Family-owned businesses are the pillars of many economies and significant contributors to global employment and wealth. They are rooted in deep personal histories and a desire to pass shared dreams on through the generations. A legacy is more than just inherited wealth. It is the connective tissue that reaches across time to transmit the business family’s values, purpose and meaning to younger members as they continue to build on the shoulders of those who have come before.
Defining exactly what a “legacy” is can be tricky, as its meaning shifts depending on each family’s specific context and nuances. Most legacies are built atop a key intangible asset: the underlying bloodlines that have shaped — and are continuing to shape — the story of the business’ evolution. This element relies on the power of narrative with several common themes emerging: a mythic founding, a familiar family name, a storied history marked by achievement and adversity, and individuals whose personal lives are deeply intertwined with the fate of the family fortune.
Another component is the material assets — properties such as homes or business premises as well as significant heirlooms — that ground the legacy in the real world. Finally, there is the social aspect of legacy, where value comes from how the family business is perceived in the communities it serves, as well as within the organization itself. Relationships are currency in the family business, helping sustain long-term employment and future growth.
In Asia, family legacies are still relatively nascent compared to other parts of the world, though they have developed very rapidly. Management and ownership of Asian businesses still lie very much in the family, with many remaining focused on preserving wealth rather than deepening their social relationships or values. Over time, this is likely to change as successive generations and global events push other priorities to the fore.
The next generation dreams differently
While family businesses are often viewed as fixed bastions of wealth and stability, some big questions are emerging around how legacies may be perceived as newer generations step forward at a time of geopolitical headwinds and shifting values. In KPMG professionals conversations with family business leaders, it is apparent that, for many in the younger generations, legacy can be seen as both an asset and a liability.
On the one hand, legacies provide an undeniably advantageous position for younger generations to chart a path forward, both inside and outside the business. They feel honored by the privilege of inheriting their family’s traditions and wealth — but with that comes the immense burden of ensuring those legacies live on, of living up to the successes of the generations before them. Even in cases where all parties are on the same page about the importance of supporting their inherited legacies, there can be tensions between older and younger generations as their differing perspectives collide. Older members of the family may be reluctant to change tried-and-tested approaches even as their younger counterparts try to modernize the business while still honoring its values and purposes.
Another factor to consider is the social inclinations of younger generations, who are less focused on building material wealth and more focused on using their wealth in meaningful ways. Compared to previous generations, younger owners are likelier to have been born with more resources — this gives them the room to think more about the positive impacts they can have on society and the environment. In addition to their environmental activism, the younger generation is deeply committed to addressing social injustices and strives for a fairer and more equitable society. They are using their wealth to amplify awareness and support for various social causes, particularly in their communities.
An entrepreneurial springboard
Despite the burdens of carrying forward a legacy, there is no denying that strong family legacies can be powerful tools to support transgenerational entrepreneurship. Legacies are fundamentally driven by a commitment to uphold the family’s entrepreneurial heritage while also creating an environment for its children to be successful in their own right.
This provides fertile ground for younger generations to pursue their own interests but also learn from the adverse challenges faced by the business in the past. Consider what some of the world’s oldest businesses have lived through in recent history: two world wars, the Spanish flu pandemic, natural disasters like the 2004 tsunami, economic depressions — these provide mirror images of today’s challenging macroeconomic and political realities.
The experiences gleaned from these events have imbued many family businesses with a valuable repository of knowledge that younger generations can tap into to understand the importance of qualities like resilience, adaptability, and reinvention. In some cases, legacies are also powerful tools to help preserve knowledge and skills.
However, it is essential to strike a balance to ensure that experience isn’t used to repress new leadership and ideas that can take the business into its next phase.
New trends affecting legacy building
As family businesses evolve over time, new trends and factors are increasingly impacting legacy building. Sustainability has emerged as a key issue for many family businesses, in part because of greater government regulation and mandates on ESG (environmental, social and governance) issues. Meanwhile, emerging technologies and widespread digital adoption are opening questions about how family businesses should modernize to meet these new sustainability standards, but also to remain relevant.
Younger generations are also responsible for a definite shift in mood among family businesses towards sustainability and technology. Younger business leaders are increasingly using their family offices to invest capital in new technologies and climate-related innovations. “Patient capital” has come up, as younger generations appear more willing to invest in purposeful ideas or projects with longer yield times that will fuel the fight against climate change. They are often investing in their communities to help build resilience.
That is not to say that older generations are not paying attention to these issues. It is clear from conversations with KPMG professionals that older generations are recognizing that the state of the planet and environment are part and parcel of the legacy they are handing down to their children and grandchildren. Transgenerational focus on the environment is helping drive greater prioritization of sustainability investments by Asian family offices that are helping to fuel the green energy transition and decarbonization efforts. [1]
Greater political turmoil is challenging how business families are thinking about their legacies. In some areas, it has led to a significant change in strategy as families consider moving their wealth to more stable jurisdictions to mitigate the risks posed by certain political and regulatory regimes. In Asia Pacific, this has resulted in new policies that incentivize the establishment of family offices in markets like Singapore, Hong Kong (SAR), China and the UAE.
But just like legacy, there is no single definition of what a sustainable business looks like — this depends largely on the priorities and perspectives a family has on what its legacy is. Ensuring a lasting legacy will require efforts by the family to create a long-term vision of what sustainability means to them through effective succession planning and strong family governance.
Geopolitical uncertainty and changing trends are not diminishing but emphasizing the importance of family legacies, as well as their need to evolve. Relying on the status quo can be easy, but in the long-term they can limit how long a legacy can last. If there is anything we can learn from their long histories, it is that the spirit of reinvention is essential to the family business lifecycle.
Read our latest report to find out why legacy matters and uncover the strength of your legacy and where it could lead you.
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