Overcoming the third generation conundrum

OCBC Bank (M) Bhd head of corporate and commercial banking Jeffrey Teoh

PETALING JAYA: It has been said that the first generation accumulates, the second preserves and the third squanders. And experienced bankers have seen their fair share of corporate family-based customers, so promising in earlier generations, lose direction or even implode when the grandchildren take over.

Recognising the conundrum before such companies, OCBC Bank (Malaysia) Berhad embarked on a journey a year ago to devise disciplines to help those facing such issues to take the proverbial bull by its horns so they avoid falling on the wayside.

In an interview with StarBiz, the bank’s head of corporate and commercial banking Jeffrey Teoh outlined the issues and the solutions that are currently at a family-based company’s disposal.

“The third generation – or even a later generation – might have a change of heart or direction from that of the first or second. And while such a thought might have bordered on sacrilege a generation or two ago, now, in the hands of the present generation, the situation cannot – indeed must not – be ignored. It must be embraced as an opportunity rather than ignored as a mere irritant.

“Sometimes the third generation is simply no longer interested in the business. Or perhaps they remain interested but do not wish to be involved directly. 

"And there are situations where they might wish to expand the entity to embrace members that lie beyond the family sphere. How should they go about the enterprise?

“This is where we, as a bank, step in to counsel them and draw up workable plans that can be executed. Our internal parlance for this exercise is Family Office Wealth Coordination (FOWC),” he says.

Teoh outlines three typical scenarios that successful large family-owned businesses face, which the bank is in a position to assist in. 

They are when the family wishes to expand the business while maintaining full control, when they wish to expand whilst allowing room for non-family members to take a stake, and when they wish to exit the business altogether although it is thriving.

“It is futile to fight things here, and worse, to fight with each other internally over this. Each of these scenarios requires a well-through-out customised approach; that is what we bring to the table as a Bank that has been around for 85 years now. 

“This is all very different from succession planning, which is far more straightforward. This is about charting the next big move for the business. And it is not simply about wealth preservation either, of which there is an abundance of solutions out there including estate planning and asset management services.

“We are talking here about bringing together a pool of disciplines to make banking solutions work in the context of a company at a crossroads. 

“This might involve consolidating a family’s wealth holistically from private to corporate holding, redefining the family’s financial strategy over the long term and aligning it to a defined philosophy and, indeed, identifying the wealth management strategies that are appropriate to the objectives at hand,” he adds.

What FOWC ultimately achieves is a mix of professional integrated management solutions and family governance that reduces the potential for internal disputes and smoothens the inter-generational wealth transfer exercise.

In approaching the task, OCBC Bank categorises those requiring FOWC into four segments that are typical of Asian family businesses: Single Family Office (SFO), Family Office Service Providers (FOSP), Multi Family Office (MFO) and the very rare External Family Office (EFO).