The statistics are staggering: 90 per cent of businesses fail by the time they reach the hands of the third generation. But Yash Mishra has a surprisingly simple proposition on how families can successfully transfer wealth to the next generation: Start with values.
“If you look at successful families, you’ll see first and foremost their key values,” says the managing director of Taurus Family Office, which advises ultra-high- and high-net-worth families on wealth management. “If these values are enshrined and passed on, it will determine how the family’s wealth is invested in the future.”
Over a trillion dollars are expected to pass hands in Asia over the next few decades, according to wealth intelligence firm Wealth-X, yet 88 per cent of Asian families are said to be strikingly unprepared for this transition.
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“If you don’t have a strong succession plan – by that, I don’t just mean wealth succession, but also values and leadership succession – you will see destruction of the wealth that has been created,” she says.
To prepare for inter-generational wealth transfer, she first advocates that families create a family constitution with the help of an expert, which involves articulating the family’s values into a formal document (see story, Code Of Conduct). These values are often the starting point for selecting a future leader of the family’s business and creating an investment framework.
“Otherwise, the situation could just be, go forth and make the most amount of money, in the least amount of time. This makes families take on a lot more risk, which brings about wealth destruction,” she explains. And in Asia, where cultural attitudes often play out in tussles over how the family’s wealth should be managed and who should do it, she advises families to set up a family council for collective decision making and conflict resolution.
“The tacit understanding in Asia is that the eldest son will carry on the business. But that’s not necessarily the most competent member of the family,” she says. “How the family council operates is very different from one family to another. You need an expert facilitating it, as it can get very emotional.”