Analysis of the Reasons for the Lack of Contemporary Family (Business) Succession Planning and Arrangements – Changing Entrepreneurs’ Perceptions is the Key to Solving the Problem

Several recent high-profile cases of disorderly or failed family (business) succession have attracted widespread social attention. Succession planning and arrangements involve three dimensions: the family, the family business (operating assets) and family wealth (non-operating assets). For the family, this means establishing intergenerational leadership; for wealth, it concerns how to distribute, inherit or centrally manage assets; for the business, it involves not only planning the ownership structure but also the transfer of the sceptre. In addition, there is the important issue of the continuity of family culture.

The unbearable sorrow and pain of unplanned succession

In recent years, we have handled numerous cases of internal family disputes arising from the lack of succession planning among domestic and foreign entrepreneurs. Some cases were resolved through litigation, while others found a “third way” of reconciliation through the efforts of all parties. Regardless of the resolution method, all have caused enormous damage to family relationships: parents and children turning against each other, siblings becoming enemies, and even conflicts between grandparents and grandchildren. Even more devastating is the severe negative impact on the present and future of the family (business). Most enterprises struggle to survive, end up being split up, or are liquidated and exit the market.

Looking at the widely discussed succession cases of actual controllers, major shareholders of listed companies, and well-known entrepreneurs at home and abroad in recent years, we find that more than 60% have varying degrees of deficiencies in succession planning and arrangements. While a few cases have overcome succession crises through family wisdom and capabilities, a much larger proportion have triggered succession conflicts. The typical cases are well known and continue to be discussed or hyped online. Out of respect for the entrepreneurs and their families, we will not list them one by one.

As professionals, we have not only witnessed the various human tragedies caused by the lack of planning but also the multiple dilemmas and life-or-death challenges facing families (businesses). Every service experience brings us a deep sense of pain and profound regret. We always feel that things should not have turned out this way, and we can only sigh helplessly. Despite our best efforts, we are often powerless in the face of the intense attachments born of love.

This inevitably leads us to ask: Why have these entrepreneurs, who possess enormous wealth and resources, failed to make succession plans and arrangements, even lacking the most basic wills? What are the key reasons? And how should we solve this problem?

Entrepreneurs have multiple cognitive barriers to succession planning and arrangements

In practice, the reasons for the lack of planning and arrangements are extremely complex and intertwined, often resulting from multiple causes. Overconfidence, avoidance, folk taboos and overly ambitious visions are the core reasons that deserve primary attention.

Overconfidence

Confidence is an essential quality for successful entrepreneurs. The ups and downs they have experienced prove the capabilities of family (business) leaders. The confidence of successful entrepreneurs is inevitable and necessary; it can even be said to be an important aspect of the entrepreneurial spirit.

However, the experience of continuous past success often makes a considerable proportion of entrepreneurs overly confident in their own abilities. They tend to believe they are wise, omniscient and omnipotent, almost infallible. Moreover, entrepreneurs are also overly confident in the emotions, character, rationality, wisdom, capabilities and vision of their family members. Coupled with confidence in their own health, they wish they could live another five hundred years.

As a result, a certain proportion of entrepreneurs believe there is no need to make succession plans and arrangements prematurely. We have encountered several entrepreneurs over the age of 70 who were surprisingly still convinced that it was too early to do so.

Avoidance

Everyone is influenced by individual cognition, personality, emotions and regional culture, which is self-evident. In family succession planning, we must consider not only the practical possibility of the family’s long-term prosperity and the realisation of its vision but also complex influencing factors such as emotions, closeness, preferences, gender, age, endowments, capabilities, conditions and the environment. Especially in families with complex blood relationships, there are also well-known complicated family relationship issues.

Succession planning and arrangements inevitably touch on core and sensitive family issues, leading to enormous emotional, interest and cultural conflicts. It is often a situation that triggers conflicts as soon as arrangements are made. Faced with wavering positions, inner struggles and difficult choices, entrepreneurs’ helpless postponement or choice of avoidance is an important reason for the lack of succession planning and arrangements.

Some people claim that contemporary entrepreneurs are “collectively avoiding” succession planning and arrangements, which is certainly an exaggeration. We have seen some entrepreneurs explore, strive for and achieve results in succession planning and arrangements. However, a considerable proportion of entrepreneurs indeed do nothing about it.

Folk taboo

Succession planning and arrangements should be primarily made during one’s lifetime and supplemented by posthumous arrangements. However, some entrepreneurs only regard them as posthumous affairs, and a certain proportion believe that talking about and arranging posthumous matters is unlucky, inauspicious and taboo. This is a very important issue.

We find that some entrepreneurs, even when they are in poor health or seriously ill for a long time and have ample time and conditions to make necessary plans and arrangements, do exactly the opposite. In the end, they do not even make a will, and folk taboos are likely the most important reason. Such examples are everywhere.

At the same time, although younger family members may have the necessary awareness, they also believe that mentioning such matters is a sign of “great unfilial piety” or “disrespect”, or will affect the emotions of the elder family members. They dare not or are unwilling to raise the topic, and the final result can only be left to fate, with no alternative.

Overly ambitious vision

Entrepreneurs have strong aspirations, which is the key to their success. They have high expectations for the sustainable development and systematic succession of their family (business). Some entrepreneurs may have realised the importance of succession planning and arrangements. They often start with formulating a family constitution and establishing a family office, expecting to systematically solve all problems of family (business) protection, management and succession in one go.

However, the key question is: Are these grand visions the most urgent? Is there consensus within the family? Does the family have the corresponding foundation and prerequisites? What is the most appropriate roadmap or sequence?

Facts have proven that it is very difficult to transform an entrepreneur’s will into the common will of the family. Many families simply do not have such consensus-building capabilities, and they are also unwilling to seek corresponding professional support externally. As a result, most struggle under grand visions.

Opposing opinions within the family are never expressed as “disagreement” but through various forms of silence. We have encountered many similar situations: families have discussed succession planning for many years with grand goal frameworks, but cannot reach a consensus. After several years, nothing has been started or implemented, yet a succession event occurs, and the outcome is predictable.

Finding the real starting point is important, but it is not an easy task.

Entrepreneurs’ succession planning often faces many limitations and impacts

In addition to the four core reasons mentioned above, limited pathways, limited tools, unexpected events and inappropriate planning are also important reasons for the lack or ineffectiveness of succession planning and arrangements.

Limited pathways

For complex reasons, there are not many people entrepreneurs can trust. As the family (business) develops to a certain scale, entrepreneurs often feel that there are fewer and fewer trustworthy people. In many cases, decision-making relies only on the advice of a few people around them who can only provide emotional value. These people may not have the knowledge of succession planning, or due to the sensitivity of the topic and their own positions, it is difficult for them to put forward effective suggestions on succession planning and arrangements, let alone provide solutions.

At the same time, many entrepreneurs believe that succession planning and arrangements require extreme privacy and can only be completed with the assistance of trusted people around them. However, these people or the professionals around them may not have such professional capabilities. As a result, many so-called succession plans we see are ineffective, leading to various situations such as assets that should be divided not being divided, assets that should be consolidated not being consolidated, and matters that should be arranged during one’s lifetime being arranged posthumously. There are even frequent cases of invalid will arrangements, which is truly regrettable.

We often hear entrepreneurs say that their succession plans and arrangements have been completed, but in the end, it is a complete mess, and nothing that should have been done has actually been done.

Limited tools

Overcoming “time and human nature” with “strength and flexibility”, expanding people’s influence in terms of time and scope, and managing uncertainty with certainty are the basic logics of both family wealth management and family succession. These can only be realised through structural legal tools such as family trusts, family foundations and family holding companies.

Family (business) succession is diverse. Families with multiple children and complex relationships have their own difficulties, while families with only one child and simple relationships also have their own challenges. Whether complex or simple, succession through structural legal tools is an inevitable choice. This has not only been proven by a large number of domestic and foreign practical experiences but also supported by corresponding theoretical research results.

Many entrepreneurs, due to limitations in cognitive ability, have no basic knowledge and understanding of the above structural tools, let alone choosing and using them. Succession demands that can be easily and comprehensively met through simple arrangements with structural tools are extremely difficult to achieve with traditional tools.

In short, the toolbox of entrepreneurs for succession is seriously insufficient, and they have too few means at their disposal.

Unexpected events

Life is impermanent, and impermanence is the norm.

Even if entrepreneurs are invincible and extremely wealthy, they are vulnerable in the face of nature and health. How many domestic and foreign entrepreneurs have died prematurely in recent years? Too many to count. And in the event of an accident, having no arrangements at all is the most common situation.

In a sense, succession planning and arrangements should not start only when the generational succession period arrives. They should be initiated when greater responsibilities for a family, wealth, business or society have been assumed. In this sense, one should start succession planning and arrangements from the day one becomes an entrepreneur.

Perhaps this arrangement starts with a will to prevent accidents, but it must start.

Inappropriate planning

Some entrepreneurs have made succession arrangements but they have chosen the wrong methods, wrong implementation paths or wrong tools, failing to achieve the desired effects.

For example, since it involves both ownership issues and the transfer of the sceptre, it is very difficult to smoothly achieve the succession of a family business through traditional tools such as testamentary arrangements in situations with complex corporate or family relationships.

The most typical example is a Taiwanese shipping magnate who transferred the sceptre to his youngest son through a will, but the youngest son was forced to leave within three months, and subsequent lawsuits lasted for many years. The reason was the lack of support from the ownership structure, leading to the failure of the plan. Of course, there are numerous cases of disputes over will arrangements, often happening around us.

In recent years, we have seen an increasing number of implementation dilemmas in succession planning and arrangements. Even if the equity of the enterprise is distributed to respective owners, the enterprise may come to a standstill due to control disputes or corporate deadlocks, which is a very prominent phenomenon.

Entrepreneurs should change their perceptions and take action

Entrepreneurs should first solve the problem of the lack of succession planning and arrangements, and then improve the effectiveness of succession planning through the effective integration of logic, paths, technologies and tools to achieve their wishes.

We believe that this should start with changing entrepreneurs’ perceptions.

• Even the most brilliant and invincible cannot escape the impermanence of life. Accidents happen every day, and they happen when you least expect them.
• In the face of enormous wealth and power, all love and expectations will turn into attachments, and reason and emotion often take a back seat, becoming worthless and vulnerable.
• Succession planning and arrangements are not a right but a responsibility. Otherwise, what you see from heaven will most likely be chaos and devastation.
• The power of division is greater than the power of unity. The challenges of capability and willingness, cohesion and independent development have always existed for every family; sometimes however they are ignored.
• The ability to concentrate and restructure ownership is a necessary gene for the long-term prosperity of a family (business). Centralisation along the main line is very important and necessary.
• People are the most “unreliable”. We must rely on structural tools. Only structural power can ensure that sincere consequences arise for the right people at the right time.
• Never fantasise about achieving the succession of a family business through a single will. The co-ordinated realisation of ownership inheritance and sceptre transfer is the right way and is crucial.
• Avoid repeatedly wandering in grand narratives. Starting from the most urgent demands and the simplest tools is the real starting point.
• Prioritise arrangements during one’s lifetime and supplement with posthumous arrangements. The realisation of succession planning must be seen during a lifetime, not heard from heaven.
• Trust professionals. Professionals may not provide full emotional value, but they will definitely bring you closer to your goals.

Take action immediately. Starting is more important than being perfect.