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More family firms hiring outsiders as CEOs

Local family businesses are increasingly hiring outside the family for senior positions.

This new trend of “partial professionalisation” was highlighted in a joint report by DBS and the NUS Business School’s Centre for Governance, Institutions and Organisations (CGIO), which found half of 421 family firms have appointed an outsider to the chairman or CEO role.

However, family members still hold the majority in family firms, with the top five shareholders possessing up as much as 20% individual shares.

Among SGX-listed family firms, the top five owners control an average of 65.9% stake, of which 38% are held by folders of next of kin. According to the report, family firms have traditionally performed better than non-family firms in terms of return on assets, averaging 3.7% compared to 0.9%.

With more outsiders coming into senior roles within family firms, Dr Marleen Dieleman, lead researcher and associate director of CGIO, said “family firms are advised to prepare for the entry of non-family professionals, as well as new family members”.

But keeping it in the family may have its drawbacks; the report cautioned organisations might become fragmented when ownership is transferred to the next generation, as there are usually more succeeding family members.

“Some business owners may find it hard to let go, but they have to realise the value and future of their businesses are still dependent on a continuation of competent and effective management,” Tan Su Shan, managing director and group head of consumer banking and wealth management at DBS Bank, said.

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