Family-run businesses universally face succession issues. How are they coping in a globalised environment?
By Jane Moir
Family business
Garic Kwok was just a teenager when his father set up a bakery chain in Hong Kong that would quickly become a household name. Today the Taipan Bread and Cakes Co captures the lion's share of the moon cake market in southern China, and Kwok has an eye on regional growth.
With more than 600 staff and about 40 branches in Hong Kong, the company is ripe for growth. It specialises in the 'snowy' type of moon cake: thick pastries filled with lotus seed paste and egg yolks, traditionally eaten during the mid-autumn festival in Hong Kong and China.
Kwok, 37, is the company's director and chief officer of business development. He left a career in financial television five years ago to join the family business because he saw his father getting older.
He is keen to see the company spread its wings overseas and particularly wants to develop the Taipan brand in Singapore and Taiwan this year, taking it outside the home ground of Hong Kong and southern China.
Kwok is adamant that control of the company remains strictly a family affair. 'Yes, I have taken advice from outside management professionals in the family business in the past. It did not work out.'
The woman involved, a human resources manager, left after just nine months. 'She couldn't adapt to the family business culture and earn the trust of family members,' Kwok explains.
It was an outcome that has left Kwok wary of outsiders. He's happy to bring in external professionals, but only up to a point and strictly on a non-permanent arrangement either on an outsourcing or project basis only. 'I feel family members will be more willing to accept outside professionals in this way and lessen the pressures from both sides, because there is no long-term obligation involved while getting a job done,' he says.
In addition to Kwok's father, five of the family members are currently involved in the business: his stepmother, her daughter and the three brothers.
The scenario is not an uncommon one in Asia. Businesses in the region remain predominantly family-run, both at the conglomerate end of the corporate landscape, right down to the mum-and-dad operations at the micro level.
These firms traditionally keep both ownership and management in family hands, with decision making heavily centralised and a sense of nepotism apparent.
According to research by the Chinese University of Hong Kong and sponsored by the World Bank, the concentration of corporate power in the region is tightly held by a small group of families.
The study traced the ultimate ownership and control of more than 2600 corporations in nine countries in East Asia. Eight owners were ultimately found to control 611 corporations more than 25 per cent of the total. The remaining top 22 owners controlled more than 32 per cent.
For the most part, the top jobs at these companies continue to be passed down to sons and daughters, rather than outside professional managers. 'Every market (in Asia) still has the same family-dominated structure it had 10 years ago,' explains Jamie Allen, secretary-general of the Asian Corporate Governance Association.
Countries such as South Korea and the Philippines have also retained the tradition of very tightly controlled family companies, according to Allen.
He does, however, see a move towards the use of outside professionals in some of the larger firms. 'It's definitely driven by size,' he notes. 'As they [firms] become bigger and more global, they have to take on outside managers.
'There's definitely a realisation that if you want to have the best chance, just choosing [candidates] from the family is going to give a very limited range.'
It is something many companies in Asia are being forced to consider given the findings of recent research on the wealth generated by the younger generation currently running family businesses.
A report in 2006 by ABN Amro Private Banking, in partnership with international business school INSEAD, found that 'a widening inter-generational gap threatens the successful transfer of wealth among high-net-worth families in the region'.
It seemed to confirm the Chinese adage that 'family wealth will not pass through more than three generations.'
The study found that family wealth was becoming less of a long-term phenomenon in Asia, with the younger generation failing to nurture businesses in the same manner as their predecessors.
The study involved interviews with 33 high-net-worth families from Hong Kong, India, Indonesia, Malaysia, Singapore and Taiwan. It found that 30 per cent of the family firms survived into the second generation, while just 10 per cent made it to the third generation.
Conglomerates such as Hutchison Whampoa and retailer Li & Fung are well known for their use of outside professionals while at the same time continuing to retain family control at the top. When larger companies have taken on outside help, it's often an acquisition that has driven such a move.
Allen stresses, however, that it is often the more successful and ambitious companies that choose hire outside professionals. Smaller firms in Asia remain very wary. 'Most people are definitely scared of losing control,' he says.
'They don't trust outsiders and don't see the value of bringing in outsiders. I can understand why companies here might be a bit more paranoid.'
Even when they do opt to enlist the services of external experts, many family-run Asian businesses fall back on the familiar old habit of choosing consultants based on their allegiances to the family rather than the corporate skills they possess.
In many companies there may be outside directors brought in who are school or university acquaintances, for example. 'It's the reason why a lot of companies are undone,' says David Parker, who heads up corporate advisory firm Chimaera Financial Group in Hong Kong.
In many instances it is a crisis that prompts such a move in the first place, Parker explains. An example might be when a family member has not lived up to the patriarch's expectations.
In these circumstances family businesses are often faced with the reality that it might not always be possible for the most senior member of the family to come back into the fold to resurrect the business.
In an attempt to avoid such a scenario, families often send their children to the top universities, and encourage them to learn about business before entering the company as a key player.
Parker himself has taken on strategic roles at family-run companies, most notably one of Asia's larger brokerage firms. He believes such experience is vital. 'They [junior family members] need to go out and have experience of what it's like to work and have someone insisting that you do something on someone's behalf,' he explains. This usually means one of the children studying law or business in order to bring those skills back into the family business arena.
However, a junior family member can also opt to qualify in an entirely different discipline, only to find that shelved when family obligation takes precedence. One of Asia's largest hotel chains, Langham Hotels International, is, for example, headed by Dr Lo Ka-shui, a trained cardiologist. After training and specialising in cardiology, he decided to return to the family business in 1980, and today runs the successful hotel arm.
However, the transfer of power may not always go smoothly. Inter-generational conflict is something that has been clearly identified in a study by ABN Amro. When this occurs the aggressive management style of the new generation clashes with older family members.
For example, it could often be the case that Western-educated children equipped with MBAs or doctorates have ambitious growth plans for a business that are at odds with the older generation's desire to keep things on a more conservative scale. Their preference and instincts are often to preserve and protect wealth rather than grow it.
The study concluded that the future success of these family businesses hinges on the older generation's ability to let go of some control. The survey found that 88 per cent of the existing generation are still involved in the management of family businesses.
Yet Parker stresses that even if family businesses do bring in outside professionals, it can be difficult for the individual when family members close ranks as so clearly happened in the case of Garic Kwok's family when trust became an issue.
