Why do most Thai family businesses die in the third generation?

The list is dominated by businesses from continental Europe, with Asia only represented by a few firms from Japan. This prompts a question: What is behind these companies’ longevity and what derails the long-term prosperity of Asian families? 

Last week, heads of several family businesses in Thailand gathered to share their experiences and their plans to strengthen their empires in the years ahead. Hosted by the Thai Institute of Directors, much of the conference was focused on the need to establish good governance practices in the family empires. Delegates agreed that only transparent governance could ensure the needs of family members were fairly addressed, which would ensure their continued support for family goals.

Much of the discussion focused on barriers to divide the family from its business so as to achieve transparency.

Shanti L Poesposoetjipto, a member of Family Business Network Asia and chairman of PT Samudera Indonesia, recalled the days when her father barred his children from using the company’s cars.

Transparent governance can start with the board of directors, comprising key family members and experts who together set business goals and also sustain long-term existence. 

Anurat Kongtoranin, CEO of Lock Solar International, stressed it was important that all family members first shared a common goal. A common characteristic of challenges facing family businesses lies in the diverse interests of family members. To prevent conflicts, their opinions must be counted and strategies must be adjusted accordingly.

He said family meetings are necessary so as to recruit committed members and free others from the business. Once family members agree to common values, the path for outsiders working for the business is smoothed.

Pricha Songwatana, chairman of FN Factory Outlet, stressed that trust among family members is crucial and this could be achieved only with clear-cut messages and communication. 

To achieve the common business goals, the panellists also said outsiders could be brought into the management, as in the case of Muang Thai Life Assurance, the Lamsam family business.

Sara Lamsam recalled taking over the business from his father, just in time to learn about fierce competition in a liberalised industry after 2004. 

Foreign executives were brought in to furnish the know-how necessary to stay competitive but the family maintained ownership. Sara won the support of his father and uncle to carry out corporate restructuring that involved a shake-up of the board of directors, the management team and overall strategies. The door was thrown open to independent directors, leaving just three family members on the board.

The lack of a succession plan is a key reason why most family businesses in the Philippines flop in the second generation, said Teodoro Kalaw IV, representing the Philippine Institute of Corporate Directors. The first generation was often so successful that it did not bother to think about transition strategy, he said.

“They did not look at stewardship to ensure that ‘Gen 2’ have responsibility when the time comes,” he said.

Backing for succession plans is missing. 

Indonesia’s Shanti said professionals should be brought in to support business expansion, but this requires a management structure that prevents conflicts between outsiders and family members. 

She described how her nephew was sent to turn around a subsidiary as part of his grooming to become next chief of the family business. Meanwhile children of her father’s friends were invited to take seats in the holding company’s boardroom. 

It is also important that each director has one vote, whether he/she is a family member or an outsider and regardless of their shareholding. 

Through time, her nephew proved himself and was promoted with a nod from all the board members.

Alan Kam from Principal Liberals noted examples of success when the founders “institutionalised” the businesses by bringing in professionals and “allowing their children to grow until they are ready”.

Discussion also broached outside challenges that could destroy family businesses. Thana Thienachariya, founder of the Academy of Business Creativity, cited a change in workforce culture as one potential danger. In previous years workers typically sought lifetime job security and good returns, but “Gen-Y” relish challenges and will often quit if not satisfied. Corporate culture needed to change to cope with this challenge, he said.

Anurat cited a change in social values. Children in a successful family might wonder whether it was necessary to maintain the direction of businesses founded by their grandparents. “To sustain a business, the original focus does not have to be a priority,” he said.

In Thailand, most family businesses flop in the hands of the third generation.

They could probably learn a lot from older successful business dynasties. The Antinori family, famous in the wine business, is now in the hands of the 26th generation. The family attributes the longevity to the fact that it has always directly managed the work with brave and, at times, innovative decisions, but maintained a fundamental respect for tradition and for the territory in which they operate.

If starting a business is notoriously difficult, making it last through generations is more so. But the stories shared by family firms last week demonstrate that it is not impossible.