How family businesses can expand beyond their castle walls

You know how the story goes: A wise king once built his glorious empire to great heights, only for it to be torn to shreds later by an inept son. Eventually the empire eventually gets swallowed up by a rival kingdom — no happy ending here.

What applied to the Ancient Romans, Greeks, and Egyptians is also relevant to family businesses today. Parents build their businesses from nothing, hoping that eventually the second and third generation would be able to carry it forward and expand the castle.

These were some of the things discussed at a recent CEO Leadership Exchange Series, organized by the UOB-SMU Entrepreneurship Alliance on July 28 at the Singapore Management University.

I gleaned some lessons from the event that can be applied to your own family business.

The 2nd generation needs more encouragement and support as they integrate into the business.

According to Prof Kevin Au, co-founder and associate director of Centre for Entrepreneurship at The Chinese University of Hong Kong, company founders tend to underestimate the pressure and difficulty faced by the 2nd generation as they learn the ropes.

Besides facing high expectations from daddy or mommy, they have to face up to the staff, who have their eyes on them. That is why family support from parents, especially when they are the CEO of the company, is crucial. Kevin also notes that the 2nd generation could use more structured and formalized training as they are initiated into the business.

It’s quite common for the 2nd generation to be tossed into the sea and learn how to swim by themselves. Having a clearly defined role from the onset would also help them navigate the waters.

Make sure special treatment, or perceptions of favoritism, do not occur.

If you think office politics is bad, wait until you join a family business, which brings a whole new level of complexity to office dynamics. If managed poorly, accusations of favoritism can set in, causing a negative effect in the office.

This trend was observed in a study done in the US, says Prof Kevin. A “descendant deficit” was often found in family businesses when the founder handed over the reins to their children. After the transition, business productivity floundered, and the staff became less motivated. One possible reason: the staff simply do not respect the baton-receivers as much.

To avoid this, more care must be take to foster a strong company culture and identity. Staff must also feel like they belong.

Says Cheng Woei Fen, executive chairman of Mun Siong Engineering, who runs the company with her husband: “Yes, my family is important, but I always remember to treat my staff like family too.”

Also, the onus is on the family members in a company to earn the respect of the staff. Johnny Soon, chairman and CEO of marine and oil and gas company Heatec Jietong, says: “We must always work harder than other people to show good example to others.”