Profitability tops legacy among family firms

Eight out of 10 Singapore family businesses polled say continued growth most important

Family businesses here believe that continued profitability is more important than preserving their legacy, according to a survey.

A new report released yesterday by KPMG and CPA Australia found that eight out of 10 businesses interviewed believe family legacy, though important, should not be allowed to get in the way of business growth and profitability.

The findings were based on a survey of 100 Singaporean family businesses as well as interviews with 20 local business leaders - both founders and successors - on issues that matter most to them.

"The resounding sentiment among founders is that they want their next generation in the business," the report said.

But most family businesses in Singapore falter at the first transition, with only 13 per cent surviving to the third generation.

"Informal governance structures that may have worked well for the founders of the business may not meet the needs and interests of a new generation," said Mr Chiu Wu Hong, head of enterprise at KPMG in Singapore.

When planning for succession, "it is critical for founders of the business to develop leaders who will run the business, not just inherit it", said Mr Melvin Yong, Singapore country head at CPA Australia.

"Family business owners can empower successors to make independent decisions, provide challenging assignments and increasing responsibilities while incrementally letting go of control to focus more on mentoring," he added.

If the younger generation is not ready to take over, most respondents would prioritise business sustainability over family control.

Among respondents, 46 per cent cited professionalising the business as a pressing issue, while 41 per cent said retaining family control was of utmost importance.

The survey found successors are more open than company founders when it comes to letting non-family members run the business.

"... the best successor is the best leader, whether a family member or a professional," said Mr Chiu.

The survey also found that family businesses face challenges in attracting and retaining talent - cited by 56 per cent of respondents as their top manpower concern.

Mr Sherwin Siregar, Atlas Sound & Vision chief executive, said professionalising its hiring practices has been key to expanding the family business. The firm, which distributes audio-visual gear, started in 1963. "At Atlas, we are in the third generation of the family running this business and it is important to bring fresh insights and perspectives while retaining the essence of the business.

"It was important to the family that Atlas evolved to the next stage, from a family-owned business into a more corporate firm," he said.

A version of this article appeared in the print edition of The Straits Times on March 30, 2017, with the headline 'Profitability tops legacy among family firms'. Print Edition | Subscribe