Why Many Chinese Family Businesses Disappear in the Third Generation? Part 2

By Prof. Enriqur Soriano

The title can be quite daunting, especially for founders and business owners who have devoted their lives to nurturing and growing the family business. However, as family businesses pass from one generation to the next, they face a unique set of challenges that can threaten their long-term viability. And the most significant challenges arise from intergenerational disputes and inheritance confusion, particularly when it reaches the second and third generations. But why does this event happen, and whenever there is conflict, does the fault lie with the leader or the next generation successors? Or both?

This week’s article will delve into the issue of respect, a very important core value, especially among Asian business leaders. But first, let us understand what these intergenerational disputes are.

Intergenerational disputes are a common phenomenon in family businesses, particularly during transitions from one generation to the next. These disputes can arise due to differences in management style, conflicting visions for the business’s future, and disagreements over the distribution of wealth and ownership.

The Role of the Founder

While it may be tempting to blame the founder for these disputes, the reality is often more complex. While the founder’s leadership style and decision-making may shape the company’s culture and values, intergenerational disputes are usually the result of broader societal and economic factors.

Economic and Social Changes

One of the main reasons for intergenerational disputes is the impact of rapid economic and social changes on family dynamics. As family businesses grow and evolve, they often face new challenges and opportunities that can strain relationships between family members.

Adapting to Change

Younger generations often have different priorities, values, and career aspirations compared to their predecessors. They may also have different ideas about how the business should be run and how wealth should be distributed. Without proper communication and planning, these differences can lead to conflict and division within the family.

Why Do Business Leaders Demand Respect?

Why is this founder mindset important? Why would they demand respect from their successors? Because they see their businesses as an extension of themselves. They want to ensure that their legacy is honored, their vision is preserved, and their businesses continue to thrive for generations to come. Among Chinese businesses, filial piety, a core value in many Asian cultures, emphasizes respect for one’s parents and ancestors, as well as the obligation to uphold family honor and tradition. Disputes may arise when family members have differing interpretations of filial piety or when there is tension between honoring tradition and pursuing business interests. These disputes can be complex and emotionally charged, posing significant challenges to the long-term success and sustainability of family businesses.

For families in turmoil because of this conflicted meaning of respect, please reflect on several important reasons:

Legacy and Sacrifice: Founders pour their heart and soul into building their businesses. They take risks, make sacrifices, and work tirelessly to turn their vision into reality. As a result, they expect their successors to honor their hard work and dedication.

Preserving the Vision: Founders have a clear vision for the future of their companies. They want to ensure that this vision is preserved and upheld by their successors, who must share their passion, commitment, and dedication to the business.

Maintaining Tradition and Values: Founders want to ensure that the values and traditions that have guided the business for generations are not lost. They expect their successors to uphold the same principles that have made the company successful.

Earning Trust and Confidence: Founders have spent years building their businesses and want to feel confident that they are leaving them in capable hands. They expect their successors to be responsible, trustworthy, and committed to the long-term success of the company.

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“The W+B Family Governance Leadership Series: Structure, Culture, and Succession”

We have reached the maximum number of participants for “The W+B Family Governance Leadership Series: Structure, Culture, and Succession.” Thank you to those who have registered and attended Day 1 and 2. If your family is going through confusion and or conflict and interested in learning the tools and strategies to navigate the complexities of family business dynamics with clarity and purpose you can reach out to Christine at wb@wbadvisoryasia.com Don’t let unresolved conflicts hold your business back—seize this opportunity to secure a lasting legacy.