Essential Factors for Succession Planning Kevin Au Centre for Family Enterprising and Business Advising Asian Horological Trade and Industry Promotion Conference October 2012

PUBLIC HEALTH CLIMATE ENVIRONMENT POLLUTION POVERTY GAP AIR POLLUTION DRUG ABUSE

Problem Consumption Materialism Globalization - Business Capitalism but in its deformed way – Hegemony of market - Efficiency – Qualification, organs, uterus, sex, love… – Individualization Deterioration of social values, ethics, identity

Value differences Business systems Profits, revenue, efficiency Impersonal, formal procedures Formal position in organization Conditional on performance, fired if needed Retirement, promotion, departure Short-term horizon Family systems Development and support Personal, Informal expectations Family position, seniority Rewarded for who they are, unconditional on lover & support Death, divorce, or illness Inter-generational; based on identity to family

But, The Evidence Demonstrate A Lack Of Sustainability In Family Businesses 1st Generation 一代 2nd Generation 二代 3rd Generation 三代 4th Generation 四代  Sale of the business  Loss of family interest  Unpredictable challenges  Industry changes  Missed opportunities  Family conflict  Succession problems  Mismanagement 100% 75% 50% 25% 0%

Culture & Philosophy Aligned To Sustainability  Primacy of sustainability  Clear sense of purpose & role  Etc. Creativity  Able to change  Able to deal with change Development & Growth For Org & Individuals  Constantly upgrading & renewing skills & capabilities Healthy & Prudent  Consistent good decision making  Operational efficiency  Stable quality income  Strong people/ organization The Key To Family Business Sustainability Is An Organizational / Cultural Strategy And Not So Much A Business Strategy Business strategies deal with business trend over the next 5-10 years Business sustainability / Family business sustainability strategy deals with how the organization can maintain internal and external alignment to successfully adapt to change over the long term  it is an organizational strategy / an organizational culture strategy In Order To Sustain Long Term, Organizations Need To Have: Then The Organization & Its People Will Manifest: Beliefs & Action That Are Guided And Directed They Will Be Mindful & Disciplined They Will Be Innovative & Strategic They Will Be Competent & Able To Lead, To Manage, To Change / Adapt

The Tsao Family – IMC Family Business Model A Potential Way To Address The Family Business Challenges Family Trust Business Trust Family Charter Business Mandate Social Enterprise & Entrepreneur ship Learning Center East West (Non-Profit) Family Trust BoardBusiness Trust Board + Reps The Family SystemThe Business System FamilyBusiness Family Members Take Role In Biz Based On Merit

Separate Family Trust System And Business Trust System Family Trust Family Charter Family Trust Board The Family System Family Business Trust Business Mandate Business Trust Board The Business System Business Description: The Family will have it own Family Trust ̶ Family Trust will be governed by the Family Charter and administered by the Family Trust Board & Family Office ̶ Clear and transparent policies, expectations & standards for family members to access & benefit from the Family Trust ̶ A safety-net for family and support for worthy initiatives by family members The Business will have it own Business Trust ̶ Business Trust governed by IMC Sustainability Business Mandate and administered by Business Trust Board ̶ Transparent business re-investment, dividend & executive reward policies Targeted Impact: Prevents the Family from being overly dependent on the Business financially – removes the family’s financial motivation / conflicts of interest in leading the Business Ensures Business will have adequate capital for grow and reinvestment Family & Business Each Has Its Own Trust / Fund 1.

Joint / Cross Stewardship Of The Family And The Business Family Trust Business Trust Family Charter Business Mandate Family Trust BoardBusiness Trust Board Reps The Family SystemThe Business System FamilyBusiness 2. Description: Family Trust administered by the Family Trust Board comprised of representatives from the Family, the Business and outside experts as appropriate  protect the Family Charter Business Trust administered by the Business Trust Board comprised of representatives from the Family, the Business and outside experts as appropriate  protect the IMC Business Sustainability Mandate Only the willing and able will lead and steward  with clear rules, clear processes, clear responsibilities Cross-Joint governance allows close coordination / collaboration between Family and Business w/o formal control Targeted Impact: Clear governance of the culture of Family & Business  guided by Family Charter & IMC Business Sustainability Mandate Clear governance of expectations & performance for Family & Business  Performance Mentality, help prevent Family Conflict from disrupting Business Professionalization / Transparency / Meritocracy  Diminish Family’s focus on control in favor of Stewardship, able to attract & retain outside talent Sustained & positive Family-Business engagement Senior Business leaders can continue to steward after retirement  long-term management alignment

Joint / Cross Stewardship Of The Family And The Business Family Trust Business Trust Family Charter Business Mandate Family Trust Board Business Trust Board Reps The Family SystemThe Business System FamilyBusiness 2. Family & Business Engage In Stewardship Of One Another

Family Participation In Business By Choice And By Merit Family Trust Business Trust Family Charter Business Mandate Family Trust BoardBusiness Trust Board Reps The Family SystemThe Business System FamilyBusiness Family Members Take Role In Biz Based On Merit 3. Family Member Participation In Business By Choice And By Merit

East West Also Contains The Learning Center To Help Family & Business Members To Acquire The Awareness, Skills & Mindset To Lead And Contribute Family Trust Business Trust Family Charter Business Mandate Social Enterprise & Entreprene urship Learning Center East West (Non-Profit) Family Trust BoardBusiness Trust Board + Reps The Family SystemThe Business System FamilyBusiness Family Members Take Role In Biz Based On Merit 4.4. The Learning Center Provides Training & Coaching To Help Family & Business Members Enhance Capabilities

齐家治国 平天下 修身 Family TrustBusiness Trust Family Charter Business Mandate Social Enterprise & Entrepreneurship Learning Center East West (Non-Profit) Family Trust BoardBusiness Trust Board + Reps The Family SystemThe Business System FamilyBusiness Family Members Take Role In Biz Based On Merit

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