[市场分析] Family business succession planning face challenges in rapidly changing environment
Family businesses have long been a driver of the global economy, accounting for around 90% of all businesses. In Asia, they are particularly synonymous with entrepreneurship, business and society, comprising more than 70% of listed companies in Hong Kong and about 50% of A-shares in China.
Over the next few decades, some $30 trillion in wealth globally is expected to change hands from aging business owners to their next generations. Nonetheless, not all owners have holistic plans for their succession and legacy planning. Many surveys show that almost half of family-owned businesses do not have a proper succession plan.
Besides the lack of a plan, many succession failures are a result of a lack of communication about the succession plans with the heirs. Often a lot of good planning goes to waste by not being properly tested or executed while the client is still around.
Succession drop-off very high
Evidence from numerous cases indicates that only about one-third of all family businesses survive into the second generation and even fewer into the third – and those numbers were the reality before the pandemic.
A lot of high-net-worth Asian families still remain reluctant to discuss about money matters and to establish definitive succession plans, compared with those in the western countries. Even for those with plans, recent court cases related to family disputes demonstrate that wealth planning vehicles, such as trusts, wills and insurance policies, should be reviewed and managed on an ongoing basis with a professional expert – particularly now, in the changed dynamic of the post-COVID environment.
Without such foresight, the inheritance process can quite easily become chaotic. A well-publicised example of this was with the Yung Kee Restaurant, founded by Kam Shui Fai in the 1960s, which came close to collapse after Kam’s death in 2004 following the fallout over inheritance between his children and wife.
An example of another Asian family dispute caused by a lack of communication was over the estate of the late Y.C. Wang, founder of Formosa Plastics, who died intestate in 2008. His eldest son, Winston Wong, sued in Hong Kong, US, Taiwan and Bermuda to recover US$4 billion worth of disputed assets held in various offshore trusts, which he claimed were siphoned off by members of his father’s third family and company executives. (see Appendix 1 below)
More recently, following the unfortunate passing of the Kobe Bryant, the wealth planning industry was surprised – and shocked – to learn that, although he had set up a succession plan in 2003, the family trust failed to include his youngest daughter, born in June 2019, seven months before his fatal crash.
Planning for succession crucial for business continuity
So, what do these succession mishaps tell us and how can clients plan better? In a sense, just as with regular physical health checks, there’s a need for having a regular “Wealth Check” by engaging with professional experts, such as Lioner, to review succession plans on a regular basis. Succession planning is crucial for maintaining business continuity through the transition either within the family or to a non-family executive. The timing will vary according to the age of the first-generation or family business owner, but it is wise to start thinking about the best options early.
An independent specialist, such as Lioner, can play an important role in examining and dissecting different dimensions of a family business and asset ownerships to help formulate the best approach for handling a smooth transition and continuation to the next generation. This way it is possible to effectively eradicate unnecessary family feuds or disputes around inheritance and succession.
The need for such independent expertise is even more evident now as the process becomes increasingly complicated. This is because future generations are often tax residents in other countries, which may have relatively less favourable taxes on individual income, inheritance or gifts related to assets and properties. As many high-net-worth families operate in multiple countries, there is a growing trend in Hong Kong and China to establish a family office to navigate effectively the complex rules they are subject to around the world.
Implications of global taxation
Meanwhile, the children – the heirs – sometimes decide to pursue their own interests instead of inheriting the family business. They have become far more international, so their tax issues have become more important.
Some owners may also want to sell their businesses and reallocate assets overseas. Issues related to valuing and selling a private business, as well as dealing with local taxes, can be cumbersome, particularly where multiple jurisdictions are involved. The penalties for getting it wrong can be high, so taking professional advice to minimize the risks can offer peace of mind.
Andrew Chan, Partner at Lioner, explained: “High-net-worth clients have been actively diversifying their assets into different asset classes and jurisdictions due to investment and family needs. Overseas properties, life insurance, overseas listing of business, immigration and different asset holding structures have been widely explored in the last few years. This is why having a wide range of expertise that’s international in scope is so important.”
A lot of jurisdictions, including Hong Kong, have launched and actively promote family office setups, some with immigration elements built into them. At Lioner, we use our many years of experience in both insurance and wealth planning to assist our clients in three key ways:
- Analyse their needs
- Recommend viable solutions
- Connect different tools, products and other professionals to develop and execute the family office setup
The potential of Asian family businesses and the growing trend of setting up family offices are clear to see – this is why Lioner is here as the one and only specialist with offerings in all areas of insurance, trust and family office services. This enables Lioner to help families secure their legacy and wealth, avoid conflicts and grow over the generations, regardless how complicated the family dynamics may be. Our team has the experience to offer high-net-worth individuals unparalleled value-added consultancy expertise in this area.
Andrew Chan (TEP, FCCA), Partner, Lioner International Group Ltd.
Prior to joining Lioner, Andrew was the Deputy General Manager and Team Leader in Charles Monat Associates, a position he has held since 2018. He was also a Team Leader in Mercer (PCS) from 2016 to early 2018. From 2010 to 2016, Andrew was the Head of Fiduciary and Trust Services at Standard Chartered Private Bank (North Asia) Senior Director at HSBC International Trustee Limited (HK) for 7 years. Andrew has a wealth of experience in working with high-net-worth individuals on wealth and cross border planning using family trust and insurance as a liquidity planning vehicle.