Succession Planning

Key Issues for Family-Run Businesses in Thailand

Chris Cracknell Chris Cracknell

Family-run businesses in Thailand have a combined net worth of approximately THB 30 trillion, out of a total net worth of THB 42 trillion from all Thai businesses. Around 80% of all businesses in Thailand are owned or controlled by families, with an impressive figure of approximately three-fourth of all businesses listed on the Stock Exchange of Thailand are family-run businesses.

This trend has interesting historical roots. In the 1960s and 1970s, after the first National Economic Development Plan was introduced, several big family businesses developed connections with major banks and the government. A few of them started to expand into the manufacturing sector, benefitting from the financial liberalisation of the late 1980s. This period also opened up new opportunities in real estate, tourism and telecommunication, allowing new family businesses to rise up and grow alongside the market leaders.

This collection of family-run businesses in Thailand is among the most impressive in Southeast Asia, and includes even the largest employers. Thai Summit Group, the biggest company in Thailand and run by the Juangroongruangkit family, is a shining example of an effective family business model. As a leading auto parts manufacturer, Thai Summit Group has an overall annual revenue of 80 billion baht as well as over 15,000 employees.

But this level of success doesn’t come easy. Maintaining a family-run business over generations requires clarity of approach and maturity, together with complex legal preparations. Issues surrounding company structure and succession planning must receive consideration alongside family harmony and retirement goals. These issues need to be addressed whilst achieving financial goals and objectives.

 

Making a Smooth Transition

One of the special challenges facing family businesses is the period of transition, typically between one generation and the next. In preparation for this process, the owner needs to give careful thought to succession because it requires leadership training, the alignment of interests among family members, the support and confidence of people within the company, and all of the practical considerations necessary for the transition itself to progress smoothly.

Internal issues, often emotional, between family members are among the biggest and most common problems faced by family businesses. These disagreements might complicate the process, particularly in cases involving a death, divorce or fighting between the owner and another family member. Because of issues like these, only one-third of family businesses survive long enough to pass the business on to the next generation. Statistics like these should cause family business leaders to pay careful attention to the essential task of preparing the ground – in both personal and legal terms – for succession.

During this stage, the owner must decide exactly how to plan every aspect of the transition. The goals and objectives need to be clear and well-developed for the sake of the business. They need to be agreed and accepted by family stakeholders. After reviewing the company’s own cultural, legal and financial aspects, it is also important for the leader to plan for themselves after their retirement. The longevity of the business depends on effective preparation for every aspect of the transition.

 

Finding the Right Legal Structure

Up-to-date accounting and other elements of organisation are always important, but become doubly so during periods of transition. Owners need to review their financial documents and reports, ensuring internal accuracy and consistency. Without these documents, the new head of the company could find themselves at a considerable disadvantage, lacking reliable information about the financial health and capabilities of the company.

Other factors are also worth consideration, such as the number of named successors for the business. This number will help determine the shareholding structure during and after the transition period. The owner needs to confirm their intentions as early as possible, and make an appropriate plan for succession. The agreement should always aim to prevent further conflict and deal with the management of inheritance. Ultimately for the family to be successful the business needs to remain successful.

In many cases, aspects of the succession have to remain confidential until the right time for them to be revealed. In such cases, a will can be very helpful in solidifying a legal agreement moving forward. This confidential document carries the weight of law if prepared properly.

Each of these elements, when planned in detail and organised with consideration to all points of view, can put the family business in the best possible hands for the future. As many Thai family businesses have learned, proper succession planning is the best way to prepare the next generation – not just by passing on the business, but by passing on its legacy as well.