Mr Phelan, an elderly businessman with an estate worth billions had three failed marriages together producing eight children. Most of the children resent each other and are not involved in the family business.
Mr Phelan commits suicide and leaves a will revealing to his family that he has left his entire estate to his illegitimate child, a missionary, in Brazil. The result is hostile litigation and a business left in tatters.
There are numerous real-life examples reminiscent of the Phelan family. The growth of substantial Chinese family-owned companies, when followed by the death of the wealth creator and CEO, has exposed a cultural apprehension of many Chinese business owners to communicate with family members about the family business and wealth.
Professor Joseph Fan’s study (at the Chinese University of Hong Kong) revealed an average decline of share value by 60 per cent of significant Chinese-owned family businesses in the eight years following the death of the wealth creator. Professor Fan’s study included, among others, Sun Hung Kai Properties and Hung Fok’s gambling and property conglomerate. Professor Fan considers family governance key to ensure a successful continuation of the family business following the wealth creator’s death.
A family’s involvement in a family office may facilitate discussion among family members to agree values for application towards the management of the family’s wealth. This increases the possibility that an environment of trust and respect will be in place between family members well before the wealth creator’s death. However, a family office’s role is often not limited to succession issues.