Cracking the code to family succession: Second generation rich or Second generation entrepreneur?

Nov 12-2014   

2014 has been called ‘year zero’ for China’s family wealth. Currently, China has over 60,000 billionaires, many of whom have accumulated vast fortunes over the years, placing it second in the world. China’s family wealth planning is now burgeoning – how can the wealthy achieve transfer of their businesses and enter the next generation of family empires?

(caption) 2nd generation 'young marshals' at event opening ceremony

On 2 November 2014, the National School of Development at Peking University, in conjunction with the Beijing Youth Daily, held the Wealth Succession Forum in Peking University’s Langrun Garden. 

Peking University National School of Development BiMBA Dean Prof. Zhang Li, BiMBA Deputy Dean Prof. Gong Yuzhen held a dialogue with New Hope Liuhe, Co-Chair Ms. Liu Chang, Sylee Group (Hong Kong) Executive Director Mr. Xiong Ying, Windham Realty Group CEO Mr. Steve Lawson, to crack the code of wealth succession and lift the veil on ‘second generation wealth’.

Family empire ‘Young Marshals’: Second generation rich or second generation entrepreneurs?

The word for second generation rich comes from the popular TV show ‘A date with Lu Yu’ which defined it as: Those born after the 1970s/1980s with an inheritance of 1bn or more. Today, there is a certain stigma attached to the term.

“I don’t believe 2nd generation rich is derogatory. It is the second generation of an enterprise or specifically of a new company”. Singlee group Executive Mr. Xiong Ying doesn’t reject the term 2nd generation rich.

The Singlee group was established by Xiong Ying’s father, Xiong Rongli, and was floated on Hong Kong’s GEM Board in September 2001. It was China’s first financial application developer to list overseas. Seen by many as ‘second generation rich’, Xiong Ying gained his Bachelors in Economics at the UK’s Paisley University and later completed his EMBA at Peking University’s National School of Development. In order to test himself, he stayed away from the family business for 10 years after graduation, working at AIG and Beijing Sanding Ti Lin internet technology company. It was not until 2011 that he returned to the family business. “At the time, my parents hoped I would enter the business directly after graduation but I believe 2nd generation rich cannot live in the shadows of their parents”.

Windham Realty Group CEO 2nd generation rich, Mr Steven Lawson, had a different experience from Mr Xiong. From the outset he was sent away from the family business. Upon graduation, Mr Lawson was told you can work anywhere but here by his parents. Windham Realty was established by Steven Lawson’s parents and uncle in 1967. From high school onwards, he and his classmates believed he would work for the family business straight after graduation but when the time came, he was sent away. From 1990-2012, he opened his company with his friends, and when the company was entering a new level of growth, he received a ‘job offer’ from his parents. “I always thought that I was forbidden to enter the family business and, when my business was successful, my family called me to return. It was then I realised my parents’ plans”. Steven Lawson believes that only by gaining success in one’s own right before returning to the business can one have greater confidence”. Whilst to many they lead lives to be envied, as successors to family businesses, 2nd generation rich have fewer choices and greater responsibilities”.

(Caption) during dialogue

From 1st to 2nd generation: Transfer of wealth or transfer enterprise?

Peking University National School of Development Deputy Dean Prof. Zhang Li stated: Wealth transfer and enterprise transfer are two different concepts – the former is simple and can be completed with a written document; the latter is very complex and requires the transfer of DNA”.

The coming 10-20 years will be the peak period in which China’s 1st generation of entrepreneurs will transfer their wealth to the next generation and this transfer has become a major challenge. Company inheritance is not a simple transfer of wealth and is affected by many factors including family relations, the willingness to enter the business, work satisfaction and personal happiness.

“Company transfer is not easy. At the time I wanted to leave the business and do my own thing but my parents wanted me to go back. Afterwards I returned home to my roots, to the starting point and realised this was my fate”. As a post-80s 2nd generation rich New Hope Liuhe Co-Chair Ms Zhang Liuchang shared her experience.

Wealth needs to be passed on and family affection, business philosophy and experience especially need to be passed on. “China’s family involvement is very strong but professional managers are lacking. During the transfer process, the willingness to transfer the company,  the skill-set of inheritor and their values cannot be overlooked. The secret to successful transfer is communication. The first generation needs to be open-minded and the 2nd generation must be respectful and through communication achieve transfer” staged BiMBA Deputy Dean Gong Yu Zhen stated.

(caption) during dialogue

The essence of business transfer in innovation

“Inheritance is not preservation but innovation” PKU Deputy Dean Gong Yu Zhen stated.

With regards to this New Hope LiuHe Co-Chair Zhang LiuChang has much experience. She said that inheritance is innovation on a psychological level. She added her father is incredibly innovative and, having a Western education, she can both “endure hardship as well as follow her dreams” on innovation. 

Steven Lawson was somewhat nostalgic. “The environment changes quickly – in the past, companies need only set a 5 year plan but now the time scale is much shorter - 5 months may not be enough”.

Mr Xiong Ying has his own views on innovation. He said that 1st generation rich grow their companies by continuous innovation. His father’s move from music to business was a massive innovation. 2nd generation rich need to innovate the business philosophy, their products and the talent management systemy.

According to Mr Xiong, after taking the helm at his family business, he let his central team buy 15% of the listed company, an innovation in share ownership.

Prof Gong Yu Zhen closed stating “Inheritance is a new beginning, the process of a second business start-up. It is not just wealth and power transfer but is one of skill-sets, the spirit of the business”.