Making rules for the next generation - does it work?

The US Constitution might have worked for America, but a family constitution might not be enough to guarantee the continuing success of a family business over generations   Picture: Pixabay

The US Constitution might have worked for America, but a family constitution might not be enough to guarantee the continuing success of a family business over generations   Picture: Pixabay

Ong Jenn is a third-generation member of one of Singapore’s most successful business dynasties, Metro Holdings. He also faces between five and 20 years in jail, and multiple strokes of the cane if he’s found guilty of various drug offenses he’s been charged with in Singapore.

OK, Ong hasn’t been found guilty yet, but his predicament doesn’t look good - Singapore hands out very strict punishments for drug offences. And even if he’s found innocent, the whole episode will probably mean Ong isn’t going to be unaffected by the experience.

Ong’s situation is what all families dread, but when it’s the offspring of a hugely successful family business dynasty, the stigma can be even worse. As the saying goes: “To whom much is given, much is expected”.

Too many families rely on a family constitution and/or charter to guide the next generation, but writing down a plan might not be enough

Reports in the Singapore press say Ong worked for Metro as a business development manager, had started a peer-to-peer retail platform, and was “substantial shareholder” of the retail and property business founded by his grandfather Ong Tjoe Kim in 1953. He was been groomed for a senior position, if not the top spot, at Metro. Something has clearly gone wrong.

Luckily, an Ong-type situation is rare for most families. But pretty much all owners of businesses will worry about how do they provide opportunities without diminishing drive and undermine the potential for the next generation? A new study by the private banking division of Merrill Lynch says families can effectively sustain their family values and promote leadership among the next generation.

The study, written by Dennis Jaffe, a US-based family business consultant, outlines a five-step process that families should consider to empower the rising generation members in the family.

The five steps are:

Define - Wealth owners need to define the purpose of their wealth and their family values;

Engage - Wealth owners need to engage with the next generation by seeking to understand their perspective;

Develop - Wealth owners should develop a plan to empower the next generation by sharing a history of the family business;

Support - Wealth owners need to support individual family members in their pursuit of finding purpose in their lives and to actively design a life plan for personal and career development;

Continue - Wealth owners should foster a culture of excellence by committing time, energy and resources to collaboratively develop family governance, promote accountability and renew family bonds.

Of course, the above is only an outline of a much more comprehensive analysis, which is found in the linked report for those interested in a more detailed analysis.

By following a series of prescribed paths like the ones of above, families can help to alleviate the problems associated with empowering the next generation. But there’s no single way of ensuring the next generation follows the desired path of wealth owners. Even the most sensible and comprehensive next generation program, such as the above, won’t ensure success every time.

Sandy Loder and his consultancy AH Loder Advisers have worked with many next generation members of wealthy families, and he reckons that wealth owners often rely on a plan to engage the next generation, which often doesn’t work.

"Too many families rely on a family constitution and/or charter to guide the next generation, but writing down a plan might not be enough," says Loder, who comes from a fifth-generation family business himself. "Indeed, in my experience, it isn't. What is needed is a more hands-on approach to teach the next generation about decision making."

But it is often completely out of the hands of any professional adviser, plan, or otherwise to determine how the next generation turns out. Often a death in the family or other personal trauma can lead an individual to take a series of wrong choices that can jeopardize their role within the business. Also, despite having the best intentions for their children, a too dominant parent can often lead at least one member of the next generation to rebel and not follow the prescribed path set out for them.

And no matter what, there will always be wayward offspring - even Ong-like situations - within families, regardless of their wealth and status. Life rarely moves in a linear path, as all of us should remember...