It is often said that the first generation creates the wealth, but that it is the second generation that creates the legacy. In an overseas Chinese Family Business (“CFB”) the traditional approach is for the founder to leave the ownership of the business in equal shares among all of the legitimate heirs. In the past, this meant all of the sons. However, it is more common these days to see all of the children of the founder becoming equal shareholders when the founder passes, if not before then. In the stereotypical CFB, the founder is also the father and the head of the family. While the founder is alive the family is kept together and working together in the business. Sometimes, the surviving spouse of the founder can also keep the family united in the same way. But what happens when the founder is no longer around? Can the siblings work together as equal owners to continue the family firm? Family governance expert, James E. Hughes, the author of ‘Family Wealth: Keeping it in the Family’ (Bloomberg Press) notes that in his experience, the members of the second generation will either see themselves as an ‘Inheritor’ on the one hand or as a ‘Steward.’ Two Different Paradigms What do we mean by a ‘Steward’? This term refers to a member of the second generation who wants to work together with his or her fellow siblings to see the family firm continue under family ownership. They see themselves as being under an obligation to pass on the family firm as a legacy asset to the next generation. To such a person, legacy is important. A Steward is likely to be emotionally committed to the family firm On the other hand, an ‘Inheritor’ sees their ownership in simple financial terms. Such a person is more like an arms length investor. Importantly, they want to be their own person, and they do not want to feel like they have to work together with their other siblings. Under our definition, they may lack emotional commitment to the family firm. In terms of family culture, a person who is a Steward has an inward looking orientation. This means they tend to look in towards the family unit. A person who is an inheritor looks outward. This means they tend to look away from the family unit and they like their independence. By definition, the paradigm of a Steward is very different from the paradigm of an Inheritor. James E. Hughes further notes that in his experience: Neither of these two paradigms is inherently right or wrong. There should be no question of judgement or blame involved here; You cannot convince an Inheritor to become a Steward; It is vitally important that all the siblings who are owners in the family firm can have ‘adult-adult’ conversations about whether, as an individual, they see themselves as a Steward, or as an Inheritor; and To understand the different belief systems and practices within single Asian families and the confusion they create. It is often the relationship between the founder and the siblings that will determine where each of the siblings comes out on this question. Where They Are All Inheritors If all the siblings see themselves as individual Inheritors, you know there is little point in attempting to get them to work together as a family team. Family teamwork and the skills this requires is not an aspect of the Inheritor paradigm. If all of the second-generation owners see themselves as Inheritors, they may still decide to keep their shares intact together out of economic necessity, to pool their financial capital. However, in this event they will be more like a group of unrelated investors. In this scenario, the family firm can be continued if one of the siblings manages to buy out the shares of the others so that this individual can become a controlling shareholder, and in a sense, the new ‘founder.’ This is known as ‘recycling’ the family firm. In the absence of the emergence of a new controlling shareholder in the second generation, it is reasonable to predict that a CFB controlled by a group of Inheritors will disintegrate, either as a result of internal family conflicts, or at the stage when the shares start to pass to the cousin generation. Where They Are All Stewards The second scenario is one where all of the second-generation owners see themselves as Stewards. By our definition, this implies an intention, a motivation, to want to work together. However, will good intentions be enough to make a difference? You could have a group of Stewards who feel very committed to the family legacy, but who still struggle to work together because they lack the necessary skills for effective communicating, decision making and conflict resolution, and because they don’t know how to overcome the tendencies of their family system (i.e. family dynamics) that are inappropriate for the business system. Having good intentions is one thing. Having the rights skills is another thing. It is often said that power corrupts. You could have a group who define themselves as Stewards, but who cannot really work together because of politics or power struggles. Stewardship and working together imply a need for participation and ‘fair process.’ If there is a sibling who seeks to be too authoritarian, to be too directive in their leadership style, expect that there will be some problems with the group. You could have a family that are all Stewards and are fully committed to working together but where there is a lot of confusion over family, ownership and management roles. Most conflicts in a family business are ‘role conflicts.’ Fortunately typical role conflicts can be predicted and therefore planned for. The important tasks in this scenario will include creating good boundaries between family and business; and between ownership and management. The good news is that a group of Stewards is likely going to have the motivation to do the work necessary to improve their skills at working together and to adopt good family business governance structures and processes. This includes cultivating emotional commitment to the family firm. A Mix Of Stewards And Inheritors The third alternative is that some members of the second generation will see themselves as Stewards, and some will see themselves as Inheritors. The third scenario is the case where there is a mix of views. In practice this is likely to be the most common scenario. The danger with this third scenario is that it has the potential to paralyse things if the siblings are unable to discuss and reconcile their differing views. If some are Inheritors, in an Asian family, the Stewards may not be comfortable to move ahead on their own while leaving the inheritors out of it because they fear this will imply the family is not united. Accordingly the group gets stuck. A way to reframe this third scenario into a more positive light is to realise that a healthy family is one that can balance the desire to be together (something the Stewards feel comfortable with) with the desire to be your own person (which is what the Inheritors want). Logically a family system in this third scenario has both ends of the spectrum and just needs to find a way to integrate balance or integrate them. What Is Your Ownership Philosophy? This leads onto James E. Hughes next proposition which is that members of the second generation need to be able to have ‘adult – adult’ conversations about whether each individual regards themselves as a Steward or as an Inheritor. Before examining this concept of an ‘adult-adult’ conversation, why should it be important for the sibling shareholders to be able to have such conversations? These two groups will have different goals and expectations for their share ownership. They are two different types of owners. The two groups could be expected to have different time horizons, risk appetites, liquidity needs, and maybe different expectations for how the company should be managed. If the shareholders are not even able to acknowledge their fundamental differences of view point, if they are not able to ‘agree to disagree,’ or if they are unable to discuss mechanisms for bridging their differences, there will be no leadership for the family firm. If the shareholders are frozen or in confusion, how do the directors know how to govern the business? How can you plan for the future if you are not able to talk about what each owner, as an adult, really wants to do? Another reason is that ‘form should follow function.’ For example, any trust structures or family agreements should be drafted to take into account whether you are looking at the first (all Inheritors), second (all Stewards) or third (a mix) scenario. The way a group of Stewards would want a family trust structure set up, or for a family shareholders agreement to be drafted, could be very different from the way a group of Inheritors would do it. Adult – Adult Conversations What is an adult – adult conversation? James E. Hughes says that an adult – adult conversation is one where siblings can look at each other and listen to each other as adults, not based on their family roles as developed since childhood, and not based on the roles as defined for them by the business founder. In a family, roles and characters are defined from an early stage. It is common that one sibling will look at another sibling through a lens frozen in time. Nevertheless, life is about growth and cycles of change. An adult – adult conversation then is one in which each sibling can look at the other through the lens of the current reality. It is a conversation where you can seek to understand the other while knowing that you are not able to control their view, and they are not able to control your view. In an adult-adult conversation you are not able to impose your perception of what someone else ‘should’ or ‘ought’ or ‘must’ do; or what ‘father would have wanted.’ You cannot invoke ‘family obligation or duty’ against your sibling. Such conversations require a respect for differences. It includes being able to agree to disagree, and being able to work with people who have different views from yours. Conclusions There are two paths for increasing the chances of successfully perpetuating the life of a CFB and continuing the family legacy. The first way is through consolidation of the share ownership and bringing the family firm back under the centralised authority of a single owner. The second path can open up if the siblings, or a sufficient number of them, see themselves as a group of Stewards. However ‘Stewardship’ should be seen as an intention or motive to want to work together. These positive intentions will need to be backed up by the necessary actions work and skills to convert intention into reality. Stewards will also need to adopt sound family business governance practices. Finally, a group of siblings who are unable to have adult-adult conversations about whether they are each Stewards or Inheritors are likely to find themselves stuck and unable to make plans for the future.

Conflict is a natural part of running a business but when colleagues and employees are also family members, ordinary conflict can take on new dimensions. Corporations and non-family business have formal barriers to conflict between colleagues; Human Resources departments and the natural separation between work and family make it unlikely that a workplace conflict will have serious repercussions on a firm’s future. On the other hand, the interconnected nature of family businesses means that family drama, workplace issues and conflicts about the business can more easily become serious problems without special handling. Many, if not most, family firms lack formal processes and strategies to mediate disputes, making it difficult to prevent inevitable quarrels from developing into ongoing issues. Here are five rules to help manage conflict in a family business: Rule 1: Leverage formal governance structures to mitigate conflict One issue that we have seen arise in many family businesses is that family members may lack a forum for discussing issues in the business. Formal structures like family councils, boards and family forums can offer family members a safe, organised way to bring up issues and negotiate conflict. Formal governance can also help mitigate family and financial issues by separating ownership of the business from its management functions. Rule 2: Give family members space (and permission) to air grievances One problem that we frequently see in businesses with a first-generation matriarch or patriarch is that family members may lack a safe way to express their needs and concerns. When people don’t feel listened to or appreciated, seemingly small problems can mushroom into major business and family drama. To help prevent conflicts, family leaders should actively encourage family members to air concerns constructively and give them the space they need to disagree. Senior leaders should come prepared to listen without judgment and be willing to fairly consider what is being brought up. Rule 3: Don’t let business bleed into family time (too much) It’s very challenging to keep from bringing business home, but one way that conflicts turn into family drama is by failing to keep them separate. Family business leaders must set the example by separating business and family time as much as possible. One way to make this separation possible is by having formal spaces and structured times to discuss business issues. Explicitly making other times no-business zones can help family members relax into their personal roles and get away from work. Rule 4: Communicate early and often about issues Many large complications start as small problems that could have been resolved with early intervention. Sometimes, spotting issues early and addressing them through clear communication can be enough to prevent a conflict from developing. Even when family members see each other regularly in the business, formal family meetings can be a better place to hash out complex issues. Whether it’s at a family retreat or simply at a separate meeting, making a break from daily routine to tackle the big issues can help open lines of communication. A formal setting can also help ensure that issues are not ignored and that members of the family have the opportunity to make their opinions heard. Rule 5: Bring in experts to mediate major conflicts Some issues simply cannot be resolved internally. When family members become entrenched and constructive dialogue isn’t possible, an objective expert who is trained to help resolve conflict can help cut through the emotions and focus on issues. A mediator can also help guide a family through initial conversations all the way to a final resolution. We have found that many family groups can achieve more in a few hours with an outside expert than they have in years by themselves. Final thoughts Many conflicts boil down to age-old family disputes. It’s common to see businesses that mirror family hierarchies. For example, parents might run the company together or a favoured eldest child might serve in an executive role while other children and spouses fill in other management positions. However, these parent-child and family dynamics can make the separation of family and business even more difficult. Leaders must be able to treat children like employees and managers during business time to help reduce the risk that family dynamics will damage the business culture. Ultimately, managing family conflicts often comes down to creating better communication skills as a family. While conflict can never be completely avoided, treating it as a normal part of business and developing the skills to handle it can go a long way toward building healthier business and family ties.

As the complexity of family and business relationships increase, families can turn to a formal “family constitution” to create a healthy communication and decision-making environment. It is important for every family business to communicate effectively and to reach decisions that optimally balance the needs of both the family and the business. As the complexity of family and business relationships increase, families can turn to a formal “family constitution” to create a healthy communication and decision-making environment. While not legally binding, a family constitution is held together by the positive recognition and buy-in from all involved. The process and the policies created within a family constitution are always reflective of the values and beliefs of the family group. The intent is to build around a sustainable model that promotes generations of pro-growth decisions. Here are six reasons why you should write your family constitution: 1 – It Will Lay the Groundwork for Tough Decisions Family business leaders have to make the same difficult decisions that any regular business leader needs to make, except that the family business leader often has to consider complex personal and family relationships. It’s easy to make judgments based on emotion in family businesses, which is why a pre-determined, rational family constitution can help cooler heads prevail. Through developing an effective constitution, the family will have already identified the basis on which critical decisions will be made. 2 – Your Chance to Create Ethical Guidelines Family constitutions are bound by moral force. If you are serious about building a unique, marketable brand – for both employees and customers – then it’s important to have a business code of conduct. Equally, your family constitution can lay out the preferences of the family in how they as shareholders would like the company and it’s capital to be directed, provide family thinking around certain shareholder decisions and influence the culture of the business and its employees. These guidelines can also include family conduct outside of the business, conduct with any social media interaction, and communication processes between family members. 3 – Build Cohesion and Internal Harmony Your family constitution is developed by the family group. Ideas are workshopped and opinions are shared. When consensus is reached, it’s done so with unity. Members of the family learn together through a participative process. The resulting document is a codified representation of internal agreement and harmony. 4 – The Chance to Improve Your Bottom Line Though not a cure all, the process of creating a family constitution performs a lot of critical functions that can make business more effective and, by extension, profitable. The family constitution defines the leadership structure, provides a tool for succession, informs communication and conflict resolution guidelines, and – perhaps most importantly – it clearly and concisely identifies the family business’ long-term goals. With that clarity in mind, it’s easier to take effective action to build a profitable company for the long term. 5 – Establish the Rules Around Conflict Conflict is a natural part of running a business. However, when colleagues and employees are also family members, ordinary conflict can take on new dimensions. You should have a plan in place to deal with conflict if your business is going to build a strong, multi-generational legacy. No family constitution can prevent conflict entirely, but it can provide a road map to successfully manage, resolve and define conflicts in a constructive way. 6 – Plan Ahead for Those Entering and Leaving the Family Business No challenge is as serious or as easy to mishandle for family businesses as the issue of family members transitioning both in and out of the organisation. Creating a family constitution provides a robust framework for families to commence their communication and education around succession. Policies such as the employment and remuneration of family members in the family business, education expectations, stewardship and philanthropic activities can all be discussed when writing the constitution. A constitution is a dynamic document so initiating formal family meetings as part of this process can ensure the items resolved can always be open for discussion and improvement.

Succession in terms of business leadership confronts the founder of a family business with a complex set of options as Peter Leach explains below. In broad terms these are: Appoint a family member Appoint a caretaker manager Appoint a professional manager Exit via sale of the business, in part or in par Exit via liquidating the business Do nothing. Each option is distinctive and carries its own set of advantages, disadvantages, opportunities and threats. Also, the scope and impact of these will vary from one family business to another depending on, for example: The ability to attract family and non-family successors who are willing and have the skills to carry on the business The financial needs of the family (for example, whether cash needs to be extracted from the business to provide for the retirement of the senior generation The personal and corporate taxation consequences of the different options The health and size of the business The external commercial and business environment at the time of succession. If there is a commitment to retain direct control over the business, the first option of appointing a family member to succeed is seen as particularly attractive by many founders. Research by IMD has found that, if there’s a suitable candidate, owners will choose a ‘family solution’ for several reasons: It gives their personal ideas and values a greater chance of survival They can feel their life’s work is in good hands They don’t lose contact with the business, and may even retain some influence over it They feel their sacrifices building up the business will have been worthwhile. The appointment of a non-family successor, either to a permanent position or as a caretaker (options 2 and 3), may become the strategy by default if no family successors are available, motivated or have the necessary skills for the task. Genetics do not guarantee that families can produce entrepreneurial business leaders generation after generation. In terms of exit routes, some form of sale as a going concern (option 4) is likely to recover most value from the business. Alternatives within this option include a trade sale (ie an outright sale of the business for cash),which may be particularly appealing where no suitable successors can be found, or a stock market flotation can be the best answer if external capital to finance growth is a priority. Similarly, a management buy-out financed by private equity funding (a sale by the founder to the existing management team, which may include family members), can offer a compromise between transferring the shares to the family and an outright trade sale. Liquidation (option 5) entails selling of all the company’s assets, paying its outstanding debts and dismissing the workforce. It also involves substantial expenses and is unlikely to result in the best price being obtained. Finally, the founder may simply avoid planning for succession by adopting the ‘do nothing’ approach (option 6), and here lies the central paradox. Despite founders professing that a ‘family solution’ is their preferred course, in practice the dynastic dream is rarely achieved. Doing nothing is the least logical, the most costly, the most destructive off all the options, yet is by far the most popular.

Andrew Drake suggests ten simple questions to consider before employing family members. All too often family firms have been found wanting when it comes to employing family members, not least the accusations of favouritism of family members and treating family members differently from their non-family counterparts. When a family firm deals with employees, irrespective of whether they are family members, it should have a common practice in relation to employment policies, remuneration and reward. This helps to ensure that issues are not created which have to be addressed down the line. Here are ten questions that should be considered by anyone thinking about recruiting a family member into the family business: How are you going to identify prospective employees from amongst the family? Are family members clear as to what is expected of them if they want to become employees? Do family members have the relevant experience and qualifications for the job in question? Do family members require a business mentor, either before or after they become employees and if so should that mentor be a non-family member? Do all family employees have a clear job description and career plan? How do family employees’ terms of employment compare to those of any non-family counterparts? Who should appraise family employees? Who should decide on their remuneration? Who decides whether they are appointed to the Board? Can in-laws become employees and/or directors? Family firms can engage in best practice by ensuring that the policies that they introduce are applied to all members of staff with clear communication of policies to ensure that everyone is treated the same way, thus helping to improve the underlying human resources framework within the business that can then help to recruit, retain and motivate all members of staff within the family firm too.

Expectations were set but transitions from Baby Boomers to the next gen have not materialised. Dozens of articles came out during the 1990’s about the coming tidal wave of business transitions from Baby Boomers to their Gen X and Gen Y children. The articles theorised that as Baby Boomers got to be 55 and older, they’d be looking to either sell their businesses or pass them on to their children. The writers looked at the demographics and numbers of closely held businesses, and they theorised that somewhere between $10 trillion and $140 trillion of assets were going to be transferred from one generation to the next. Financial services firms, charities, law firms, and consulting firms all licked their chops at the prospect that all these business transitions would somehow need to be managed and facilitated in an orderly way. The question is: What has happened to the family business transition tidal wave? Wayne Rivers explores further. Surely since all those articles were penned, some family businesses have indeed transitioned. However, the breathless predictions of a tsunami of family businesses moving from senior to junior generations simply hasn’t materialised. The demographers could not have been wrong; simple maths indicates they were not off that much in terms of the ages of the baby boomers. If there wasn’t a chronological mistake, then, why hasn’t the tidal wave come to pass? We believe there are six reasons why family businesses are staying in the hands of senior generation family business owners longer. 1 - Age 65 Is The New 50 A 65 year old family business owner today isn’t nearly as old at the same age as his father was. People today are in better health for longer than ever before. We eat better, exercise more, smoke less, and take care of ourselves better than previous generations. Therefore, when a family business owner reaches 'normal retirement age,' he is often far from ready to retire. He is still filled with energy, ideas, ambition, and there are so many exciting things left to do! 2 - The Great Recession The Great Recession shocked many family businesses, some of whom believed the hype that the Federal Reserve had made recessions obsolete. Now, their businesses from somewhat to a great deal smaller than they were before, senior generation leaders see much which needs to be done to restore the business to its former glory. Leaving the business at the tail end of a historic recession simply doesn’t seem like a good idea to many. 3 - Lack Of Ownership Succession Plans The state of family business estate and ownership succession planning is far better than it was when we started The Family Business Institute 23 years ago. However, many families still wrestle with the issues of ownership succession. How do I treat my children fairly and equitably when I have some in the business and some who don’t work here? How will my children get along when I’m no longer around? Is it fair to treat my daughter who is the CEO the same as her brother who works on the loading dock with respect to ownership succession? If I leave the company in the hands of my children, will my spouse have enough money to be comfortable after I’m gone? Many family business owners have undertaken to wrestle with these questions. Many others have not, and the questions aren’t any easier to answer now than they were 23 years ago. 4 - Lack Of Management Succession Plans It’s hard to beat experience. Even though a 65 year old family business leader might have incredibly competent forty-something children, they are at a severe chronological disadvantage in the sense that the senior generation had a 20+ year business head start, and that gap can never be closed! While the younger generation might have all the tools necessary for future success, they simply can’t replace the hard earned experience Dad carries between his ears. Most closely held companies also have two other management succession limitations: a lack of clear, written, transferable policies and procedures for the various jobs in the company and a lack of Knowledge Transfer (KT) which is the process for formerly transferring soft information (i.e. someone’s experience about business practices and processes) to younger members of the firm. 5 - Lack Of Specific Retirement Plans For The Senior Generation This item is related to item #1 above in that 65 year olds today have plenty of energy and ambition, and most family business seniors have no specific retirement plans remotely capable of consuming their energy and time. The idea of moving to a retirement community, puttering around in the yard, and maybe the occasional round of golf isn’t nearly as compelling and exciting as continuing to fight the daily battles necessary to put the family business back in its rightful place. Since murky retirement plans make for a nebulous future, and the concrete reality of rebuilding the family business is both present and exciting, staying trumps leaving hands down. 6 - Lack Of Buyers For Family And Closely Held Businesses A few years ago I delivered a speech in Canada before which we had surveyed the attendees to learn more about them. Somewhere between a third and one half of the franchisees (who were involved tangentially in the new home construction business) said that when they reached retirement age they were going to sell their businesses. Digging deeper into the demographics, we found that the average franchisee had one location with less than $2 million in gross sales. My message to them – which definitely put them on their heels – was that they couldn’t sell their businesses BECAUSE THEY HAD NOTHING TO SELL! When someone looks to buy a business they want to see a proven methodology for creating top line sales, a management team capable of executing the strategies of ownership, loyal employees who won’t leave the business if the family sold out, strong financials, and a business which isn’t dependent on one or a tiny handful of people to make all the decisions. Unfortunately, that is exactly what most family businesses continue to have to this very day! Even large family businesses, and we are talking in some cases well over $500 million in sales, depend on one or a tiny handful of family members to make virtually every decision in the business large or small. If one were to choose to buy a business like that, what in fact would he be buying? In essence, he’d be buying a job – a job that takes 60 to 80 hours a week sometimes, creates a great deal of mental and physical stress, and offers no escape hatch when things get hairy. Most family businesses don’t have anything to sell because they don’t have genuine businesses; they have jobs, and the jobs are pretty thankless ones at that. Will the family business succession tidal wave one day materialise? Given our steadily advancing ages, it must. Are most family and closely held businesses prepared for the ownership and management succession which must one day challenge them? The answer to that question is still “no” and that in and of itself constrains the possibility of successful family business transition whether it comes in a slow, steady trickle or a tsunami.

Latest research from Charities Aid Foundation suggest 25% of wealth should be donated to charity by wealthiest. For the study 2,085 online interviews were conducted with UK consumers by Populus between 20-22 March 2015. Britons think that the wealthiest in society should donate an average of 25% of their money to charity in the course of their lives, according to research released by the Charities Aid Foundation. More than half (53%) of people think wealthy people should give away more than they do. Those identifying as non-Christian wanted to see the affluent donate an even larger proportion of their wealth, this group believing richer people should give nearly a third (32%) of their money away. Over three-fifths (62%) agree that giving to charity by the more affluent sets a good example to others, and over two-fifths (46%) say the wealthy could help to increase giving by talking more about it. The research is released just days before the Sunday Times Giving List reveals the UK’s top donors of the year. People also welcome the idea of a UK version of the Giving Pledge, a US-born project spearheaded by Bill Gates and Warren Buffett asking wealthy individuals to commit to give away at least 50% of their wealth to good causes. Five British philanthropists have already committed to the pledge, including Richard Branson. Just under half (43%) would like to see something similar in the UK, a number growing to 55% among 18-24 year-olds. John Low, Chief Executive of the Charities Aid Foundation, said: “There is growing awareness of inequality around the world, and it’s clear people believe the richest in society could help to address this problem by giving significant proportions of their wealth away to help those less fortunate.” “We see so many incredible examples of generosity by the world’s wealthiest, and movements such as the Giving Pledge are leading the way in opening up the conversation and bringing giving and charitable organisations into the public eye.” “Driving a project like this forward in the UK could help more philanthropists feel comfortable speaking out about their work with charities, and help further grow giving and support among the wealthy and the public.”

Research carried out by Safestore has revealed that 31% of people aged 55 and over do not have a will and as a result, may be risking inheritance for future generations. Inspired by Free Will Writing month which takes place throughout March, the self storage company discovered that an alarming number of Baby Boomers may be putting their family’s inheritance at risk for all the wrong reasons. Out of 31% of adults aged 55 and over who do not have a will: 12% have children in their household 16% are separated or divorced 48% admit they ‘haven’t got round’ to writing one 18% feel that they don’t have anything of value to leave behind 12% believe that all assets would go to a partner regardless “Wills are essential life documents which really ought to be in place well before you reach 55. It is concerning that so many 55+ year olds have not taken the time to complete one, especially where there are children or marital issues involved.” says Simon Crooks, a solicitor and specialist in tax and estate planning with Argo Life & Legacy Ltd. “Without a Will you lose the opportunity to express your wishes as to what happens with your assets and who sorts it all out when you die. But a Will encompasses much more than the destination of your assets. You get to choose the people who will manage your affairs on death and they have power to act straight away. If you have younger children you can appoint people as Guardians to be responsible for their upbringing and welfare. One of the key benefits is spending time on yourself and considering surrounding issues – retirement plans, tax planning, care fee planning, policies and pensions. Not having a Will often means none of these issues have been considered which can cause problems in the future.” “By the time you get to 55 there really is no excuse for not having a Will.” The results also indicate that a vast majority of people do not understand intestacy rules as without a will, if you are separated but not divorced from your spouse they are legally entitled to most, if not all of your estate. Similarly, those who are married and assume that their estate will go to their spouse are technically correct, however without a legal document in place there are numerous complications. “When a marriage breaks down it is important to review your Will. Separation does not end a marriage and any Will written previously still has effect as do the Intestacy Rules where there is no Will. Under the Intestacy Rules if you are married (or in a civil partnership) and you have no children then your spouse gets your estate – whether you are separated or not. Where children are involved it is more complex as the estate is split between them depending on the value of the assets.” “People often think they will review their Will after a divorce is finalised – when they know what their financial position will actually be. But what happens if you die before this is sorted? You’re stuck with the Will already in place or the Intestacy Rules and your soon to be former spouse inherits some or all of your estate. It is best practice to write a new Will as soon as you can and review it when the divorce is complete.” Dying without a Will in place can cause a devastating impact on family and can add new challenges to an already distressing situation. Throughout March, members of the public age 55 and over are able to have simple wills written or updated free of charge by using participating solicitors.

The 2014 Survey of Corporate Governance Practices in European Family Businesses provides a snapshot view of some of the largest family businesses in France, Germany, Italy and Spain, along with some surprising facts. How are Europe’s largest family businesses run? What do their boards of directors look like? How do they function? And how do they decide who takes the title of CEO? For example, although 50 percent of board seats are occupied by family members, women make up only 16 percent of the average board. And while the professionalisation of Europe’s family businesses is evident, only about a third of their boards have any experience with CEO succession planning. Also, only a third of the boards have emergency CEO succession plans in place. The survey covers four topics: (1) board composition, (2) board efficiency, (3) CEO succession planning and (4) the CEO/chairman backgrounds. It was conducted by Russell Reynolds Associates, an executive leadership and search firm, and it was overseen by IESE’s Josep Tàpies, holder of IESE’s Family-Owned Business Chair. The 400 largest family-controlled businesses in France, Germany, Italy and Spain were targeted, with 106 of them responding. Who Sits on the Boards? In Europe, on average, 50 percent of board seats are occupied by family members representing ownership interests. With the average board surveyed consisting of 7.4 members, only two seats (27 percent) go to independent directors, while company executives and other shareholder representatives occupy a seat a piece. At the same time, there are relatively few female directors: women make up 16 percent of the board, on average. Yet gender diversity varies widely on European family-controlled boards, ranging from just 10 percent in Germany to 25 percent in France. Foreign diversity is relatively scarce, with only eight percent of the board hailing from another country. Family members’ presence on boards varies considerably country by country. In Spain, family members make up 62 percent of the average family-business board. Meanwhile, in Germany, family members make up only 25 percent of the average board. France and Italy are close to the survey average, with 51 percent and 56 percent, respectively. In Spain, independent directors make up only 17 percent of the board, while Germany pushes up the average with 51 percent. Understanding Board Efficiency Formalised corporate governance practices are important in family businesses. In this survey, almost all boards review their companies’ economic and financial situations, as well as their capital expenditures and sales performances. Meanwhile, competitive, industry and client trends are on only 80 percent of the boards’ agendas. When asked if they would describe their boards’ role as “informative,” “consultative” or “decision making,” more than half replied that their boards play a decision-making role. In developing the company’s strategic plan, 57 percent report that their boards’ role is “approval only.” Meanwhile, 40 percent feel that their boards both prepare and approve the strategic plan. Yet only half of European boards surveyed have more than a week to prepare for board meetings. Moreover, 22 percent have fewer than three days to prepare. The German and French boards tend to get more advanced warnings of their meetings than Spanish and Italian boards do. Interestingly, only 39 percent of boards surveyed have an “Audit and Risk” committee while 43 percent have a “Nominating/Remuneration” committee. CEO Succession Planning In family-controlled businesses, CEO succession can be a touchy subject. Just half of the boards surveyed (49 percent) have identified possible internal CEO candidates. Furthermore, only a third of boards surveyed have a plan to replace the CEO in the event of an emergency. French boards tend to be better prepared, with 62 percent having a plan, compared with only 18 percent of Italian boards. Boards also vary widely in their level of experience with CEO succession planning. On 95 percent of the German boards surveyed, at least one director has succession planning experience. In contrast, on the Italian boards surveyed, only 28 percent report having a member with experience. How many internal or external candidates to evaluate for the CEO role? More than half of the family businesses say they consider it ideal to evaluate two or fewer candidates. At the same time, 60 percent of boards say that their internal candidates are benchmarked against external candidates in the market. CEO and Chairman Background In the end, more than two-thirds of the CEO’s of family businesses in Europe are promoted internally. In Spain this number is higher: 85 percent of CEO’s hail from the same company. When CEO’s come from external companies, they are most likely to bring experience within the same industry. That said, it is surprising that only 20 percent of external CEO hires come from other family-owned companies. In contrast, when the chairman of the board comes from a different company, they are most likely to bring experience from another family-owned enterprise. While European companies tend to separate the chairman and the CEO roles, 27 percent of family businesses surveyed combine them.

Family companies may have a conservative heritage, but new research suggests they can teach us a lot about innovation. Family firms are generally characterised by their lack of social capital and trust in an economy. It’s said they rely too much on familial ties; are often conservative in outlook; and are reluctant to take on additional debt or other external financing measures fearing the dilution of control. All attributes which are thought to hinder innovation. Another train of thought however suggests businesses under family ownership are less motivated by short-term profits and show greater alignment between ownership and management; characteristics which are known to stimulate innovative behaviour. All of which paints a particularly paradoxical picture, and raises the question does the family-owned business model stifle or enhance a company’s capacity to innovate? Latest research supports the latter suggesting family-ownership boosts both the quantity and quality of innovation as evidenced by the number and substance of its firm level patents. To test the strengths of opposing theories associating family ownership and innovation, my study, The New Lyrics of the Old Folks: The Role of Family Ownership in Corporate Innovation, co-authored with Po-Hsuan Hsu Associate Professor of Finance at the University of Hong Kong, Sterling Huang, Assistant Professor of Accounting at Singapore Management University and Hong Zhang, Assistant Professor of Finance at INSEAD, researched a comprehensive sample of U.S. public companies between 2000 and 2010. The results were illuminating. We found family firms were associated with 11 percent more patents filed and 12 percent more citations of filed patents received. They scored 14 percent higher in originality (innovation output which considers the creativity of the firm’s patents) and 30 percent higher in generality (which considers the patents’ versatility), indicating that not only is there more innovation happening in these organisations, but it is of a higher quality than non-family companies. Surprisingly, family firms spent less on research and development (we observed a negative relationship between family ownership and R&D input) but were significantly more efficient with what they did invest in this area, when measuring R&D spending against patent output. That is, they produced more and better patents. So what are family firms doing right? A closer look at the data identified three channels which promoted innovation. Focus on long-term value. By sheltering managers from the short-term pressures of irrational and myopic investors, the family ownership model encouraged them to pursue technological advantages with long-term value. Reduced financial constraints One train of thought suggests that in their efforts to retain control, families may be less willing to resort to capital markets, investment partners or other external financing methods. However we found that lenders had a tendency to trust family firms more, thus reducing financial constraints that hinder innovation. Improved governance Based on the widely-accepted assumption that the presence of institutional investors indicates better governance and encourages innovation, we found family ownership serves as a substitute for these investors and replaces other governance mechanisms in spurring innovation by lowering agency costs and strengthening monitoring. The role of family ownership in corporate innovation changes over time. Innovation efficiencies in the firms studied were found to improve with the reduction of the estate tax, suggesting family-owned firms adapt to their institutional environment. Family firms account for a significant portion of business activities and constitute the backbone of economic development worldwide. But their link to innovation is less obvious. While family ownership can hamper a firm’s innovation – conservatism and nepotism can result in family businesses adopting sub-optimal investment policies and there may be higher capital costs due to under-diversification or exacerbating agency issues – family firms can also stimulate innovation. By taking advantage of economic channels that focus on long-term value, alleviating financial constraints and improving governance, family firms can make up for these negative characteristics – and through a balance of tradition and modernity- adapt to survive change. About the Author - Massimo Massa, is The Rothschild Chaired Professor of Banking and Professor of Finance at INSEAD. This article is republished with permission of INSEAD Knowledge.

China’s rich visa-seekers are discovering alternatives to foreign investment visa schemes in the US, Canada and Australia, and are increasingly applying to Europe and the Commonwealth Caribbean. Whether it is to send their children to elite universities or simply escape the polluted air, American and Canadian citizenship-for-investment programs have in recent years attracted wealthy Chinese in their droves. Chinese are the largest group of investor immigrants for the US, Canada, Portugal and Australia, and some visas have as much as 80 percent take-up by People’s Republic of China nationals, according to law firm Withers. But now with Canada’s programme closed down, the UK and Australia’s schemes growing more expensive, and strict taxation on US green card holders and US citizens, Chinese nationals are looking beyond the ‘usual’ options. “There are several ways to establish a foothold in the US. Not everyone realises that a green card is one of many,” said Mark Lanning, director of immigration at Withers. Excellent educational institutions, strong capital markets and quality of life have historically provided the pull factor to these countries. But now many are limiting their programs while they deal with the backlog of applications from China. There is a four-year waiting list for Chinese nationals applying for the US EB-5 ‘green card’ visa, according to Reaz Jafri, attorney at law at New York-based Withers Bergman. “If your 18-year-old daughter is about to start at Harvard and you apply for an EB-5 visa now, you’re not going to make it in time (to live there). In fact, you’re not even going to make it for her graduation,” said Jafri. The US’ EB-5 visa requires investment of between US$500,000 and US$1 million in return for a conditional green card. There are just 10,000 of these visas issued annually and a cap on each nationality, and many Chinese applicants are being forced to wait until 2018, reckons Jafri. This April Canada stopped accepting applications for its immigrant investor program and the federal entrepreneur program, of which around 90 percent of applications were from China. The initiatives, which allowed investors with a minimum net worth of C$1.6 million (US$1.42 million) to invest C$800,000 (US$708,000) in return for residence, had hit a logjam. The government’s Citizenship and Immigration Canada (CIC) has said it is ‘reviewing the programme’ which it may reopen. As for Australia, the good news is that from 2015 a foreigner can get permanent residency in just one year. The bad news? It will cost an eye-watering A$15 million (US$13 million) investment. Applicants for the new Premium Investor Visa will also be strictly vetted to ensure they meet eligibility criteria. And this month the UK Government doubled the minimum investment required for the Tier 1 Investor visa scheme to £2 million (US$3.13 million). The visa allows non-European citizens and their families to live in the UK in return for a £2 million (US$3.13 million) investment in UK companies or UK government bonds. Chinese are also the number one source of applicants for this visa, followed by Russians. What does this mean for footloose wealthy Chinese? If they want to go to the US there are lesser-known alternatives, according to Withers, like the L-1A visa, an inter-company transfer for executive or management level individuals. There is the O-1 for individuals of ‘extraordinary ability’ and the E-2, the treaty investor visa. Obama last week also extended a new visa law to make it easier for Chinese students and tourists to come to the US, as well as homebuyers, a sign that the US wants to encourage the flow of capital into its property markets. Armand Arton, chief executive and president and Dubai-based citizenship advisor Arton Capital, said the reasons for wanting a second citizenship are fundamental in deciding the destination and type of visa. “There are two kinds of investment programs, one that leads to immediate citizenship and one for longer term residence,” he said. St. Kitts, Antigua, Dominica, Grenada and Cyprus offer immediate citizenship and Bulgaria and Malta offer accelerated citizenship. Traditionally families in the Middle East or Pakistan have used these programs as the urgency for a free passport may be their main priority, he explained. Investor programs for residence, like in Portugal, Spain, Greece, Hungary, UK, Canada, US, Australia, where the investor receives only Permanent Resident (PR) Status, are more popular in China, he said. Under these programs it is legal for them to invest abroad and obtain PR, while applying for immediate citizenship is against the law in China. “Chinese have traditionally dominated residency programs and they will now start to dominate the programs for citizenship over the next five years, because some countries are limiting Chinese applications,” predicts Arton. He added that ‎Chinese investors are looking at more European options, especially since the UK visa price hike. “The recent increase of the Tier 1 Investor visa will have an important impact on demand, because Chinese investors can obtain citizenship in Cyprus, Malta or Bulgaria and still settle in UK.” The lower investment bar in Greece, Hungary and Bulgaria has attracted already over 2,000 Chinese investors in the three countries combined in the last twelve months, and Portugal and Spain are following the competition with around 750 Chinese families in the same time period, said Arton. While the US, Canada and UK have the appeal of being home to some of the world’s top universities, investment visas are not purely education-driven. Many affluent Chinese are simply looking for a bucolic bolthole which doubles as an investment, said Kingston Lai, chief executive of Asia Bankers Club. “By their nature, visas for investment are usually a temporary way for a distressed government to raise funds quickly, which is why so many schemes launched in the wake of the financial crisis,” he explained. “But as economies grow stronger some programs are drying up. So when the opportunity comes, you need to act quickly.” Lai said his members have recently been asking about Greece, after it announced a new three-generation citizenship visa for a US$250,000 property investment, the cheapest of all the offerings. Malta, Portugal, Cyprus and Spain are all promoting similar initiatives to wealthy Asians looking to diversify into a European pied à terre. The beleaguered Greek government is plugging the scheme in Asia, hoping to attract affluent Chinese on the hunt for a real estate bargain. With Greek real estate values as much as 40 percent below peak, it is could be great investment as much as a way to secure a European passport. But there are some investment visa schemes which look set to stay for the long run. The industry has seen a considerable move towards the citizenship by investment programs of St Kitts and Nevis and the Commonwealth of Dominica, according to Micha Emmett, the managing director of legal adviser CS Global Partners. “We’ve seen so many programs come and go but these two are the longest running citizenship by investment programs in the world, 30 and 20 years respectively,” she said. “These two have held their ground in being a sustainable and attractive option. Chinese investors are aware of this and have developed a strong affinity for these countries.” She added that even though Europe remains a popular destination due to the Freedom of Movement act, which gives the right to live anywhere in the EU as an EU citizen, ‎the investment thresholds are high for an immediate citizenship. On the other hand, the risk of only receiving the residence has prompted more investors to seek beyond the European residence options. And despite the EU stamp, some countries within the EU still do not hold the status that the Western European counterparts or Commonwealth Caribbean options offer. Clearly in future if governments want to attract the swelling wallets of the Chinese, they will have stiff competition. This article has been reproduced with permission from Wealth-X. For more information please visit their website at www.wealthx.com

When it comes to wealth preservation, why have some families businesses been so successful while others have failed miserably? In my opinion, the secret boils down to a family ethos that values one thing over all others: capital preservation. The bear traps of inheriting money without purpose have been well documented in literature, Hollywood and the media. Thomas Mellon, founder of one of the wealthiest and longest enduring families in America, set up a tacit understanding that while spending was acceptable, it came with the expectation that each generation would become the caretakers of this capital and push it forward to a larger amount than he or she was given. This sense of ownership and responsibility was central to the family’s vision. But conserving family business wealth isn’t always so straightforward. Family businesses make up the foundation of the Canadian economy, but not all owners feel adequately prepared for succession, says Saul Plener of PwC. In the annual PwC Family Business Survey, family business respondents tended to fall into the second generation, or ‘Baby Boomer’ category, and are ‘looking for the best opportunity to exit.’ Unfortunately, he points out, a significant number of those surveyed “haven’t put the necessary effort into succession planning and professionalising the business to ensure long term survival.” One of the reasons why the professionalisation of the family business has become as challenge is because these types of discussions can be difficult. But succession conversations should take place several years before the business changes hands and wealth is passed down to the next generation. Discussions should centre around the financial plan, tax and legal implications, as well as family expectations. If you run a family business, it’s never too late to start. I also recommend hiring a family business expert to assist these often tricky questions. To get the conversation started, family members should rate their knowledge on the following question out of ten: 1. I understand the expectations about the transition of the business by the current owners (parents) and also the next generation. Mr. Plener says that parents often think they know what their children want to do, but they’re not always right. The next generation has seen the stress that their parents handle and don’t necessarily want to take on that level of emotional strain. Founders needs to find out the interests of the next generation as a beginning to the succession process. One owner was pleasantly surprised to discover his daughter was interested in being on the board of the family business. He had assumed his daughters weren’t interested, but he had not started that conversation. 2. We have discussed the distribution of capital. Has there been a systematic building of capital in a diversified investment portfolio over the years? Having capital invested outside of the concentrated investment into the business is wise as the optimism of many entrepreneurs has resulted in spectacular belly flops. By systematically taking money out of the business and putting it into a portfolio, the family will be looked in the worst-case scenario. With the security of a portfolio in place, the family and retirement costs are covered, and then entrepreneur is in a far better position to take the risks required to grow the business. Families can relax and relationships enhanced if everyone knows the strategy around capital. 3. We are on the same page about our long term-family goal(s). The longer the family has been in the business, the more the business means to its members. In material terms, it usually represents their largest asset and primary source of income. Beyond this, it is also a source of personal wealth and family tradition. Family members are usually proud of being associated with the business, especially if it carries the family name. After a sale, these families have to look for new means to keep the family together, to continue its legacy and preserve its wealth over generations. This is often the reason to set up a family office to create a platform to manage joint family activities, such as philanthropy, family investments or special projects such as private equity. Capital preservation is recommended as the central family goal which the next generations will need to understand and embrace. The next generation and family can then have the security to reactivate the family’s entrepreneurial spirit and create the next family business endeavour. About the Author - Jacoline Loewen is director of business development of UBS Bank in Canada. She is also author of Money Magnet: How to Attract Investors to Your Business. Article first appeared in The Globe and Mail and has been reproduced with permission.