Pierre’s Four Rules for Harmonious Family-Business Succession in China

Insights after Meetings with Twelve Family-Business CEOs in Beijing and Hangzhou.

Succession is tough. Look at the challenges faced by the might-have-been kings and queens of England and France in the Middle Ages, or the good and not-so-good emperors of many ancient Chinese dynasties. Throw in today’s real-world experience by Chinese Millennials - global exposure via WeChat and Jack Ma’s many Alibaba platforms - compounded by the unlimited opportunities offered by an ever-smaller world, and what’s a business-owning father or mother to do in Mainland China?

There is no easy answer. Succession is tough.

Through my career, through my clients, and through my mother’s family business (still actively controlled by cousins and aunts and uncles) and my father’s family business (separated from the family long ago), I’ve seen more than few family-business successions.  Combine that with what I have learned from the many Chinese business-owning families I have met, and I have developed a few basic guidelines to help the emerging Chinese “Family CEO”.

First, engage your child in the ups and downs of your business, the successes and failures and right and wrong turns. You can’t start too early with this, nor is it too late to start. In fact, WeChat your daughter right now and invite her to the next executive meeting.

Second, neither push-away nor pull your son into the business. Be open and leave room for him to decide his own path in life (with your generous but unpressured guidance.) He may well come back to you and your business if you do not insist upon his involvement. He is likely to seek other pastures if you mandate a path and place too many expectations upon his shoulders.

Third, if you have several children, favor not one but give the gift of your wisdom and business insights to each of them. Don’t select a successor early in life, and nor should it be your choice alone.  It is better to ask the entire family to choose together, and potentially include your closest executives in the process.

(Maybe you should go further, particularly if you have a larger family or if you are thinking beyond the first family-CEO succession, and develop a Family Charter. If you do so, remember to engage everyone in your family, and plan for the Charter to be a ‘living’ document, one that changes occasionally, particularly as the world evolves and as new generations come to maturity.)

Fourth, empower your children and grandchildren through education, not only at school but at home. Certainly their schools should be the best you can find given the nature of your kids, starting with pre-kindergarten and continuing through university; but also educate with global exposure at home and in your social and business lives. Seek uncorrelated business apprenticeships (e.g., in businesses not like yours) and summer jobs for your daughter or son through your friends and business peers and even through distant acquaintances. (Remember, for all parents, life really is only about their children, so asking someone else to consider your daughter for a summer job is perfectly acceptable. You will also be asked.)

At the same time as you are pursuing the Four Rules above, remember also to set aside money (importantly: it should be both $$ and RMB) for your children and grandchildren in the unlikely case that your business fails. When your wealth vanishes through the vagaries of the business cycle or bad luck, or market or technology evolution, plan today to protect the family. Remember to diversify your assets, to hedge your larger exposures, to plan for that never-possible, no-way-it’ll-happen-to-me day of running short on cash.  Hire a professionally-certified financial planner (and I mean a US-style financial planner, rather than a Chinese style 'financial planner' who has insurance or investment products to sell you), tell her everything, and then do - what - she - says. This will help with retirement, with educating your children, with maintaining your lifestyle, and most importantly with giving you the confidence that your family will be well taken care of, come what may and no matter how busy you may become. (I know a few financial planners who can work with you here in China – they are hard to find, or at least it’s hard to find ‘real’ ones who are worth the fees.)

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After reading through everything I’ve written above, and with the wisdom provided by a decent Bordeaux high above Pudong, it all seems pretty obvious and simple. But when you are in the thick of it as your business grows by leaps and bounds and suddenly your children move to the next school and get ready to fly off to Silicon Valley or Hangzhou, you may want to refer back to this basic guidance to help you ensure that your business provides opportunities to your family well into the next century.

Above all, don’t sweat it, as we say in New York. Likely your instincts are right.

    - Pierre                              April 4, 2017                         Shanghai

-------And here’s the “call to action”, as my friend Will said I must provide for our Chinese readers:

Your broader wealth planning is an important part of any short-term or long-term ownership transition, whether you are selling the business to an outsider or passing it along to another family member. I can help you with that. I can help you with your business valuation and growth strategy, AND with your family dynamics and succession plan. My team works with business-owners and wealthy people as a fiduciary (see below for the definition of fiduciary, which may be an unfamiliar term in China) to develop a comprehensive plan for all aspects of your wealth, from the business you own to the liquid investments you have to your estate plan and insurance and real estate and private investments -- everything. We make sure it all fits together. We work with you to see that everything is taken care of and everyone is working for you to empower you with the confidence and freedom to pursue your passions without having to worry about your finances and the details of your financial life.

So contact me at [email protected] or via WeChat at ID “USA6178230539”. And as I say at the end of my group presentations to families and business-owners in China: there’s a lot to be gained for both of us if we share a coffee one morning or a cocktail one evening.

---Definition from above: In the U.S. regulatory environment, being a fiduciary means that I am legally required to put your interest and the interests of your family ahead of my own interests. We strive to limit any conflicts of interest and will disclose openly if any exist. We offer transparency in all that we do and are solely compensated by fees from our clients. I do not make any commission from any of the advice I offer or investment products that I recommend. I must always work in the best interest of my clients. The concept of a fiduciary is rare in China. In the US too, finding a true fiduciary can be challenging. The large US banks are not fiduciaries, neither are broker-dealers. The value of an independent, objective and transparent advisor, like me, is my legal responsibility to your interests.