A new report by the Economist Intelligence Unit, commissioned by Labuan International Business and Financial Centre (IBFC), reveals that Singaporean family businesses are the least prepared in Southeast Asia for leadership transition.
Source: Labuan IBFC.
The report, titled “Building Legacies: Family Business Succession in Southeast Asia,” found that only 58% of Singaporean family businesses have a succession plan. While 35% utilize formal wealth management structures like private foundations, and 41% use trusts for intergenerational wealth transfer, these numbers fall short compared to similar businesses in Indonesia, Malaysia, the Philippines, and Thailand.
In contrast, Indonesian family businesses emerged as the most prepared, with 78% having formal succession plans. Furthermore, 57% have established private foundations, and 53% utilize trusts for wealth management and succession.
Kevin Plumberg, the report’s editor and Senior Editor, Thought Leadership, Asia, at EIU, emphasizes that succession planning involves more than just designating a successor. He stresses the importance of a robust and enduring plan that can span generations.
Plumberg also highlights the unexpected finding that family businesses in Singapore, a regional financial hub, lag behind their Indonesian counterparts in utilizing foundations, trusts, and external advisors for succession planning. This contrast, he notes, reflects the region’s diversity and the uneven progress in addressing succession issues.
Based on a survey of 250 majority family-owned businesses across Indonesia, Malaysia, Singapore, Thailand, and the Philippines, the report reveals that 60% of all listed firms in Southeast Asia are family-run. Their success, therefore, is crucial for national economies. Notably, the report also found that businesses with a succession plan are viewed more favorably by customers and investors, with 71% of regional family business leaders acknowledging that it makes attracting investment easier.
Saiful Bahari Baharom, Chief Executive Officer of Labuan IBFC, emphasizes the significant role family-run businesses play in ASEAN’s growth, representing over 60% of all publicly-listed companies. However, he points out an over-reliance on informal structures like family councils for succession planning, which lack legal binding and permanence.
Key takeaways from the report:
- 67% of respondents have a succession plan, with 71% of those having their plan reviewed by their boards.
- 65% of families are involved in long-term company decisions, and 29% participate in day-to-day operations.
- 10% of businesses, particularly those in their third generation or later, have measures to exclude family members from management.
- Over half (55%) of Southeast Asian business families rely on informal gatherings or family councils for governance, prioritizing control.
- Indonesia leads with 74% of respondents having a family council, followed by Thailand at 56%. Singapore lags behind at 40%.
The complete report is accessible online here.
*Data in this report is derived from a survey and interviews conducted from July to August 2014, involving 250 majority family-owned businesses in Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Participants held senior managerial roles, with 50% being board members or C-level executives. The majority (54%) were first-generation businesses. 62% of the companies represented had global annual revenues of US$150 million or less, while 11% earned US$1 billion or more.