Southeast Asian business succession plans in place, but may not last

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A majority of family businesses in Southeast Asia already have succession plans in place, but many remain unsure about long term business ownership structures.

According to a report titled “Building Legacies: Family Business Succession in Southeast Asia” by Labuan International Business and Financial Centre (Labuan IBFC) and the Economist Intelligence Unit (EIU), only half of the Southeast Asian executives surveyed expect the ownership structure of their companies to remain the same in a decade, versus nearly three quarters of respondents expecting their ownership structures to remain the same in five years.

Other findings of the report reveal more than half of business families use informal gatherings for family governance and to form succession plans, and 71% of family business leaders say it’s easier to attract investment with a succession plan in place.

As family-run businesses account for more than 60% of all publicly-listed companies in Southeast Asia, they are an essential part of the region’s growth. Says Kevin Plumberg, editor of the report and senior editor of the EIU: “Family businesses are the backbone of Southeast Asia’s economy. It’s a sign of their maturity that they are making leadership succession planning a part of their long-term business strategies. However, they need to establish stronger formal governance structures to help ensure continuity beyond the next generation.”

The bulk of the survey respondents (46%) see annual company revenues of US$50 million or less. However, the largest companies surveyed in terms of annual revenue are more likely to have made a succession plan than the smallest. This indicates one reason for not having a succession plan could be a lack of financial resources.

For those that do have succession plans, 82% of respondents use legal binding contracts reviewed by the company’s board to implement their succession plan, followed by 55% and 29% who say they use a trust and a foundation respectively. Two-thirds of survey respondents opine that customers and investors have more trust in a family-owned business with a succession plan than in a business without one.