Richest Asian families not ready to pass the baton: JPMorgan

April 15, 2015 09:39
Practically half the family businesses of Asia's wealthiest people are controlled by people over 60 years of age. Photo: Reuters

Most of Asia's wealthiest families are not fully prepared for succession, although it has become an increasingly urgent issue as the founders get older.

After surveying more than 140 Asian families with holdings in excess of US$100 million, J.P. Morgan Private Bank said in a study Tuesday that 91 percent of them are looking to keep their business in the family.

Of these, 88 percent are either not prepared or only somewhat prepared, it said. More than 70 percent do not expect succession to occur for at least five years.

Practically half (49 percent) of these family businesses are controlled by people above 60 years of age -- who are usually the founders of the businesses -- and a further 39 percent by people aged between 46 and 60.

“They practice usually a single decision-maker model ... it is very likely in the course of the next five to 10 years ... that they will either continue with a single decision-maker model where there is a hand-picked successor in the succeeding generation, or, probably, they will transition from a single decision-maker model to a multi-family-member decision making model,” Cynthia Lee, managing director and head of wealth advisory for North Asia at J.P. Morgan Private Bank, said at a briefing Tuesday.

The Chinese have a saying that “wealth never survives three generations", and similar sayings can also be found in many other languages, Lee said.

She said the governance of family businesses deserves more emphasis.

Different expectations and needs of the rising generations and whether they will be treated fairly are cited by 73 percent of the survey's respondents as a top concern among succession issues.

“In Asia, it is not just from one generation to the next but from one culture to another,” the report said.

The key is to allow differences, it said: “When individuals feel their dreams are respected and fostered, they are much more likely to contribute to the family’s shared success, often in exactly the innovative ways family leaders hope for."

Succession is not only about money or power. Philanthropy often plays a role as families work to ensure values and vision are sustained through future generations and to maintain family unity.

The survey shows 76 percent of the families have been engaging in or are interested to engage in philanthropy, for example, through family foundations.

On average, 4 percent of family enterprises' profits or income generated are allocated to philanthropic efforts, it shows.

Of the families surveyed, 37 percent are from Hong Kong, and mainland China accounts for 19 percent. Other families are from Taiwan, Singapore and other places in Asia.

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EJ Insight reporter