Family Business Audiocast | Episode 74 | Marleen Dieleman

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R. Adam Smith: Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker and board leader the last 25 years, I'm fortunate for my many experiences within the family firm industry. A brief comment on why I created this broadcast. Private companies are a passion of mine. Having grown up in a family of entrepreneurs and having engaged for two decades in deals, strategic transformations, investments and boards with an array of fascinating family enterprises, family firms and family offices, I founded this series to offer a useful platform for listeners to hear from veterans, academics and leaders in the vast family firm ecosystem.

Whether you're a family business owner, building, running or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. Now it's time to turn our attention to our accomplished guest. On today's episode, the governance chart looks only flawless on paper. It's only ever tested the day a family stops agreeing on what fair actually means and who actually has the authority to decide. We're going to talk about that today with Dr. Marleen Dieleman, who is the Peter Lange Professor of Family Business at the IMD Business School.

She is one of the sharpest and most closely listened to voices in the world on governance and strategy globally, especially within Asia. Marleen, it's wonderful to have you on the show today.

Marleen Dieleman: Thank you so much. Thank you for inviting me.

R. Adam Smith: So we're talking about Marleen briefly here. So her path in this field was not just academic. Her doctoral research took her deep inside the governance side of Indonesia's Salim Group, which is one of Southeast Asia's most complex family conglomerates. And that early immersion set the tone for everything that followed later in her career. Nearly three decades now spent inside many, many boardrooms and family councils as well as the lecture halls. In fact, she holds a PhD from Leiden University and also a master's degree from Rotterdam School of Management, and she spent 17 years at the NUS Business School in Singapore, and now she's at IMD, and there she directs the flagship programs for business families, Leading Your Family Business in Lausanne, and also Future Proofing Your Family Business on the Singapore campus.

We've also had some of her colleagues on the show, as listeners know, including Alfredo Damasis and Peter Vogel. Marleen has also co-founded Tycoon Trails, which turns the hardest lessons of family governance into a very unique live escape game for corporate teams. And then she also co-founded the Family Business Group at the Singapore Institute of Directors. I'm very happy to have her on the show because she brings such a thoughtful perspective from the Asia point of view and is one of the leaders in the space based out of Singapore. She also is one of the world's experts around authority and governance succession of family enterprises, in particular the fairness element of family enterprises.

So much to discuss. Marleen, great to have you here again. Tell us a little bit about your journey to where you are today, and maybe a little bit about the IMD Global Family Business Center as well.

Marleen Dieleman: Thank you, Adam. It's really wonderful to be on the show. My journey in family business started, as you alluded to, very long ago, because when I was studying in Rotterdam, I took an exchange program and I ended up in the Asian Institute of Management in Manila. And I took a course there which was about overseas Chinese. And I learned that a lot of the entrepreneurs in Southeast Asia are descendants from Chinese migrants. And that really fascinated me, how successful they built their businesses, like why the businesses were so different from what we see in Europe. And that turned out to be my PhD.

I looked at one of such businesses in Indonesia, and it's been a wonderful journey ever since. Adam, you asked about IMD. I joined IMD three years ago because I wanted to work more closely with families. And as you know, IMD does a lot of direct work with top executives and, in our case, with family owners. And I've been able to be even closer to family business owners to help them on journeys of governance and succession.

And it's been a very inspiring journey.

R. Adam Smith: Amazing. IMD is a very, very powerful, wonderful organization, and glad to support you all in our small way through the podcast. So this career, you have watched business families up close, and you've spent many years previously in the corporate setting at this holding company, Salim Group, and then also 17 years at NUS. So maybe just talk about how you got into the Asian business family enterprise ecosystem, and what were your thoughts on how, let's say, the Asian family office family firm market differed from the European model or the North American model?

That would be an interesting place to start, and then sort of give us some insights into the differences of the culture and how, let's say, the cultural values and family values inform the way those organizations operate.

Marleen Dieleman: Thank you for the question. That's super interesting. So, as I said, I did my PhD on the Salim Group. I never worked there, but I interviewed a great number of people, and that really got me inside these families. I wasn't so interested in the family element at that time.

I was looking at the strategy, and I wrote a book on the strategy of the group. But that's how I realized that, wow, there are a couple of things that are really different here. And now I think of it as complexity on steroids. So if you look at many of the families, especially in Southeast Asia, but also in India, they get complex very quickly. At the moment, when we work with families in Southeast Asia, they often have multiple wives.

So there are a lot of half brothers and sisters, which makes it very complex. But the other element of complexity is the business. It's not just one business. It was a high growth period throughout Asia and all the emerging markets, in fact. And these super entrepreneurs built up groups, very highly diversified groups with fast growing companies.

And that's another layer of complexity that makes these families here a little bit different from what we typically see in the US and also in Europe.

R. Adam Smith: That's true. We could probably do a whole podcast on the keiretsu, Southeast Asian model, which was very much built after the Japanese Chinese model recovering from World War II. And I think that was a very powerful element of the Asian economy, where the NICs came out and built these holding companies, probably back to the 1950s and 60s, essentially.

Marleen Dieleman: Yeah, of course, in Southeast Asia, it really started only in the 70s and onward. But we tend to think of this model, this conglomerate model, as a response to the environment, so to the institutional environment, where it starts to make more sense to do everything in house rather than outsource it to another company. And it has to do with the quality of government institutions, the level of trust you have. But the ultimate end result was that very few families build up a lot of economic power, which also had a lot of political implications throughout the region in terms of who holds the political and economic power in the region. And also considering that these were migrant groups, that was also a very big part of my research at the time.

Now it's changed a little bit, but at the time it was a very big topic.

R. Adam Smith: Okay, we'll go briefly now into a case study or two that you wanted to discuss. But just before that, maybe, because I actually did study the NIC miracle and the post Japanese miracle with MITI in the 40s, it's just interesting to look at the government's power and impact and coordination with private enterprise, private society. I think that the US is sort of catching up to that European model. But just comment briefly on the Asian NICs, Singapore, South Korea, Taiwan, even Thailand, like how the public private partnership is more powerful. And then just lead us into this case study you wanted to discuss with CDL, which is City Developments Limited.

Marleen Dieleman: Yeah, so there are actually quite a lot of differences among the Asian countries in terms of their development path. Of course, Japan was very, very different, and Korea was a little bit earlier in terms of the development of family conglomerates than the rest of Southeast Asia. But by virtue of some of these families becoming so expansive and powerful, there's also a logical consequence in terms of political connections to the top leadership. And that worked out in different ways. I wouldn't say it was always a good partnership, but yeah, there have been periods of crony capitalism in Southeast Asia which has also shaped these families. And there have been periods of uneasy relationships with governments for many families.

So I think when we want to learn from that, it's really unpacking the differences among the Asian countries. Obviously countries like India had a very different pathway, but even Korea, I see Korean families as a little bit ahead of the Southeast Asian families in terms of when they grew, how complex they became. And if we look at the Korean chaebol families, we see many of them have split up after a number of successions. And I do believe in Southeast Asia we will see that kind of development coming in the next decade or so. So in general, economic history is super important to understand the next steps of family businesses in the region.

So you're very right to address this topic.

R. Adam Smith: And what is the difference between a chaebol and a keiretsu, essentially?

Marleen Dieleman: So in Japan we used to have these zaibatsu family groups, but after the Second World War, these families were essentially taken out. And the keiretsu were the groups that were not family owned any longer. So chaebols are family owned groups. So due to the history in Japan, we no longer see that the largest groups are family businesses. But throughout the emerging markets, typically you see that companies like Samsung and so on in Korea, they are family controlled companies, but that's not the case any longer for Japan.

But if we go to, let's say, Southeast Asia, you will also see that the top companies are either family groups or they are state owned enterprises. So this whole idea of the multinational that we have from going to business school and thinking about companies in the Western world, that's a very rare species here in most of emerging markets, actually.

R. Adam Smith: That's interesting. Okay, so briefly, before we jump into more governance, there's a scenario you wanted to discuss with one of the largest and most prominent listed property groups, which is controlled by the Quek family for decades, called City Developments Limited. And this company has been the subject of some extensive public reporting about some of the tensions you're talking about between the family and different governance issues. And this has played out most publicly, and we've also seen this in Hermes and other situations in France, and also some of the newspaper businesses in the UK. Of course, we see it in the Succession TV show as well. Do you want to talk about that situation as a case study and some of the lessons that you've seen from that?

Marleen Dieleman: Oh yeah, thank you. So I just published a case on the CDL Group. It was an example of a family conflict and it became very public, which is on the one hand sad, but as a professor and educator, it's an opportunity for learning, which is why I wrote the case. So the company is called City Developments Limited and the family is called Quek. The Quek family is one of the largest, most prominent families in Singapore.

I think the Forbes list just came out, the latest, and they're number two. I saw that they're listed there for about 16 billion dollars net worth. So it's a really important family. And if you go around Singapore, you'll see their buildings all over. And what happened was that investors in the company, which is a listed company in Singapore, were expecting a results briefing.

But suddenly there were announcements from the company that the results briefing was cancelled and the trading was halted. And then there were new announcements to say that after a few hours it was halted because there was a conflict in the board. And then slowly, step by step, we started to get more information, and there was a statement by the Executive Chairman, Mr. Kwek Leng Beng, who said that there was a coup in the board and he wanted to fire the CEO, Sherman Kwek, who happened to be his son. He had decided to sue his son and a number of board members. And then we got another announcement from the son saying that there was another issue around a certain woman meddling in the company.

So slowly, step by step, we started to get a lot of disconcerting information and the share price went down. But this opened up a whole universe of very common family business issues, and I think it's a wonderful case to learn from. The fact that it became public also made it a talking point across Asia. I started getting emails from business owners around the region saying, oh my God, this is horrible. Your 80 plus year old father and you can no longer have dinner with your son, help us prevent this kind of problem.

So then I realized that it's going to be really good to write about this and to unpack the different layers of what's happening in the case. And I think what's happening is not just the headlines of the conflict, but as a professor, we look at patterns. So what are the patterns that unfold that eventually lead to such a public conflict? Well, that's kind of the backstory of the case study that I wrote about.

Now, maybe you want to go back into some of the elements. Tell me, Adam.

R. Adam Smith: Well, I think it raises the questions of what is the point of being public? What is the pros and cons of being public? There's a lot of scrutiny being public, so the cons will show themselves when there are issues. When there are not issues, things are going well.

There's no problem being public. But this shows that there is a magnification of the governance, of the conflict, of the tension, and the publicity, as well as the fiduciary duties of being public in all markets, especially in the Western markets. But it also raises the question of why go public in, let's say, a non New York Stock Exchange, non LSE or NASDAQ environment, in today's world versus, let's say, 20, 30 years ago, because the capital markets have changed so much. And also there is more private capital as well. So it does raise the issue of, let's say you wanted to be larger and have capital these days, you can go to Blackstone or KKR perhaps, rather than going public.

So there's also that issue as well.

Marleen Dieleman: Oh yeah, I mean this raises another very interesting discussion. Thank you, Adam. So we talked earlier about the economic history and how there was such a growth period in Asia, and many of these families listed companies in that growth era because they were in need of capital and there were a lot of opportunities.

And they even, not just listed single companies, they started to build pyramids of companies, like holding company upon holding company that were listed on the stock exchange. And that created a lot of very complex holdings. And at the moment, as you correctly point out, there are other ways of getting capital, and the growth is not as fast as we used to have. So we do see a lot of privatizations also on the Singapore Stock Exchange. In fact, our stock exchange is trying to figure out how to attract more listings. They are also looking at family businesses.

But yeah, as you said, they do see the downsides of being in the public eye through a public listing. But in the case of CDL, which is one of the largest listed companies in Singapore, the public element was, of course, twofold. First it was listed on the stock exchange, but they also decided to go out to the media with their conflict, or it appeared in the media. And not just in the media, they started a court case. So all these elements really brought the conflict into the public view, and then it attracted a lot of extra attention.

Obviously, the directors were sued by the chairman. So the regulators started to pay attention, if the governance processes were really properly followed. There were a lot of experts, including myself, that started to be quoted in the newspaper. So that spiraled the conflict into a talking point for months in Singapore.

So yes, if you are on a stock exchange, you have a conflict, it can spiral into the public domain. But having said that, for such a big family, even if you're private, it can also go into the public domain if you're starting court cases against each other, of course.

R. Adam Smith: Well, it does make for some very difficult Christmas gatherings, for sure.

Marleen Dieleman: Oh, absolutely. Yeah.

R. Adam Smith: Not good. So, okay, let's move forward to some more sort of next gen governance conversation. There's this theme underlying, of who has the authority, which in the European and American context is more governed by the board charter, the board of directors, the operating agreements, and so on, which is a more, let's say, modernized structure that is discussed at IMD and INSEAD, at Harvard, Stanford, MIT, Columbia, Wharton, et cetera, and Bocconi. We have the governance of a certain level.

But then in the emerging markets, or in the Asian economies and environments, that might be a bit different in terms of how authority is structured and followed. There's a different cultural context. And also there's perhaps less generational transfer of power in different ways. So just a kind of a subtlety, perhaps you want to talk about that from the Singapore Asian perspective.

Marleen Dieleman: Yeah, absolutely. And going back to the CDL case, because the case was about the father trying to, the Executive Chairman trying to fire the son, who was the CEO. And, knowing a lot about families in Asia, my first thought was, well, did the son really have the authority in his role as CEO? Because I know how difficult it is to step back, especially in the Asian context.

And it hardly ever happens that the parents can easily give over the authority. So I started to notice, of course, that the chairman, Kwek Leng Beng, is 80, or at the time he was 84 years old, and he was an Executive Chairman, which already gives me some information. I mean, he could have chosen to be a non-executive chairman, for instance. So all these little clues tell you that maybe it's about the CEO not performing, or is it about the CEO not being authorized to take decisions, or are people not properly performing their roles?

So that's a question I raised also in the case, and I see that we do have also conversations with owning families about how difficult it is to step back. It's so much more difficult than stepping up. And in the context of the culture of Asian families where the elders are highly respected, and also the society gives certain respect to people in power, and the idea of retirement is not really positively viewed by many of the business leaders.

So all this combination makes it really, really hard for successors to actually succeed. So I have this thing like, we have lots of successors, but we don't have succession. So this causes this issue which we might call the King Charles problem, because King Charles's mother, the late Queen, bless her, she only handed him the crown when he was already advanced in age. So I see a lot of successors here in Asia that even at age 70, they still have to take their first big decision. And I think that's, you know, I see a danger of a lost generation there.

So this is a very clear pattern that we need to address here in the region. Despite the peculiarities of the royalty.

R. Adam Smith: The Crown TV show was fantastic, by the way. I love that show.

Marleen Dieleman: Wonderful.

R. Adam Smith: Yeah. So just back briefly to the scale of private equity, and it's such an important source of capital and succession planning for large businesses, especially today. And having, since I cover family offices globally for M and A and capital and strategy, even in the US, but I think in Europe and in Singapore and Asia especially, and even in the GCC, I think there's a very dramatic underpinning of consolidation and partnerships and leveraging the family office assets and the private equity alternative. At the same time, the public markets are becoming more difficult to access with the IPO. So for example, some of the data I see here is that the total assets under management in Singapore, according to MAS, is about 5 trillion US, and that the total private equity venture capital in Singapore is about 620 billion US, whereas the GDP is about 600 billion.

So this data suggests that the total private equity and venture funds is as large as the entire economy, which is quite interesting. And simultaneously Singapore accounts for almost 50 percent of all the private equity in Southeast Asia. So these are very significant figures if they're fairly accurate. I just wanted you to discuss, like, where private equity sits right now in Singapore.

Marleen Dieleman: Oh, okay. Thanks for that. I'm not able to confirm the numbers that you just read, but Singapore is a hub. So you will see that many of the family offices in Singapore, I mean, there are very few that are Singapore families. There are a lot of mainland China, India, Southeast Asia families, and even Western families that have family offices here. I think we're about 2,000 family offices now.

Private equity is one asset class, of course, but what really interests me is where does that money go? Who is creating the new companies that private equity wants to invest in? So in terms of newer companies, like venture capital, it's still often family members that create new companies, and families typically want to keep control. Right now we do have some families that have succession problems, and they may want to exit.

So they may want to attract outside partners. So that is happening. But I think that scale could potentially grow in the coming years. As you know, many family businesses here are going from second to third generation, which is a very critical phase, that are about 70 to 75 years old due to the history. I'm talking about Southeast Asia. So I see a lot of opportunities for deals in the coming decades.

R. Adam Smith: If you take out New York, clearly Switzerland and Hong Kong are very powerful for family offices or family enterprises. But Singapore has really caught up. According to, let's say, IMD and Deloitte and Campden, there's probably 10,000, 15,000 SFOs in the world, and there are thousands in Singapore. And there's some stats that show that Singapore has, you know, half of the family offices in Asia, 20, 25 percent globally, and grew, as you said, over 2,000. That is very significant.

It almost seems like Singapore is sort of a democratic, dynamic melting pot for family offices essentially. Again, New York is not too shabby, but if you're anywhere in the East, you have a choice of Hong Kong, you can do GCC and Dubai or Abu Dhabi, of course, Switzerland has its benefits as well. But Singapore, what is actually going on in Singapore, that this is working so well? Is it a combination of many things? It's the law, it's the government, it's the security, it's the culture, it's open-mindedness, entrepreneurialism. Is it more sort of like a simultaneous puzzle that's very ideal to the environment today?

Marleen Dieleman: Oh, thank you. It's not by chance. Singapore government loves to plan, and it's also very good at executing their planning.

So they have put in all the regulations, the ecosystem, very proactively building, for instance, talent training, setting up institutes to train professionals, attracting people to live here. So I think planning is the biggest reason. But of course, as we just spoke about, historically the families have accumulated a lot of wealth and businesses. And now second to third generation in Southeast Asia, China is going from the first to the second generation, and after very, very fast periods of growth, so a lot of wealth is accumulated here. And that's why we now see that growth in family offices here in the region, both in Hong Kong and also in Singapore.

And it's attracting people from all around the world, also because Singapore government is very predictable and stable, which I think is one of the main reasons why people want to put their family office here. And another, I mean, you see that problem probably too, Adam, another trend is that family offices are becoming multinational. So they may have different, like almost a branch or different offices in different regions to capture the opportunities there. So even, let's say, a US or European family office might have an office here as well as in New York or Abu Dhabi or Dubai, for example.

R. Adam Smith: Thank you for that. Just one last topic on the distribution of investments. It's interesting to see the flow of capital in Singapore is very heavy from the US and also Japan, United Kingdom and Hong Kong. So there is a very strong OECD bias with Singapore. And I have a lot of friends and families and companies from the US getting involved in Singapore. I'd like you to comment on that.

Marleen Dieleman: It is very true. And even the Singapore government has slightly adjusted its strategy, and they're very proactively attracting family offices from Europe and the US to also come to Singapore. And the backstory is a little bit that some of the family offices in the past came with, let's say, tainted money. And that created some scandals in the country, notably one which was around a wealthy individual who ran a lot of scam factories in Myanmar. And that kind of really opened up the minds of everyone that, okay, we have to be careful with these family offices, because we must really know what we are getting.

So that explains the strategy of going also after Western families and motivating them to come to Singapore.

R. Adam Smith: Singapore is really one of the best branded countries in the world. If you look at it as a brand, it's sort of like a Hermes of handbags.

Marleen Dieleman: Absolutely. Singapore government is really impressive.

R. Adam Smith: The quality of the minister, the policy making for a small country like Singapore is really impressive. So for those, just briefly, for those families, large families that have the scale to enter into Singapore, or if they're American or European, just how, like, why would they do that? Is that more of an outpost? Is it more diversification?

Is it investing in Asian assets? Is it more tax driven? Is it more lifestyle driven? So what are the motivations?

Marleen Dieleman: It's definitely all of the above. There's still a lot of opportunities in Asia, and Singapore is a very good hub to access it. Its stability, its tax, it's a living environment. Singapore is a very safe, comfortable country. They have excellent schools, so all of that is the draw of Singapore for family offices.

R. Adam Smith: Yeah, sorry, just briefly, and on more of the structure side there, I noticed there was a framework that was implemented recently by MAS, which is the Monetary Authority of Singapore. As you said, they planned very proactively. In 2006 they created a more streamlined structure for family office ecosystems as well as some very strong tax incentives. There's actually a joint team that the government runs called the Family Office Development Team. So it's quite, like you said, it's quite interesting.

But they're so proactive in that sense.

Marleen Dieleman: Oh, completely proactive. So government runs on key performance indicators and targets. And if you have these amazing institutions like EDB, Economic Development Board, which also has a team scouting for families to move to Singapore, either with their business or as a family office, and these are very professional people, people with offices around the world doing some amazing things.

So very careful planning behind it.

R. Adam Smith: Amazing. Thank you for that. So let's move into, let's say, the governance structure that is used locally, obviously can be based on local law and traditional standards and so on and following the steps of historical families. But just talk a bit about what you're seeing with legitimacy that is created with the local families and what happens when there's disagreements, how they create a shared vocabulary around legitimacy when there are issues.

Like the case study you mentioned, are these mechanisms similar to the European American models, or are they a little bit different? So, generally just giving your advice to the listeners, what are some of these best governance standards? And then, like, maybe a little bit of what is subtle about the Singapore environment.

Marleen Dieleman: Okay, thank you. Yeah, I think we think of family businesses as a journey across generations. And we know that in each phase there are certain things you need to do to thrive. And as you become more complex in terms of more family members involved and multiple generations, you have parallel governance. So you separate corporate governance on the one hand for your business, which means separating ownership from management, etc. On the family side, you also need to have governance, and that's where you typically start to create a family constitution, which is the kind of rule book for the family, and invest in also the soft side, including communications, responsible shareholder behaviors, educating family members, stimulating entrepreneurship, creating harmony, et cetera. So these things have to run in parallel.

And I think that's true around the world. But what we see here, especially in Southeast Asia, and also in India to some extent, is that families haven't really thought about either of those. On the corporate governance side, even for the listed companies, the practices are not always very conforming to best practice in corporate governance, but they often lack the family governance mechanisms, rules and entities. They don't know how to take decisions with a bigger group. And that is a recipe for failure, I think.

So a lot of the work that we do with IMD is put families through learning journeys to figure out how they can set up their family governance and build a common vocabulary around it, understand what's needed, what are the trade-offs that you're making, how do you have legitimacy about those trade-offs, how do you take decisions together with a big group and then endorse them and legitimize the person that has to execute it. These are really the crux of the survival of family businesses in the long run.

R. Adam Smith: Thank you for that. This topic we've discussed on this podcast with some of your colleagues in the industry, it's quite complicated and nuanced, of course. And as I say, everyone has their unique point of view on the elements of governance, succession and planning, between the preparation and communication and coordination. But then when things happen, there's the mechanisms in place to act on the crisis itself. We've discussed this with, I believe, Christina Wing. We've discussed this also with Guillermo Salazar, with Alfredo Damasis, with Karen Costa, with Jim Grubman.

So very interesting people over the years. So from your perspective, of course, you cover this all the time very actively, as well as with Peter Vogel, who we talked with before. And there's also a lot of learning involved as the world goes, because the families get more complicated, there's more case studies and there's more scale, I guess. Do you see any evolution on the edge of governance that's changing to look at what is going to be best for the next gen? For example, I think there's a big debate and there's a big statistical gap, I think, between the next gen actually staying involved in the family business versus leaving the family business. So we just discussed this recently on the show.

I argue that there is going to be a significant amount of next gen children that are not going to be involved in the family business, and that creates a whole dynamic of impact. So I'd love for you to talk about that.

Marleen Dieleman: Oh yeah, that's a great topic as well. I mean, going back to the structure and complexity of a lot of families in Asia. In fact, I was asked by a colleague, Peter Jaskiewicz, who was on your show as well, to write a small episode for his book.

And it was about whether, as a next gen, can you step out of the family business and do something completely on your own or not? And I wrote this whole chapter saying that, well, it's not a zero or one answer, that you can work for part of your life inside and outside, or maybe you can do some of your life inside and some outside. But then the chapter also had a commentary, and they asked my friend Shalab from India to do the response, and Shalab basically said, well, I have no choice, I cannot exit the family business because I'm expected to help. And then I hear that a lot in families across Asia, that exiting is actually very difficult.

But having said that, when you have a very big diversified group, there's also a lot of space to do stuff inside. So in the West, you might think, okay, I don't join the family business, I do something on my own, or I make impact through the family office or philanthropy. But in families in India, in Southeast Asia, etc, they're really doing that inside, like it's part of the family group, so they don't feel like they're leaving at all.

Now some of them, of course, are outside in the periphery, but most people feel compelled to employ their talents for the benefit of the family. Well, but what is really interesting is that the variety of things that these next gens do is different. So they don't all go and run the existing business. Some of them might be very passionate about, let's say, sustainability, and they go and set up new ventures or redo some of the processes in existing companies, and they contribute in that way. And others may really take charge of the philanthropy of the family.

And that might even be connected to some of the businesses in some way. So it does create a bigger variety of activities among families.

R. Adam Smith: We did discuss this issue of next gen future gen children being prepared and willing to take on the responsibility of the large family businesses. And there is some portion of, we see this very, very pointedly in the context of M and A. When there's a large transaction that's going to happen and the main business will be sold, it raises all these issues of who's going to run the company, how are the children going to be positioned on the sale, all the way down to their ego, their pride, their employment agreements, their exit packages. There's so many things.

So interestingly we discussed this recently with Peter Jaskiewicz, because he was talking about this kind of emotional gap, essentially psychologically, and he was referring to, there's a family enterprise mental health survey that is being created with IMD and the Family Business Network. And it got us talking about the next gen being willing to take on the responsibility not just psychologically and financially, but also sociologically, in the sense that if a next gen is not interested in the public profile and the public burden of that role, then even financial opportunity will not be adequate to take on that responsibility.

Marleen Dieleman: Yeah, yeah, I mean, a completely different generation now, and there's so many of them, and many of the next gens are also lost. They don't lack financial support, but they do lack a passion sometimes, or they don't know how they can get recognition both within the family and in society. And that creates a fight or flight response where they either just do nothing and spend money, or start fighting within the family. So yeah, we deal with a lot of that kind of the burdens of being part of such a large business family and the expectations that come with it.

R. Adam Smith: Yeah, thank you. So we're getting to the end here. I just want to talk about succession plans and how they're crafted by the best in the business. Of course, you can have top lawyers, private bankers, academics to create the succession plans. And of course at IMD, you and your colleagues are helping to devise and grow, improve the succession plans.

Maybe just give us a bit of a takeaway of some of what are the best practices, if you will, for family offices to think about to create the best structures and standards that would last the test of time.

Marleen Dieleman: Yeah, thank you, Adam. Okay, so I've started at IMD also to work very closely with another colleague of mine, Ben Bryant, and we are a great team because it combines the hard and the soft infrastructure for succession. So I think for a good succession plan, you need to rely on your governance, where you really define who takes decisions and how, and what principles do you hold.

But that does not succeed without the ability to communicate with each other. And so we often go very deeply into conversations, emotional conversations, like the baggage that people bring to the table as being part of a larger family system. And then when we work through those emotional baggage and create the hard infrastructure together, as well as open a safe space to communicate with each other, I think then you're well prepared to move into your succession plan. But without addressing what's really driving your unconstructive behaviors, for instance, incumbent generations not willing to step back, unless you address that, the succession is not going to happen, no matter how many lawyers you hire.

So what we try to do is just have deep conversations with a certain structure to it, to help families work through those issues.

R. Adam Smith: Thank you so much. And I do encourage listeners and family offices, family enterprises, super entrepreneurs to consider the IMD opportunities and learnings. Just briefly, tell us, what is the best way for families to get involved at IMD?

Marleen Dieleman: Oh, thank you. It sounds like a plug here, and I don't want to promote only us. There are many others who do that too. But of course we have courses, and one, as you already earlier said, is in Lausanne in Switzerland, and one in Singapore. But the principle is the same.

We invite the entire family in groups of five, and hopefully multi-generational groups, to come to the program to get a joint language and also more background about all those patterns that you go through. And then we give them coaches as well. So whatever they learn during the day, at the end of the day, they will sit privately with the coach and their family to digest it and to really see how it applies to them. So again, these deeper layers of reflection are very important to us at IMD. So do join us for one of our courses.

R. Adam Smith: Thank you so much. I appreciate that. It's really become a wonderful global academic center of excellence. Thank you so much for that. So, just to wrap up here, let's talk about the final idea of, let's say, a governance focal point.

If you had to talk to a range of large family offices about preparing their families for, as you say, fairness, conversation, working together to create legitimacy, if you think back to the early formation of a family office or a family enterprise, what's the one thing early in their journey which you would recommend that they begin early? So that looking forward, decades ahead, historians would look at the track record for that family enterprise, like we see at Hermes and so on. We see this over many, many decades and many centuries. What is the one thing you suggest they start early on?

Marleen Dieleman: Oh, I have a mantra, and the mantra is love rules. So we know that families are about love, and love rules in families, but it's also very good to love rules. So I think if there were anything I would recommend, it's to set rules early on and practice following them. And it has to be proportional. If you're a simple family, you don't need many rules.

But the whole idea of agreeing on rules and decision making practices and then following through on them, even when it's hard, that practice is super important for surviving in the long run. And then over time, you can make your rule book more dense and sharpen your practice, become a responsible shareholder, and everything that entails. But start the practice early. That's all I can say.

R. Adam Smith: Okay, good. I agree with that. That's what I've been hearing on the podcast over the years, of starting early, but also being a bit nimble and empathetic and sort of being open minded right at the same time.

Marleen Dieleman: Yes, absolutely. Especially when it comes to perceptions of fairness, because what you think is fair may not be what other family members think is fair. And I can guarantee you, you're all right. So you have to be open minded and give and take.

R. Adam Smith: Amazing. Thank you. Okay, we'll wrap up here. We've talked about a range of very important topics. It's so wonderful to have you on the show. We could talk for hours. Of course we've talked about these publicly visible governance situations often create some serious challenges that can be rather invisible in the public company context. And that does raise the issue of the pros and cons of being public.

And then we also talked about the differences in the Asian culture and the sociological and cultural differences, as well as the government differences as well. You brought up fairness and legitimacy, which is critical to think about and prepare for before the crisis. So it's really great to have you, Dr. Marleen Dieleman, on the show, and to have a conversation that's very rigorous and also candid. So thank you so much for coming on today.

Marleen Dieleman: Thank you, Adam. It's been my pleasure.

R. Adam Smith: I think also what stays with me is talking about the structures are only as strong as the family's shared sense of values and their purpose, and what is fair, and how that authority evolves over time. And you've worked a lot on that, so we appreciate that.

And I encourage people to read about some of your writings as well. So thank you for bringing clarity to that. This is R. Adam Smith signing off. Thank you for listening. We look forward to welcoming you back on the next episode of the Family Business Audiocast.

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Explore the strategic intricacies of family business success with the RAS Family Business Audiocast. Join R. Adam Smith as he delves into exclusive discussions with global leaders shaping the future of private wealth and enterprise. Each episode offers a rare glimpse into the core decisions driving prosperity in high-stakes markets. Tune in to gain expert insights and innovative strategies that empower family businesses to thrive across generations.

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