser to see the big picture, and to see the transitions the family is facing. An adviser could share experience based on what other families are doing. And outside adviser may be able to see some of the family dynamics that are proving to be an obstacle. An outside advisor can question family rules and messages, as to whether they are appropriate or not, helpful or unhelpful. Sometimes it is very helpful just to have a third‐party professional present to help facilitate a family conversation or a family brainstorming session. This does not imply that the family members are having any difficulty in communicating themselves. Sometimes, a formal process for facilitation or brainstorming can generate some new
results. Advisors can give a family advice, but families need to take responsibility for implementing the advice. This makes sense, because ultimately the family have to do their own work. The family members have to have a feeling of contribution and ownership to any governance system that the family decide to adopt. Jay Hughes in his book, Compact3, says that the role of the advisor is to look at the family system and assess whether the individual relationships in that family system are trending towards entropy, fission (conflict) or fusion (synergy). He says that you do not need to be a family therapist in order to intuit whether a relationship is an entropic one or where there is conflict (fission) or synergy (fusion). When the advisor has made these observations
from outside the family system, their role may be to ask the family members the questions that will make them think about their relationships and these questions can be the trigger that makes the family member take action towards change. An advisor can help the members of a family think about a change model and a change process. For example the advisor can keep the family members focused on what are the obstacles to change, and how they can remove those obstacles. If there is significant resistance, for example strong conflict or negative behaviors, the role of the family advisor would include helping the family members think about whether the goal of family unity is a realistic one – or whether the family or its members can be helped by an expert mediator, or person with skills in
conflict resolution, or a counselor or therapist. Even in a healthy family, there will be many skills to learn and many topics to be educated on. No one advisor is going to be an expert on everything. The role of the family advisor also extends to helping find the right experts who can come in to help educate a family or to teach new skills or to guide or mentor the family members. Christian Stewart
firstname.lastname@example.org Family Legacy Asia (HK) Limited www.familylegacyasia.com
Family, The Compact Among Generations, James E. Hughes Jr., Bloomberg
Christian Stewart founded Family Legacy Asia to help Asian families preserve their family wealth for generations, by providing them with independent and objective advice on good family governance. He has eighteen years experience in advising high net worth individuals and families on complex trust structuring, estate planning and succession matters, including fourteen years in Asia. Before founding Family Legacy Asia, he was a Managing Director and the head of the Wealth Advisory Team in Asia for JPMorgan Private Bank for six years. In that capacity, he has worked with some of the leading families and Family Offices in Asia on family governance, private trust companies, and cutting edge wealth structuring techniques.
Founder & Managing Director Family Legacy Asia (HK) Ltd
Managing Director Head of Wealth Advisory, Asia Pacific JPMorgan Private Bank
Tax Partner Head of Trusts & Private Client Group PricewaterhouseCoopers Hong Kong Tax & Trust Lawyer Private Practice Adelaide, South Australia Professional Qualifications
Family Legacy Asia provides advice on family governance and advice to business controlling families. It also specializes in trust and estate planning and private trust company (“PTC”) structures. When he first joined JPMorgan Private Bank in 2002, its Asian Wealth Advisory team primarily focused on trust structuring. Christian transformed the services and skill set of his team by helping to bring to Asia JPMorgan’s US know how and expertise on charity and philanthropy, family governance and family owned business succession, and applying this expertise for the benefit of JPMorgan’s Asian clients. In his six years with JPMorgan, he grew their Wealth Advisory team in Asia from a team of 3, to a team of 8 professional Wealth Advisors. Prior to joining JPMorgan, Christian was a Tax Partner at PricewaterhouseCoopers in Hong Kong. In his eight years at PwC he helped found and lead its Trust and Private Client Group and helped PwC create a reputation as one of Hong Kong’s leading firms in the trust planning area. Christian started his career as a Solicitor in private practice in South Australia. During his 4 years as a Solicitor, he helped clients with tax, trusts, wills and estate planning work. He is qualified as a solicitor in the Australian State of South Australia, in England and Wales, and in Hong Kong. In June 2002, he was named one of the top ten tax advisors in Hong Kong by the International Tax Review in its annual survey of leading tax advisors.
Family Legacy Asia (HK) Limited Unit A, 9th Floor 1 Chatham Road South Tsim Sha Tsui Kowloon, Hong Kong Email: email@example.com URL: www.familylegacyasia.com Office: (852) 2369 3309 Fax: (852) 2369 3613