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1、1Creating ashared future forgenerationsCultivating responsible stewards with family governance2Long-term implications of global disruptions such as the Covid-19 pandemic and geopolitical tensions continue to evolve and impact policymakers,businesses and families around the world.In times of ambivale
2、nce,many families and their businesses are prioritizing family governance to effectively manage these uncertainties for a shared future,and capture opportunities in a timely fashion amidst a rapidly changing macro-economic environment.The continuous growth of global wealth,diversity in country of re
3、sidence among family members and intergenerational wealth transfers mean that an increasing number of wealthy families will be grappling with the issue of family legacy and unity.These families may need appropriate governance frameworks and tools,such as governing bodies and family offices,correspon
4、ding to their size and stage of development in order to preserve family identity and legacy across generations.Every enterprising family is unique with a different trajectory of their past narratives,present circumstances and future aspira-tions.Therefore,it is paramount to establish a customized go
5、v-ernance system that not only fits families needs and purposes,but also embraces changes and allows resilience for unpredict-able futures.In this paper,we explore how enterprising families in the Asia Pacific region consider their particular cir-cumstances when developing family governance systems,
6、the unprecedented challenges they encounter in recent global dis-ruptions,how they navigate through ever-evolving policies,and the strategies they take for longevity.ForewordWilliam Chou,Deloitte Private Asia Pacific Leader Andrew Lo,UBS Head of Family Advisory&Family OfficeSolutions Greater China3F
7、or more than forty years,my family about a group of 20 people spanning across three generations has been going to my grandmothers house every Sunday at noon for Cantonese porridge,recounts Richie Eu,a fifth-generation shareholder and Managing Director of Eu Yan Sang International(“EYSI”).Even when I
8、 was a high school student in the United States,I would call Singapore from long distance and my parents would pass the phone around for me to say hello to everyone.Estab-lishing a consistent rhythm of annual family meetings as part of our family gatherings also helps to establish struc-tured and op
9、en conversations with each other.I credit the closeness of our family to our weekly Sunday porridges in Singapore.Founded in 1879,Eu Yan Sang grew from a small,home-grown medical hall to one of the most recognized tradi-tional Chinese medicine brands in Southeast Asia.Richies father,Richard YM Eu,a
10、fourth-generation manager and shareholder of the family business,was identified as the main driving force behind Eu Yan Sangs turnaround in the 1990s.Through a management buyout with his cousins,Richard YM Eu consoli-dated control of the business into one single entity,which previously had stakes di
11、spersed across over seventy family members.My Grandfathers family branch is currently the largest share-holder of the business across the various family groups.After witnessing acrimo-nious disputes between the third gener-ation,my dad and his fourth-generation cousins did not want to drag the famil
12、y through another painful episode.Therefore,he is fully committed to main-taining good relationships within the family so that both internal and external stakeholders view the family as a united front,Richie adds.Retaining a family practice of structured conversations and regular meetings enhanced t
13、he Eu familys resilience during difficult times,including the passing of Dr Richard KM Eu,Richies grandfather in September 2022.When he could still travel,my late grandfather made it a point to have the entire family celebrate his birthday together every April in Japan,explains Richie,he passed away
14、 last year,but we hope to carry on this tradition going forward because we believe in the power of staying together to process,to grieve and to mourn someone who meant so much to us.1 The lasting practice of sunday family brunch Our company has more than 140 years of history and as time passes,each
15、succeeding generation moves further away from the companys founder,Eu Kong,my great-great-grandfather.So,we must find novel ways to strengthen our familys closeness as the world changes and a lesser number of family members are actively involved in the business.Richie Eu,Fifth-generation family memb
16、er and Managing Director of Eu Yan Sang InternationalThe Eu familys story showcases the power of a common purpose in light of key milestone events.The rituals of open communication and consistent engage-ment within the family nurture a desire to stay together rather than pull apart,and foster within
17、 each member a sense of“togetherness”despite geographical distance and a lesser emphasis on the business as a unifying force.4From natural to formal governanceEntrepreneurial families experience growth in many dimensions over time,from the number of business units and operating locations to the numb
18、er of extended family members and diversity of residencies.As the family grows,natural advance-ment of family governance system may not suffice concerted effort is required to manage and align values and objectives,and to keep family members connected.When extended family members become less interes
19、ted or involved in their family business,they inevitably tend to be more detached from family heritage;thus,the fabric of the family weakens.From the dimensions of ownership,family and business,different stake-holder groups in the realm of the family businesses start to emerge as families develop.He
20、re,we note that divergent interests may lead to potential conflicts.As defined by the famous Three-Circle Model of the family business system developed at Harvard Business School by Renato Tagiuri and John Davis in 1978,the three interdependent and overlapping groups,the family,business and ownershi
21、p,results in seven distinct interest groups,each with its own perspectives,goals and dynamics(Graph 1).The long-term success of the family business system depends on the functionality and mutual support of these seven interest groups.Customized gover-nance systems,including guiding principles,struct
22、ures,policies,and practices can effectively address the interests and concerns of the overall family and its members by ensuring inter and intra-group communication,engagement,alignment,and built-in resilience to facilitate collective decision making.Graph 1:Three circle model of the family business
23、 systemOwnershipFamilyMembersNon-familyMembersFamilyBusinessFamilyEmployeesNon-familyOwner-EmployeesFamilyOwnersNon-familyNon-managerOwnersFamilyOwner-EmployeesSource:Renato Tagiuri and John Davis,https:/ Governance as a journey of self-discovery5In fact,many wealthy families in the Asia Pacific reg
24、ion have acknowledged the role of effective family governance systems in preserving family values and unity.Despite naturally built-in governance arrangements,such as through family gatherings,other families have established formal communication platforms and adopted various governance tools(Graph 2
25、)to strengthen family cohesion,mitigate potential conflicts and accelerate collective decision making in order to be proactive,rather than reactive,to various changes.The Tan family,based in Hong Kong,is the family behind Luen Thai Group,a global leader in apparel and accessories with businesses spa
26、nning from China to the Pacific.The family has successfully adapted family governance tools mostly developed in the West to its own family.Most of the wealth in Hong Kong was created after the 1970s,whereby not many reference points were available in building a family governance structure.Envisaging
27、 potential challenges families face alongside wealth creation and accumulation,I proactively par-ticipated in family business workshops in London and in other global cities to learn about success stories of 100-year-old families,and understood the importance of having proper mechanisms in place to m
28、anage the family business and enhance longevity,recalls Henry Tan,second-generation member and Deputy Chairman of Luen Thai Group.Thereafter,the Tan family hired external consultants to help set up its Family Council,Family Assembly and Family Committees.The Family Council,chaired by Luen Thai Group
29、s founder,Dr Tan Siu Lin,provides guidance on major family issues and sets out relevant policies and procedures.The committees are desig-nated with specific functions,each being health and medical,education,and recreation,which deploy family resources to benefit family members.With the third generat
30、ion actively contributing,the committee set-up empowers them to make balanced decisions by accounting for the circumstances of the whole family as well as of each family member.With a system in place,stewardship of family resources is carefully and prudently done to ensure both efficiency and fairne
31、ss.We do not pay for everything,instead we subsidize a certain amount,from education to weddings.As benefits and the relevant approval processes are clearly written and defined,family members know what they would be getting.Theres no hard feelings.Henry Tan,Second-generation family member and Deupty
32、 Chairmain of Luen Thai GroupAnd we also put in extra efforts to leave fond memory of family gatherings.Taking our family trip of 30 people to Quanzhou,my fathers hometown,as an example,I sent staff to the sites and restaurants beforehand to confirm the details of all arrangements.,Henry adds.Graph
33、2:Family business governance structure for illustrative purposeOwners CouncilFamily CouncilFamily OffceFamily AssemblyFamily CommitteesFamily MembersFamily Business BoardBusiness Unit 2Business Unit 3Business Unit 1Source:Deloitte China Research6Engagement principles in the family business is anothe
34、r focal point of gover-nance system for the Tan family.Each second-generation family branch manages a unit of the family businesses to avoid conflicts.Family shareholders receive a fixed percentage of dividends.In addition,the family created a bonus system allowing the relevant manager to obtain add
35、itional compensation based on the performance of the business unit he or she oversees.The Family Commit-tees also set the parameters for the third generations to join the business external work experience and sponsor-ship from a second-generation member are some common prerequisites.External events
36、as catalysts for changeHowever,having a system in place is not only about checking the box,but also the commencement of a governance journey,which is living and should be evolving based on reassessment of the familys future and rediscovery of shared purposes.External disruptions and tur-bulences,fro
37、m Covid-19 pandemic to geopolitical tensions in recent years,may actually offer opportunities to catalyse reflections and transformation in families,and drive more interaction among family members to adapt to a new normal.Richie shares his observations on his familys response to the pandemic.When Co
38、vid-19 hit,a lot of us who lived abroad decided to move back to Singapore.The pandemic forced us all to reassess where we felt the safest,and we felt the safest at home.Surrounding ourselves with warmth and familiarity,especially in the case of my then-96-year-old grandfather,has helped us get throu
39、gh a very difficult period.For example,even though travel restrictions were in place at the height of the pandemic and my siblings were spread out across the globe,we organized a lot of virtual family“meals”and calls.The pandemic allowed us to reassess what is most important to us,in terms of where
40、you want to live and who you want to live with.As families adjust and cope with novel situations,on top of the accelerated adoption of technologies,learning as a family serves as another key touchpoint for family development.A collective learning process allows families to redefine and realign their
41、 own guiding principles and shared values over time,thereby keeping the family governance system alive.Among others,family forums are often the primary platform for family members to communicate and learn from other entrepreneurial families.Richard YM Eu is a firm believer in life-long learning,enco
42、uraging his four children to attend external forums and to come back and share what they had learned.Over the years,the Eu family has also organized a number of educa-tional tours about the familys history and beginnings.My father is very sup-portive of us attending a family-focused forum anywhere i
43、n the world and learn about how other families approach family issues.His belief is that every family is unique,and therefore will have a different approach to age-old questions.His view is that the more data points we gather,the more conversa-tions we can have around what works best for us,notes Ri
44、chie.Challenges faced by families in mainland chinaCompared to enterprising families in Singapore and Hong Kong,their peers in Mainland China are in relatively early stages of succession cycle and are adapting their unique conditions to shape their family governance journeys.For most of the privatel
45、y-owned enter-prises in China,transformation and rein-vention top their agenda as China moves swiftly beyond traditional sectors to advanced industries,technologies and higher-margin consumer goods.Deci-sion-making for a family business is often uniquely complicated by disrup-tions,intensifying comp
46、etition,business transformation as well as evolving dynamics among family members.Whats more,the founding generations are in charge and are in the process of creating their own playbooks.Deci-sion-making for family and business is therefore made by the same set of family members and is frequently in
47、ter-twined,hence some families are grappling with the dilemma between interests of the family and interests of the business as both evolve.7While family and business rules are still being defined and refined,tensions arising from generational transition become even more conspicuous as a result of th
48、e general lukewarm interests among the next generation to take over the reins.Some of them study abroad and do not spend much time with their families growing up.The divergence in perspectives and generational conflicts can be explained by rapidly changing upbringings and the social environment of e
49、ach generation.,says Andrew Lo,UBS Head of Family Advisory and Family Office Solutions Greater China.The rising generations,especially millennials,grew up in the digital era and in open societies.They are more open-minded to innovation,whereas the elder generation is more concerned about keeping wea
50、lth within the family.Andrew Lo,UBS Head of Family Advisory&Family Office Solutions Greater China A successful entrepreneur from Mainland China,Mr.Mai,started out in the logistics segment in Shenzhen,and after decades of hard work,took the company to the next level by leading the industry.His son,Mi
51、chael Mai,was sent to study in Australia at the age of 15 and stayed on to start a business himself in real estate,and later expanded into alternative asset management.Michael comments,because my father and I have lived apart this many years,our differences in world views can lead to a lot of argume
52、nts,especially in recent years with macro uncertainties such as the pandemic and geopolitics.Weve now learned to concentrate on the holistic view and long-term strategy,instead of getting into guessing games.8Next gen development at the core of governance designEnterprising families in various stage
53、s of succession cycle have different focuses in designing and implementing family governance.Multi-generational families in Singapore and Hong Kong tend to focus more on investing in cohesion with the wider family.As family heritage goes back a couple of generations,they generally have a higher leve
54、l of awareness to plan for sustainable family legacy.While young enterprising families in Mainland China have started giving more considerations to the topic of suc-cession in recent years,considering the first-generation entrepreneurs are still hands-on in business,they normally do not have a gover
55、nance system in place.Regardless,many families face the common challenge of engaging and developing next generation in the long run.Succession is at the core of governance system design,and this applies even more so to younger families.Generational transition is always the hardest for the first time
56、,as in from the founder to the second generation,because families lack experience.Jeremy Cheng,Researcher with the Center of Family Business at the Chinese University of Hong KongHow can governance arrangements cultivate and carry forward entrepre-neurial spirit within families?How can the family mo
57、tivate future generations to contribute to the business when fewer family members are interested in joining the business?How will the family create opportunities for those who choose a career outside of the family business to stay involved?Enterprising families in China should re-consider the Asian
58、tradition of having the next generation carry the torch as the preferred succession option.Culti-vating future generations as professional managers requires talent and extensive work experience in the family business,hence it is more feasible for the next generation to be groomed as the majority sha
59、reholder and stewards while having trusted non-family professional managers run the business,argues Professor Chen Ling,Director of Institute for Entrepreneurs,School of Manage-ment,Zhejiang University.Younger generations can often act as the driving force of innovation.They help incorporate new tec
60、hnologies into family businesses in the more mature industries.Luen Thai Group now has a diversified global portfolio covering several business segments,spanning from apparel,accessories,fishery,real estate,to investments.When youre in the retail business,you cannot be a Monday to Friday businessman
61、.You need to be on the ground during weekends.For example,my two sons volunteered to relocate to Shanghai and they have now lived there for 7 to 10 years,Henry Tan remarks.The two third-generation Tans work with their uncle on expanding the groups presence in the Chinese market.The 3 Cultivating res
62、ponsible stewards in the rising generationworld has changed a lot.Technology is penetrating all industries,even in tradi-tional industries such as textiles,from new fabrics,new branding to new methods of distribution.Family offices provide platforms of involvement for next genMeanwhile,across the As
63、ia Pacific region,enterprising families are seeing more of the next generation embarking on a career in investing,sometimes in industries outside of their core business.Enterprising families in Southeast Asia tend to adopt the so-called banyan tree model,whereby the family business develops into a d
64、iversified portfolio of multiple business units based on the various interests and talents of the next generation.Meanwhile,we have also seen this banyan tree model played out in the form of family investments.Professor Chen Ling,Director of Institutefor Entrepreneurs,School of Management,Zhejiang U
65、niversityThe goal of establishing investment platforms serves not only to grow family 9wealth,but also to help forge new development paths for the next genera-tions themselves.Participating in invest-ment decision making for the family bestows trust and tolerance,while moti-vating them to work towar
66、ds steward-ship as they are likely to receive direct financial benefits based on their perfor-mance with the family investments.Entrepreneurship is something that is hard to replicate as it requires the right combination of talent,disposition and experience.We dont apply a single set of rules when i
67、t comes to developing future generations.We encourage them to find their own paths based on their interests and potential,notes Tao Zhao,Chairman of Buchang Pharmaceuticals.Mr.Zhao founded the company together with his father in 1990s,and over the years,his siblings joined the family business and to
68、ok up various management roles.Nowadays,the next generation(the familys third generation)members have either joined the business or worked in the family office.Family investments and wealth transfers are critical means of keeping our family legacy.Wealth is easier to retain and transition compared t
69、o business.Tao Zhao,Chairman of Buchang PharmaceuticalsSetting up a family office to oversee family investments is often an important step towards establishing a governance system for enterprising families in Mainland China.According to the 2022 Chinese Wealth Management and Family Office Report by
70、UBS,Shanghai Advanced Institute for Financial Research and Wealth Plus,60 single and multi-family offices in China were surveyed and 84%of respondents deployed their family offices as an investment platform of family assets.Facilitation for succession planning came in second,representing 34%of respo
71、n-dents.1 Other functions of family offices included administration and internal advisory.In most Asian cultures,families are not used to sharing internal conversations with outside professionals,says Michael Mai.My family was exposed to the concept of the family business framework very early on but
72、 it took us about 10 years to officially establish a family office and to set up separate boards for business and family.Mai Group,headquartered in Melbourne,adopts a Westernized style of running businesses whereby Michael focuses on building a professional management team.His advice to Mainland Chi
73、nese families is to start small and take one step at a time.As we have just started this journey,were still figuring out our rules.Finding out what works and what does not work in the long run takes time.1 UBS,Shanghai Advanced Institute for Financial Research and Wealth Plus,“2022 Chinese Wealth Ma
74、nagement and Family Office Report”Empowering the next gen for a shared futureBy providing the next generation of family members diverse options to partici-pate,whether through working in the business,or managing family affairs or wealth,family governance systems essen-tially create a variety of touc
75、h points where family members can get involved.Among others,junior boards and next generation committees or sub-commit-tees have been gaining popularity as the stepping-stones for the rising generation to develop.The tailored space provides younger generations with opportunities to take ownership an
76、d test out their ideas.It may start from something small,from planning a family retreat,attending and representing the family at forums,to designing family members education guidelines and taking part in family investments.Including extended family members,our family tree has grown to about 200 peop
77、le globally.Although we still use the companys birthday as an anchor to hold large family gatherings,we do not force people to work in the business because ultimately people need to find their own life goals.After his granddads recent passing,Richie realized that he meant so much to the extended fam
78、ily that the 4th generation decided to organize a family get-together in the United States.Nowadays,our discussions center around responsible stewardship,corporate and family governance and how best to utilize family resources for our businesses and the greater good,remarks Richie.10In the journey o
79、f discovering and refining the appropriate gov-ernance frameworks,enterprising families are encouraged to consider their unique contexts.For instance,families in developed Asian economies such as Hong Kong and Singapore generally focus more on managing the multi-generational complexities with multip
80、le business units at multiple locations,whereas families in Mainland China face different challenges arising from generational wealth transfer,probably for the first time,with inadequate open communication and a lack of sys-tematic succession plan in the disruptive era.To adapt to the new normal of
81、constant disruptions and rapid turnarounds,enterprising families may consider working with professional family advisors to help re-examine existing strate-gies,reassess families circumstances,rediscover their collective vision,rethink agility to carry forward entrepreneurship and ensure alignment am
82、ong family members.As more and more enterprising families embark on a gover-nance journey,we summarize the following factors that have been critical to their success:1.Customize a formal family governance system taking into account families individual contexts,for families to con-stantly redefine fa
83、mily values and rediscover common purpose in light of the evolving external and internal cir-cumstances,and for the rising generation to develop and test out their ideas2.Embrace external events as catalysts to promote reflec-tions and transformations within families,and drive more communication and
84、 interactions among family members to adapt to a new normal3.Create a variety of touchpoints for the next generations to participate,as responsible stewards for families shared assets,regardless of whether they choose to join family business,manage family investments or pursue their own aspirationsF
85、amily governance practices and tools enable families to explore new ways of interactions among themselves and with their external environment,sustain and renew family legacies,and push the frontiers of a shared identity that encompass younger generations,thereby creating a shared future for gen-erat
86、ions to come.4 Conclusion11Acknowledgement/ContributorsUBSAndrew LoFrancesca ChanAmy LauDeloitte Asia PacificWilliam ChouPeter PagonisLydia ChenEllie XuDisclaimerThis document has been produced by UBS AG in cooperation with Deloitte Asia Pacific.Disclaimer UBS AGThis document is for personal use onl
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