The E50 Awards: For Singaporean firms, good governance can solve the paradox of legacy

By Chiu Wu Hong, Partner, Head of Private Enterprise, KPMG in Singapore

Singapore’s multitude of family firms have long been crucial to the country’s economic well-being. While most of these firms are small-and-medium enterprises, they have a presence in many industries –  including hospitality, construction and manufacturing – and play an essential role as employers.

By their nature, family firms tend to provide stability: Typically, they hold a long-term view and, to preserve legacy, focus on building businesses that will last generations, with this sometimes taking priority over short-term profits. But, as past Enterprise 50 Award-winners have shown, these elements need not be mutually exclusive: Some have balanced business and family interests. Past winners have also shown that being a family business does not preclude innovation. 

Legacy, though, can prove paradoxical: While it can be an asset when serving as a source of identity, it can become a liability – that is the paradox – if the family firm remains entrenched in tradition and stands in the way of innovation, change and agility in future generations. Balancing at-times conflicting business and family interests can be a challenge. 

The solution is for family firms to establish robust governance structures. Done right, these will help to address potential conflicts, safeguard their legacy and position them as resilient contenders for the future. In short, good governance structures ensure firms honour their past and can prepare strategically for innovation and sustainable growth.

Good governance is foundational for any successful, sustainable and digitally transformed business. Indeed, a 2023 global study by KPMG found highly structured governance was one of eight key factors driving high levels of sustainability and digitalisation. 

Positively, family firms know this. However, although research shows 90 per cent say governance structures are important, it also highlights that many can do better. Often, they are held back by a lack of time, expertise and capital. 

Done right, good governance structures can help family firms overcome the legacy paradox, and ensure they are not stuck in the past. Instead, these ensure they can look to the future, embrace change and – as the E50 Award-winners have shown – be innovative and agile.  

This starts with creating formalised structures like a well-defined board. While many family firms lack this, it is essential for effective oversight and strategic planning, and helps by creating defined processes and accountability lines that streamline decision-making informed by expertise. This helps SMEs to seize opportunities more quickly without compromising on due diligence, overcome the costliness that inefficient decision-making inflicts on many, and stay innovative. 

Next is to implement comprehensive risk-management frameworks. These are crucial because SMEs’ limited resources and less sophisticated risk management frameworks make them more vulnerable to financial, operational and reputational risks. Having the right structures helps them proactively identify, assess and mitigate potential threats by, for instance, mapping financial risk controls, assessing supply chain risks and planning the right responses for crises. By embedding suitable processes into their operations, SMEs stay agile and able to handle unexpected challenges. 

Good governance, then, creates a structured, transparent environment where trust and accountability can thrive, and – for SMEs in particular – acts as a strategic enabler that facilitates growth, enhances resilience and protects their reputation. Additionally, it is valuable in risk management (where measures like internal controls, performance metrics and standardised procedures can minimise operational disruption), and boosts financial transparency and regulatory compliance – even as aspects like data protection, labour laws and environmental standards are becoming increasingly important. In short, it helps to position SMEs for the future. 

Another goal should be to create a conflict resolution framework. The need is clear: Almost one-fifth of non-listed family firms say a major cause of conflict relates to the competence of family who work at the business, while about one-third say there is no formal process to resolve conflicts.

While every family has its own approach to managing interrelations, a formal procedure professionalises those unofficial or unspoken but accepted norms by making the implicit explicit. This creates clarity, transparency and organised accountability in the day-to-day running of a business and its long-term strategic objectives. It also removes emotion from decision-making, ensuring decisions made are in line with the firm’s objectives. 

A robust framework can also help to resolve other bugbears, particularly ownership issues and – of increasing importance – succession planning, which family firms often overlook, and which can undermine continuity and stability. Here, good governance requires leaders to understand that succession planning does not just mean preserving traditions; it should also ensure the firm’s structures in areas like talent and strategy give it the tools to be future-ready and meet the challenges ahead.

In some cases, this might require relinquishing some control over decision-making. It might also involve recruiting external professionals to help tackle new trends and challenges, or hiring younger talent from inside or outside the family to drive expansion into new markets.  

Looking outside the family can also help firms prepare for a future in which sustainability and technology will be more important – no small consideration given industry research shows just 29 per cent of those in Singapore say they have strong digital capabilities, while just 35 per cent have developed a sustainability strategy. Dealing successfully with these trends will increasingly affect how well family firms continue to build their legacies, which underscores the importance of looking elsewhere for talent. 

As family businesses grow in size and complexity, awareness of the elements that constitute good governance is becoming increasingly important. Family businesses leaders need to realise legacies cannot be viewed through the lens of the past, but as a stepping stone for future-oriented growth. Importantly, if implemented well, a robust governance framework can also act as a pre-emptive conflict mitigation strategy by ensuring individuals can fall back on the family’s shared values for guidance and stay focused on their collective goals without risking the loss of a cherished Singapore brand.