Frederick Chavalit Tsao, chairman of IMC Pan Asia Alliance Group and founder and CEO of OCTAVE Institute, in this live virtual interview with CY Yu discussed the challenges that ultra-high-net-worth families face in sustaining wealth beyond three.

The following is the edited transcript of the conversation:

Cindy Yu (CY): This is the annual gala dinner of Wealth and Society. We are at the Waldorf Astoria Shanghai on the Bund. In attendance this evening are some of the senior decision makers of top private banks, family trusts and family offices in China, as well as leading Chinese entrepreneurs, philanthropists and patrons of social causes.

Let’s start with a brief introduction. Fred Tsao is the chairman of IMC Group in Singapore and the fourth generation leader of the family business. Since he is currently in Singapore, he is participating in today’s fireside virtually. Let’s say hello to Mr. Tsao.

Fred Tsao (FT): Hello.

CY: We just said Mr. Tsao is the fourth generation leader of his family business. For the first question, we would like Mr. Tsao to introduce himself and his family, and the achievements his family has made through the generations.

FT: I would say not many achievements. But after four generations, I have a little understanding about the family inheritance. What is the true legacy of a family? What should I do if I want to pass it on for multiple generations?

Of course, we are not the only ones. I am the president of the Family Business Network Asia. Our members have a lot of wisdom as well. I founded the family business in Asia Pacific. After these mutual exchanges, I have a little understanding of the reason why wealth does not last beyond three generations, and what the true legacy of a family is.

CY: Mr. Tsao has just mentioned a particularly interesting point, that is, there is an old Chinese saying that “clogs to clogs is only three generations”. Succession to the second generation and family wealth inheritance is a topic of special interest to all entrepreneurs and industry players here. I would like to ask Mr. Tsao to explain more about this topic. When you first took over the family business, did the saying “clogs to clogs is only three generations” have any influence on you?

FT: Yes. Because I’m the member of the fourth generation, I had a concern at that time, was it going to fail in my generation?

In 1995, when I was researching sustainable development, I founded East West Cultural Development Center. It’s a non-profit organisation that specialises in researching sustainable development. Sustainability is an issue that is not only for the family, but the system or society at large to consider. So I’ve been working on this for more than 20 years. Because we are part of the system, as a family, from one generation to the next, seek to preserve their wealth, or try to transform the family legacy into an enterprise, will become anxiety and fears caused by succession and inheritance.

Also, every family enterprise will talk about being cautious. First, is the interest from the money we earned enough for us to spend? Do not be reckless, be cautious. Second, we need to consider the reputation of the family. In fact, both are sources of anxiety and fears that arise from succession and inheritance. These inheritance-induced anxiety and fears are neither creative, nor unifying. Only love can be passed down, inherited and sustained. So when you are passing on anxiety and fears amongst family members, they will grapple with wealth on one hand, and family legacy and reputation on the other. What do you think the family shall do?

If a family enterprise wants to be passed down, the Chinese know very well that they have to put the family in order and cultivate themselves. You cannot put the family in order if you do not self-cultivated. “Cultivate” and “order” achieve the same goal. So as a self-cultivated person, he knows what the legacy of a family is. He inherits and passes on love, creation and provision. This is achievable.

When you have anxiety and fears, you start to keep wealth for yourself. I’m rich, I want to make more money. Making money for its own sake does not make sense. It creates problems when resources are depleted. It stops the economy from functioning. These are the three nails in the coffin that I have seen in well-known family businesses. All three are about founders passing down anxiety and fears that the money should be saved and caution must be exercised. Was he cautious when he started the business? Did he not boast that he is the magnet of the silk trade or others? We want our sons to inherit the business and make it bigger and stronger. All of these are examples of passing down anxiety and fears. It is unreal.

So when you see all the family businesses that have lasted more than 100 years, the meaning and pursuit of their inheritance, etc, includes self-cultivation. What is the biggest problem of our market economy? It’s ethical issues. When a family business is passed down to its third generation, it brings ethical issues into relationships. A family with ethics can be sustained, while a family that is without ethics, or doesn’t understand ethics, is hard to sustain. When a family gets rich, all must love in order to sustain the family, keep creating and adding value to life.

This point easily unravels the mystery of the old saying “clogs to clogs is only three generations”. It’s about relationships, the relationship with one’s own identity, with family members and amongst family members, business relationships, and universal relationships amongst humankind and with the planet.

CY: Mr. Tsao just talked about how some rubber and automobile industry magnets pass down the legacy of a family. This is a very important topic. In addition, Mr. Tsao is also known as a shipping magnet in Singapore.

He mentions three points. First, how we can pass down our wealth to the next generation. But more importantly, how to pass down family spirit and honour to the next generation. This kind of spirit and honour is positive and meaningful. The third point is how to balance the individual’s own cultivation with nature, with society and the community.

These are the points that Mr. Tsao has just shared with us about family succession and inheritance with his personal stories.

FT: Let me add something. Your wealth is a resource. A resource in itself has no significance, or it has no negative significance. You may not understand what the resource can be used for, but it cannot be considered a (problem). How to protect our resources and how to use these resources to make more money, this is the problem. There’re problems in the entire economic system. The three points mentioned are how founders passed down the anxiety and fears, arrogance and pride. It’s very dangerous. In the past, putting the family in order means practising self-cultivation. Times have changed, because culture is receding. The whole family has to practise self-cultivation to ensure proper succession and inheritance.

And what is the legacy of a family? It’s not what business you are in. We all know that the business you are in may change. It’s how your family contribute to the society, and what kind of legacy you pass down for generations. It’s your legacy when you do good and contribute to society; it’s also your legacy when you do bad. What kind of legacy does your family want to pass down? Is it love or anxiety and fears? A selfish or an altruistic legacy? This evening, I’ve heard you mentioned ESG related venture capital, etc. which means we are gradually leading investment towards “doing good” and impact and turning it into a very good impact investment enterprise.

CY: Thank you, Fred. We have one more question. We know that after 2000, you broke the family’s rule of not investing in the Chinese mainland, you put a lot of effort into expanding your business here. You spend quite some time in Shanghai. Today our event is being held in Shanghai, and most of the guests are from China. Could Mr. Tsao please share with us why you made such a decision to focus on China?

FT: Actually, most of my investments are out of China, while most of my personal spiritual investments are in China. Why? What is the Chinese government doing nowadays? It’s doing ESG and impact investing. It is promoting the worldview of a shared future for humanity, the worldview of the unity of nature and mankind, the worldview of harmony among nations and states, and harmony between diverse world, social, and international norms, and the morality of being kind. It means to create a distinctly Chinese worldview, as mentioned, to build a community with a shared future for humanity, in a socialist market economy. We know our current problems stem from capitalist market economy influences and problems related to individual consumerism.

Now, China is developing a sustainable economy for good and is doing impact investing. It is on the right track, and very strategic. Which other world leader is doing this? The United States? It thinks that it is the boss of the world, if you do not toe the line, I will give you a lesson. Will you follow? Will you go to their side and do as they say? No, that is not good. China is on the right track. We must follow and support the country on the right track. So, I chose to go with China. I chose China, to help China develop the “economy that does good”. Although I invest more overseas, my spirit is more in China. Because it’s the right track, I think it’s good for us. The Chinese have no idea how lucky they are.

China understands how to implement the third distribution to achieve common prosperity. This is China’s unique take on the socialist market economy, which is ESG. ESG is the bottom line, and impact investment is the goal. While in other countries, people use ESG and impact investment to make money, which is an indictment of the capitalist economy. Capitalism exploits people’s ignorance and greed. This will not work. The Chinese government is very good. It manages everything, and now it is managing enterprises. It does not allow capital to be used in speculative activities. Stability is the premise of prosperity.

So, this is why I’m in China? Because China is the future, the future of the world. That’s why I want to be in China.

CY: Just now Mr. Tsao repeatedly mentioned a word, “self-cultivation” which comes from Rites “One cultivates himself first, then puts the family in order, then governs the state, at the end, all is at peace”. It means understanding how we think, reason and believe, and elevating our logical and decision-making processes. This can help people increase in wisdom. The belief is people who manage themselves and their families well can certainly govern the country well.

I noticed that Mr. Tsao published a new book New Path To A Better World. At Wealth and Society, we have been talking a lot about how to build a better world. In your book, you also mention several times that personal cultivation and the building of a harmonious society have very important application. Would Mr. Tsao please share your new book with us?

FT: Yes, I just published a new book. My last book was published several years ago. It was about “quantum leadership and commercial awareness”. This new book, which I wrote with scientists, is about a new worldview for this era called the quantum worldview, which is a bridge from the physical to the metaphysical.

The book talks about the advent of a new era, with a new civilisation, a new path to build a better and harmonious future. It’s transforming from a world of division to a world of unity. It’s a bright future. We’re on the right track. I advanced an important concept in this book, that is, Chinese culture is a life science, which can combine the current Western life science to create a higher level of community of shared future for humanity. Because this book is about life science in an era of the pursuit of happiness and health, it was written with many scientists. They believe that China’s plan for the future is scientific, and China is now following a path of life science.

CY: Mr. Tsao has just shared with us the story of his family, the story of his family’s succession, the story of himself and with China. We found a lot of interesting points and topics that we can continue to discuss. Thank you again for joining us virtually today and we hope to see you again in Shanghai soon.