For generations to come: Applying concepts of circularity to governance and succession in family-owned firms

For generations to come: Applying concepts of circularity to governance and succession in family-owned firms

By SMU City Perspectives team

Published 13 June, 2024


To continue growing the business for generations, families need to rethink how the ‘I’ and the ‘Us’ can mutually support each other, instead of prioritising one over the other.

Kenneth Goh

Associate Professor, Lee Kong Chian School of Business, Singapore Management University

In brief

  1. Circularity principles guide firms to convert waste into valuable resources. Family businesses stand to gain from circularity by aiming to retain family members, their most valued human resource.
  2. In a family business context, a mindset shift towards finding complementarities between personal and collective choices helps to retain family members’ personal and professional capacities to grow the business.
  3. Structuring the family business to the family’s needs is critical to help families set agreed-upon rules which ensure the success of the business over multiple generations.  


Similar to any organisation, owners in family firms can have disagreements that stem from different views, personalities, interests and priorities. But unlike non-family firms, such disagreements in family firms can spillover from the business into the personal domain and vice versa. 

In the case of business-owning families, such dynamics can have long-lasting consequences not only to relationships but to the growth and health of the business. In Circular Economy Principles for Family Business and Wealth Stewardship, Kenneth Goh, Associate Professor of Strategy and Entrepreneurship (Education), and his co-authors highlight how the application of circularity principles to family governance can sustain the generational growth and success of family businesses. 

To do this, the booklet explains how paradoxical thinking can help shift mindsets. It encourages family-owned firms to move from approaching decisions as an ‘either/or’ dichotomy to a ‘both/and’ approach that allows the family to become generative and circular. Associate Professor Goh shares more insights on how families can embrace circularity through paradoxical thinking, and other applications of these principles.

Could you define circularity principles and how they relate to family businesses?

Assoc Prof Kenneth Goh: The principle of circularity in business focuses on reducing or recycling waste, or even going further and converting waste into a valued resource. In the context of family business, my co-authors and I wanted to extend the concept of circularity principles beyond business operations to the domain of family governance - an important but often neglected area in family-owned firms. 

Family governance is crucial because the relationship between owners can significantly affect the operating business. Since these relationships are in turn influenced by other family members and family history, family governance can help to set structures around how family members interact with one another and the business. Beyond just spelling out who is in or out of the business or the obligations of family members and consequences of non-compliance, we drew on circularity principles to highlight how family governance need not be exclusionary, but could also maintain harmony within a diverse family and draw on this diversity to benefit the family and business.  

But how could families be more sensitive to these opportunities for applying circularity principles in family governance? This is where paradoxical thinking comes into the picture.

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How does paradoxical thinking work for families?

Assoc Prof Goh: Paradoxical thinking is interesting to me because it re-evaluates the concept of family. In Asian families, unity and harmony are still important values but instead of unity through homogeneity, there needs to be a shift to preserving unity through diversity.  Traditionally, we might see 'I' and 'Us' interests as potentially conflicting. Paradoxical thinking changes the mindset to focus on how the ‘I’ and the ‘Us’ can support each other.

Paradoxical thinking underscores that embracing one's personal interests has a role in strengthening the collective ‘us’, where the personal complements the whole. It is finding complementarity between options that seem contradictory, a shift to seeing divergent options as mutually beneficial.

Could you give an example of the application of paradoxical thinking?

Assoc Prof Goh: An example of a practical application would be the Phun family. SMU alumni Tommy Phun is the second generation of his family’s maritime business. However, instead of just maintaining the status quo in the family business, he founded a startup developing electric maritime vessels. His family did not see this as diverging from the family or its traditional business. Instead, with his family’s support,  Tommy could leverage his family’s long-standing reputation in the maritime industry to develop partnerships and fundraise for the venture. Combining his ambitions with the family’s legacy, he is well-positioned to revolutionise sustainable electric maritime vessels in Singapore’s harbours.

How do families typically structure their business to incorporate circularity principles? How implementable are these practices?

Assoc Prof Goh: Besides the usual application of circularity principles in business operations, business families can consider the strengths and interests of individual family members and how they can contribute to both the family and the business. The family could also leverage their members’ diverse networks. For example, educators could draw on their network to advise family members on educational outcomes and support educational aspirations. A family member with an asset management background could even be directly involved in managing the family’s assets or aid in recruiting trusted investment professionals to do so. 

To draw on these strengths, there needs to be an appropriate structure for family members to contribute. Whether this structure is in the form of a trust, or a holding company, really depends on the needs, circumstances, and objectives of the family.  

Implementing the structure is quite straightforward - the real challenge is in the details. Take the question, “Who is family?” as an example. Does family include spouses? If they get a divorce, then what happens? What if a family member has a life partner they are not married to? Is that person still a part of the family? Even if the family accepts this person as part of the family, should that be formally recognised? There is no right or wrong definition or choice in such decisions - it depends on what the family wants.

Every family is different, the key is for the family to go through a process to figure out the right structure for them based on their values, goals, and aspirations. The structure will also determine how family members can be formally involved as contributors and beneficiaries.

Could you share how circularity principles would work within the same generation?

Assoc Prof Goh: One example is for one sibling to lead the main business, while another spearheads a new business entity. At Goldbell Group, Arthur Chua leads the family business as the CEO while his brother Alex Chua, a former JP Morgan investment banker, leads Goldbell Financial Services, a subsidiary group. Through this arrangement, the family can tap on Alex’s expertise and networks as a banker to capitalise on a new opportunity the main business also benefits from. 

What does the structuring process for business-owning families look like?

Assoc Prof Goh: There can be formal and informal ways for families to discuss their goals, values, and aspirations that will influence the structures. Some families come together over an informal dinner to discuss this. Some families can do it, but there are cases where history surfaces and things get very emotional. Conversations get heated and instead of bringing the family together, you think, ‘Well, this is tearing the family apart.’

Formal approaches may seem less natural, especially, in the family context, but they help tamper emotions and allow everyone to be heard. Importantly, there needs to be someone who plays a facilitating role. The facilitator sets rules for the conversation and helps to ensure that dominant voices are properly managed and everybody gets a voice. Ideally, this person is someone all the family members trust and can de-escalate conflict. This person has the authority to say what can be done and advise what is right. They usually have to prepare beforehand and talk to the individuals involved so they are ready when certain hot topics surface.

There are many, many ways of how that process unfolds. It's not as straightforward as sitting together at dinner and figuring it out. Everybody learns a lot from the process. Persevering and not being discouraged if the first meeting does not end with a fully formed constitution. The process is very iterative -  you learn more about each other's preferences, and circumstances change just as the law changes. This process can take years.

What about decision-making in difficult family situations, such as in the event of a divorce, or multiple children by different partners? 

Assoc Prof Goh: There are two things which help family businesses navigate these. Firstly, having these contingencies spelt out in family governance structures helps the family to decide what to do. There would typically be a set of agreed-upon rules and standard guidelines for issues such as leadership succession and wealth inheritance. The other would be through external therapists or mentors, people trusted and respected by the family. This can be quite difficult, as they need the family's trust, area expertise and competence to moderate the situation properly.

Relationship management, sound and inclusive structuring and mindset shifts have a big part to play in ensuring success for family businesses. What is one thing you would like to leave readers with that they could implement today?

Assoc Prof Goh: The mindset for leading a business is very different from leading family stakeholders - the former requires a performance orientation, while the latter requires a community orientation. Leaders in family firms should learn to cultivate the awareness and agility to switch between mindsets. Alternatively, with the appropriate structures in place, these roles can be separated and helmed by individuals with the appropriate mindsets, skills, and temperament. 

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